UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the quarterly period ended March 31, 2007
OR
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the transition period from
to
Commission File Number 0-13928
U.S. GLOBAL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
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Texas
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74-1598370
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(State or Other Jurisdiction of
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(IRS Employer Identification Number)
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Incorporation or Organization)
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7900 Callaghan Road
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78229-1234
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San Antonio, Texas
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(Zip Code)
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(Address of Principal Executive Offices)
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(210) 308-1234
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address, and Former Fiscal Year, if Changed since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES
þ
NO
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
þ
Non-accelerated filer
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES
o
NO
þ
On April 30, 2007, there were 12,866,898 shares of Registrants class A nonvoting common stock
issued and 12,191,921 shares of Registrants class A nonvoting common stock issued and outstanding,
no shares of Registrants class B nonvoting common shares outstanding, and 2,992,650 shares of
Registrants class C common stock issued and outstanding.
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 1 of 32
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PART I. FINANCIAL INFORMATION
I
TEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
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MARCH 31,
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JUNE 30,
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2007
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2006
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(UNAUDITED)
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Assets
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Current Assets
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Cash and cash equivalents
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$
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12,798,359
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$
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10,056,043
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Trading securities, at fair value
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5,830,740
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4,659,824
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Receivables
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Advisory, net
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5,315,792
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11,290,240
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Employees
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5,058
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7,669
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Other
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449,929
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184,962
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Prepaid expenses and other
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1,206,368
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580,813
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Total Current Assets
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25,606,246
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26,779,551
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Net Property and Equipment
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2,228,283
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2,122,889
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Other Assets
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Long-term deferred tax asset
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47,038
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62,211
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Investment securities available-for-sale, at fair value
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848,984
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82,202
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Total Other Assets
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896,022
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144,413
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Total Assets
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$
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28,730,551
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$
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29,046,853
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The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 2 of 32
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MARCH 31,
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JUNE 30,
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2007
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2006
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(UNAUDITED)
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Liabilities and Shareholders Equity
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Current Liabilities
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Accounts payable
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$
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647,071
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$
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343,364
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Accrued compensation and related costs
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995,600
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2,961,836
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Deferred tax liability
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503,104
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178,707
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Other accrued expenses
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2,450,679
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5,019,735
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Total Current Liabilities
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4,596,454
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8,503,642
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Total Liabilities
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4,596,454
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8,503,642
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Commitments and Contingencies
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Shareholders Equity
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Common stock (class A) $.025 par value;
nonvoting; authorized 28,000,000 shares;
issued, 12,865,948 and 12,805,948 at March 31,
2007 and June 30, 2006, respectively
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321,649
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320,149
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Common stock (class B) $.025 par value;
nonvoting; authorized, 4,500,000 shares; no
shares issued
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Common stock (class C) $.025 par value;
voting; authorized, 3,500,000 shares; issued,
2,993,600 shares
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74,840
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74,840
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Additional paid-in-capital
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12,437,841
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11,754,779
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Treasury stock, Class A shares at cost;
671,804 and 654,114 shares at March 31, 2007,
and June 30, 2006, respectively
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(1,526,801
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)
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(830,330
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)
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Accumulated other comprehensive income (loss),
net of tax
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(10,671
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)
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24,259
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Retained earnings
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12,837,239
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9,199,514
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Total Shareholders Equity
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24,134,097
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20,543,211
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Total Liabilities and Shareholders Equity
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$
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28,730,551
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$
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29,046,853
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The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 3 of 32
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Consolidated Statements of Operations and Comprehensive Income (Unaudited)
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Nine Months Ended
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Three Months Ended
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March 31,
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March 31,
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2007
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2006
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2007
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2006
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Revenues
|
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|
|
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Investment advisory fees
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$
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29,859,339
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$
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19,860,474
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$
|
10,170,685
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$
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8,482,770
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Transfer agent fees
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|
5,533,812
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|
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3,545,385
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1,566,580
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|
|
1,325,893
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Investment income
|
|
|
1,214,804
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|
|
2,349,811
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|
|
676,043
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|
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|
1,695,269
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Other
|
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|
162,395
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|
|
|
136,692
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|
31,054
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|
|
|
53,076
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,770,350
|
|
|
|
25,892,362
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|
|
|
12,444,362
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|
|
|
11,557,008
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|
|
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|
|
|
|
|
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|
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|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Employee compensation and benefits
|
|
|
7,740,655
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6,433,094
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|
|
|
2,526,898
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|
|
|
2,470,860
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General and administrative
|
|
|
5,017,991
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|
|
|
3,508,338
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|
|
|
1,931,148
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|
|
|
1,270,690
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Subadvisory fees
|
|
|
6,650,293
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|
|
|
5,096,173
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|
|
|
2,261,348
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|
|
|
2,301,638
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|
Omnibus fees
|
|
|
5,606,015
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|
|
|
2,868,573
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|
|
|
1,786,687
|
|
|
|
1,256,850
|
|
Advertising
|
|
|
359,318
|
|
|
|
358,546
|
|
|
|
138,553
|
|
|
|
118,625
|
|
Depreciation
|
|
|
178,695
|
|
|
|
100,972
|
|
|
|
62,002
|
|
|
|
40,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,552,967
|
|
|
|
18,365,696
|
|
|
|
8,706,636
|
|
|
|
7,458,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
11,217,383
|
|
|
|
7,526,666
|
|
|
|
3,737,726
|
|
|
|
4,098,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Federal Income Taxes
|
|
|
3,864,574
|
|
|
|
2,712,730
|
|
|
|
1,325,453
|
|
|
|
1,547,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
7,352,809
|
|
|
|
4,813,936
|
|
|
|
2,412,273
|
|
|
|
2,550,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss),
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on
available-for-sale securities
|
|
|
(34,931
|
)
|
|
|
(373,257
|
)
|
|
|
(368,563
|
)
|
|
|
(283,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
7,317,878
|
|
|
$
|
4,440,679
|
|
|
$
|
2,043,710
|
|
|
$
|
2,266,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income per Share
|
|
$
|
0.49
|
|
|
$
|
0.32
|
|
|
$
|
0.16
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income per Share
|
|
$
|
0.48
|
|
|
$
|
0.32
|
|
|
$
|
0.16
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of
common shares outstanding
|
|
|
15,154,880
|
|
|
|
14,997,326
|
|
|
|
15,170,608
|
|
|
|
15,018,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of
common shares outstanding
|
|
|
15,233,298
|
|
|
|
15,120,396
|
|
|
|
15,250,360
|
|
|
|
15,152,470
|
|
The accompanying notes are an integral part of this statement.
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 4 of 32
|
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED MARCH 31,
|
|
|
|
2007
|
|
|
2006
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,352,809
|
|
|
$
|
4,813,936
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
178,695
|
|
|
|
100,972
|
|
Net recognized gain on securities
|
|
|
(684,115
|
)
|
|
|
(751,694
|
)
|
Loss on disposal of fixed assets
|
|
|
|
|
|
|
3,189
|
|
Provision for deferred taxes
|
|
|
357,566
|
|
|
|
749,056
|
|
Provision for losses on accounts receivable
|
|
|
|
|
|
|
(26,488
|
)
|
Changes in assets and liabilities, impacting cash from
operations:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5,712,092
|
|
|
|
(2,889,089
|
)
|
Prepaid expenses and other
|
|
|
(625,555
|
)
|
|
|
(277,468
|
)
|
Trading securities
|
|
|
(941,189
|
)
|
|
|
(1,958,499
|
)
|
Accounts payable and accrued expenses
|
|
|
(4,696,824
|
)
|
|
|
2,184,625
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(699,330
|
)
|
|
|
(2,865,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
6,653,479
|
|
|
|
1,948,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(284,089
|
)
|
|
|
(390,394
|
)
|
Purchase of available-for-sale securities
|
|
|
(2,072,532
|
)
|
|
|
(8,419
|
)
|
Proceeds on sale of available-for-sale securities
|
|
|
1,707,211
|
|
|
|
777,787
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Investing Activities
|
|
|
(649,410
|
)
|
|
|
378,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities:
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(709,231
|
)
|
|
|
(164,654
|
)
|
Treasury stock issued
|
|
|
124,843
|
|
|
|
83,439
|
|
Proceeds from issuance or exercise of stock,
warrants, and options
|
|
|
537,089
|
|
|
|
479,689
|
|
Benefit from tax deduction in excess of
stock-based compensation cost
|
|
|
465,239
|
|
|
|
350,451
|
|
Adjustment due to SFAS 123R
|
|
|
35,391
|
|
|
|
17,475
|
|
Dividends paid
|
|
|
(3,715,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in) Provided by Financing Activities
|
|
|
(3,261,753
|
)
|
|
|
766,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents
|
|
|
2,742,316
|
|
|
|
3,093,914
|
|
|
|
|
|
|
|
|
|
|
Beginning Cash and Cash Equivalents
|
|
|
10,056,043
|
|
|
|
3,814,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Cash and Cash Equivalents
|
|
$
|
12,798,359
|
|
|
$
|
6,908,092
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this statement.
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 5 of 32
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation
U.S. Global Investors, Inc. (the Company or U.S. Global) has prepared the consolidated
financial statements pursuant to accounting principles generally accepted in the United States of
America (U.S. GAAP) and the rules and regulations of the Securities and Exchange Commission
(SEC) that permit reduced disclosure for interim periods. The financial information included
herein reflects all adjustments (consisting solely of normal recurring adjustments), which are, in
managements opinion, necessary for a fair presentation of results for the interim periods
presented. The Company has consistently followed the accounting policies set forth in the notes to
the consolidated financial statements in the Companys Form 10-K for the year ended June 30, 2006.
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries, United Shareholder Services, Inc. (USSI), A&B Mailers, Inc. (A&B), U.S. Global
Investors (Guernsey) Limited (USGG), U.S. Global Brokerage, Inc. (USGB), and U.S. Global
Investors (Bermuda) Limited (USBERM).
All significant intercompany balances and transactions have been eliminated in consolidation.
Certain amounts have been reclassified for comparative purposes. The results of operations for the
nine months ended March 31, 2007, are not necessarily indicative of the results to be expected for
the entire year.
Note 2. Common Stock Split and Dividend
On February 21, 2007, the Companys shareholders approved the first of two proposed amendments to
the Companys Articles of Incorporation. The first amendment approved an increase in authorized
shares that enabled the Company to effectuate a two-for-one stock split of the Companys
outstanding stock. Shareholders of record as of March 19, 2007, received one additional share of
class A common stock, par value $0.025 per share, for every outstanding share of class A common
stock and one additional share of class C common stock, par value $0.025 per share, for every
outstanding share of class C common stock. The amendment provided that the Company issue no
fractional shares of common stock, and all shares were rounded up or down to the nearest whole
number of shares. Accordingly, all per-share and share data in the accompanying consolidated
financial statements and in these accompanying notes has been adjusted to give retroactive effect
to this stock split.
On February 22, 2007, shareholders approved the second of two proposed amendments, which modified
the relative dividend and liquidation preference rights of the different classes of common stock
and permits conversion of class C common stock to class A common stock. As a result of approval of
both proposals, shareholders of record on March 19, 2007, received a special cash dividend of $0.25
per share on based on the number of post-split shares held. Both the split and the dividend were
distributed on March 29, 2007.
Note 3. Investments
As of March 31, 2007, the Company held investments with a market value of approximately $6.7
million and a cost basis of approximately $6.2 million. The market value of these investments is
approximately 23.3 percent of the Companys total assets.
Investments in securities classified as trading are reflected as current assets on the consolidated
balance sheet at their fair market value. Unrealized holding gains and losses on trading
securities are included in earnings in the consolidated statements of operations and comprehensive
income.
Investments in securities classified as available for sale, which may not be readily marketable,
are reflected as non-current assets on the consolidated balance sheet at their fair value.
Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and
reported in other comprehensive income as a separate component of shareholders equity until
realized. The following summarizes the market value, cost, and unrealized gain or loss on
investments as of March 31, 2007, and June 30, 2006.
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 6 of 32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
holding gains on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
securities,
|
|
Securities
|
|
Market Value
|
|
|
Cost
|
|
|
Gain (Loss)
|
|
|
net of 34% tax
|
|
Trading
1
|
|
$
|
5,830,740
|
|
|
$
|
5,329,909
|
|
|
$
|
500,831
|
|
|
|
|
|
Available for sale
2
|
|
|
848,984
|
|
|
|
865,152
|
|
|
|
(16,168
|
)
|
|
$
|
(10,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at March 31, 2007
|
|
$
|
6,679,724
|
|
|
$
|
6,195,061
|
|
|
$
|
484,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
1
|
|
$
|
4,659,824
|
|
|
$
|
4,011,961
|
|
|
$
|
647,863
|
|
|
|
|
|
Available for sale
2
|
|
|
82,202
|
|
|
|
45,444
|
|
|
|
36,758
|
|
|
$
|
24,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at June 30, 2006
|
|
$
|
4,742,026
|
|
|
$
|
4,057,405
|
|
|
$
|
684,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Unrealized and realized gains and losses on trading securities are included in earnings in the statement of
operations.
|
|
2
|
|
Unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other
comprehensive income as a separate component of shareholders equity until realized.
|
Investment income can be volatile and varies depending on market fluctuations, the Companys
ability to participate in investment opportunities, and timing of transactions. A significant
portion of the unrealized gains and losses for the nine months ended March 31, 2007, is
concentrated in a small number of issuers. The Company expects that gains and losses will continue
to fluctuate in the future.
Investment income (loss) from the Companys investments includes:
|
|
|
realized gains and losses on sales of securities;
|
|
|
|
|
unrealized gains and losses on trading securities;
|
|
|
|
|
realized foreign currency gains and losses;
|
|
|
|
|
other-than-temporary impairments on available-for-sale securities; and
|
|
|
|
|
dividend and interest income.
|
The following summarizes investment income (loss) reflected in earnings for the periods discussed:
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED MARCH 31,
|
|
|
|
2007
|
|
|
2006
|
|
Investment Income (Loss)
|
|
|
|
|
|
|
|
|
Realized gains on sales of available-for-sale securities
|
|
$
|
454,388
|
|
|
$
|
544,414
|
|
Realized gains on sales of trading securities
|
|
|
229,727
|
|
|
|
235,936
|
|
Unrealized gains (losses) on trading securities
|
|
|
(147,032
|
)
|
|
|
1,420,855
|
|
Realized foreign currency gains (losses)
|
|
|
1,900
|
|
|
|
(13,771
|
)
|
Other-than-temporary declines in available-for-sale securities
|
|
|
|
|
|
|
(28,655
|
)
|
Dividend and interest income
|
|
|
675,821
|
|
|
|
191,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Income
|
|
$
|
1,214,804
|
|
|
$
|
2,349,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 7 of 32
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31,
|
|
|
|
2007
|
|
|
2006
|
|
Investment Income (Loss)
|
|
|
|
|
|
|
|
|
Realized gains on sales of available-for-sale securities
|
|
$
|
454,388
|
|
|
$
|
529,705
|
|
Realized gains on sales of trading securities
|
|
|
234,232
|
|
|
|
147,426
|
|
Unrealized gains (losses) on trading securities
|
|
|
(237,036
|
)
|
|
|
941,404
|
|
Realized foreign currency gains (losses)
|
|
|
1,568
|
|
|
|
(15,118
|
)
|
Dividend and interest income
|
|
|
222,891
|
|
|
|
91,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Income
|
|
$
|
676,043
|
|
|
$
|
1,695,269
|
|
|
|
|
|
|
|
|
Included in prepaid expenses and other assets on the consolidated balance sheet is a deposit in the
amount of $500,000 to purchase shares in the U.S. Global Investors Balanced Natural Resources Fund,
Ltd. with a subscription date of April 1, 2007.
Note 4. Investment Management, Transfer Agent and Other Fees
The Company serves as investment adviser to U.S. Global Investors Funds (USGIF) and U.S. Global
Accolade Funds (USGAF) and receives a fee based on a specified percentage of net assets under
management. Three of the four funds within USGAF are sub-advised by third-party managers, who are
in turn compensated out of the investment advisory fees received by the Company. The Company also
serves as transfer agent to USGIF and USGAF and receives a fee based on the number of shareholder
accounts. Additionally, the Company provides in-house legal services to USGIF and USGAF for which
it is reimbursed and receives certain miscellaneous fees directly from USGAF and USGIF
shareholders. Fees for providing investment management and transfer agent services to USGIF and
USGAF continue to be the Companys primary revenue source.
The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses
on several funds within USGIF funds and one USGAF fund through November 1, 2007, and February 28,
2008, respectively, or such later date as the Company determines in order to maintain competitive
yields and to allow assets to grow in newer funds. The aggregate fees waived and expenses borne by
the Company for the nine months ended March 31, 2007, and March 31, 2006, were $920,149, and
$1,029,720, respectively.
The investment advisory and related contracts between the Company and USGIF and USGAF will expire
on February 28, 2008, and May 31, 2008, respectively. Management anticipates the trustees of both
USGIF and USGAF will renew the contracts.
The Company provides advisory services for the Meridian Global Gold and Resources Fund Ltd., an
offshore fund. The Company receives a monthly advisory fee based on the net asset value of the
fund, and a quarterly performance fee, if any, based on the overall increase in value of the net
assets in the fund for the quarter. The Company recorded fees totaling $1,076,050 and $873,650 for
the nine months ended March 31, 2007, and March 31, 2006, respectively. The Company recorded total
fees of $523,786 and $377,661, respectively, for the three months ended March 31, 2007, and March
31, 2006. Frank Holmes, a director and CEO of the Company, is a director of Meridian Fund Managers
Ltd., the manager of the fund.
The Company provides advisory services to the U.S. Global Investors Balanced Natural Resources
Fund, Ltd., an offshore fund. For these services, the Company is paid a monthly advisory fee based
on the net asset value of the fund, and a quarterly performance fee, if any, based on a percentage
of return above the high water mark in conjunction with the fund reaching a certain hurdle rate per
quarter. The Company recorded fees totaling $132,933 and $99,011 for the nine months ended March
31, 2007, and March 31, 2006, respectively. The Company recorded total fees of $11,767 and
$68,711, respectively, for the three months ended March 31, 2007, and March 31, 2006. Frank Holmes
is a director of U.S. Global Investors Balanced Natural Resources Fund Ltd.
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 8 of 32
|
The Company provides investment advisory services to Endeavour Mining Capital Corp., an offshore
company. The Company is paid a monthly advisory fee based on the net asset value of the portfolio.
A performance fee, if any, is paid
annually based on a percentage of consolidated net income from operations in excess of a
predetermined percentage return on equity when the net asset value of the portfolio at fiscal year
end has increased in comparison with the prior fiscal year end. The Company recorded $1,382,486 and
$106,230 in monthly advisory fees for the nine months ended March 31, 2007, and March 31, 2006,
respectively. (Advisory services for Endeavour began in the third quarter of fiscal year 2006.)
The Company recorded total fees of $518,512 and $106,230, respectively, for the three months ended
March 31, 2007, and March 31, 2006. Frank Holmes is the Chairman of the Board of Endeavour Mining
Capital Corp. The performance fees for this advisory client are calculated and recorded only once
a year at the end of each fiscal year in accordance with the terms of the advisory agreement. This
and other performance fees may fluctuate significantly from year to year based on factors that may
be out of the Companys control.
The Company provides advisory services for the Meridian Global Energy and Resources Fund Ltd., an
offshore fund. The Company receives a monthly advisory fee based on the net asset value of the
fund, and a quarterly performance fee, if any, based on the overall increase in value of the net
assets in the fund for the quarter. The Company recorded fees totaling $82,484 for the nine months
ended March 31, 2007, and $37,692 for the three months ended March 31, 2007.
The Company receives additional revenue from several sources including custodial fee revenues,
revenues from miscellaneous transfer agency activities including lockbox functions, mailroom
operations from A&B, as well as investment income.
Note 5. Credit Facility
As of March 31, 2007, the Company has no borrowings.
The Company has access to a $1 million credit facility with a one-year maturity for working capital
purposes. The Company must maintain certain quarterly financial covenants to access the line of
credit. The covenants include: (1) liquidity of $1 million or more in cash, cash equivalents and
marketable securities; (2) a debt to equity ratio of .75 or less; and (3) a ratio of current assets
to current liabilities of 2.0 or greater. The Company has been in compliance with all financial
covenants during the fiscal year. Any use of this credit facility will be secured by the Companys
eligible accounts receivable. As of March 31, 2007, this credit facility remained unutilized by the
Company.
Effective April 25, 2007, subsequent to the fiscal quarter end, the credit agreement was renewed
with the following amendments: the bank dropped the current ratio requirement, released the
Companys accounts receivable as collateral, and agreed to allow borrowings without any form of
borrowing base. The amended credit agreement will expire on February 1, 2008, and will be renewed
annually.
Note 6. Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R
eliminates the alternative to use the intrinsic value method of accounting that was provided in
Accounting Principles Board Opinion No. 25 (APB 25), which generally resulted in no compensation
expense recorded in the financial statements related to the issuance of equity awards to employees.
SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized
in the financial statements. SFAS 123R establishes fair value as the measurement objective in
accounting for share-based payment arrangements and requires all companies to apply a
fair-value-based measurement method in accounting for generally all share-based payment
transactions with employees.
On July 1, 2005 (the first day of the Companys 2006 fiscal year), the Company adopted SFAS 123R
using a modified prospective application, as permitted under SFAS 123R. Accordingly, prior period
amounts were not restated. Under this application, the Company is required to record compensation
expense for all awards granted after the date of adoption and for the unvested portion of
previously granted awards that remain outstanding at the date of adoption.
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 9 of 32
|
Prior to the adoption of SFAS 123R, the Company applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) to account for stock-based awards. Beginning
with the 2006 fiscal year, with the adoption of SFAS 123R, stock-based compensation expense was
recorded for the cost of stock options. Stock-based compensation expense for the three months ended
March 31, 2007, was $9,855 ($6,504 after tax). As of March 31, 2007,
there was approximately $9,855 of total unrecognized share-based compensation cost related to
share-based compensation granted under the plans that will be recognized over the remainder of the
fiscal year.
Stock compensation plans
The Companys stock option plans provide for the granting of either incentive or nonqualified stock
options to employees and non-employee directors. Options are subject to terms and conditions
determined by the Compensation Committee of the Board of Directors. In connection with the
two-for-one stock split described in Note 2, the Board of Directors authorized an adjustment to
outstanding options so that a proportionate number of shares underlying each option are maintained.
Options in the table below have been adjusted to give retroactive effect to the stock split.
The following table summarizes information about our stock option plans for the nine months ended
March 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of Options
|
|
|
Exercise Price
|
|
Options outstanding, beginning of
year
|
|
|
146,000
|
|
|
$
|
1.47
|
|
Granted
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
60,000
|
|
|
$
|
1.20
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of quarter
|
|
|
86,000
|
|
|
$
|
1.65
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of quarter
|
|
|
81,000
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
Note 7. Earnings Per Share
Basic earnings per share (EPS) excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of EPS that could occur if options to issue common stock were exercised.
The following table sets forth the computation for basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED MARCH 31,
|
|
|
|
2007
|
|
|
2006
|
|
Net income
|
|
$
|
7,352,809
|
|
|
$
|
4,813,936
|
|
Weighted average number of
outstanding common shares
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,154,880
|
|
|
|
14,997,326
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
78,418
|
|
|
|
123,070
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
15,233,298
|
|
|
|
15,120,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.49
|
|
|
$
|
0.32
|
|
Diluted
|
|
$
|
0.48
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 10 of 32
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31,
|
|
|
|
2007
|
|
|
2006
|
|
Net income
|
|
$
|
2,412,273
|
|
|
$
|
2,550,408
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of outstanding shares
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,170,608
|
|
|
|
15,018,356
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
79,752
|
|
|
|
134,114
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
15,250,360
|
|
|
|
15,152,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
$
|
0.17
|
|
Diluted
|
|
$
|
0.16
|
|
|
$
|
0.17
|
|
Share information has been restated for all periods presented in the table to reflect the
two-for-one stock split effectuated on March 29, 2007. The diluted EPS calculation excludes the
effect of stock options when their exercise prices exceed the average market price for the period.
For the quarter ended March 31, 2007, and 2006, no options were excluded from diluted EPS. The
Company has repurchased 25,634 shares of its class A common stock from employees during the nine
months ended March 31, 2007. Upon repurchase, these shares are classified as treasury shares and
are deducted from outstanding shares in the earnings per share calculation.
Note 8. Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. Provisions for
income taxes include deferred taxes for temporary differences in the bases of assets and
liabilities for financial and tax purposes, resulting from the use of the liability method of
accounting for income taxes. The current deferred tax liability primarily consists of temporary
differences in the deductibility of prepaid expenses and accrued liabilities, as well as unrealized
gains on trading securities. The long-term deferred tax asset is composed primarily of unrealized
losses on available-for-sale securities.
A valuation allowance is provided when it is more likely than not that some portion of the deferred
tax amount will not be realized. No valuation allowance was included at March 31, 2007, or June 30,
2006, respectively.
Note 9. Financial Information by Business Segment
The Company operates principally in two business segments: providing investment management services
to the funds it manages, and investing for its own account in an effort to add growth and value to
its cash position. The following schedule details total revenues and income by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Management
|
|
|
Corporate
|
|
|
|
|
|
|
Services
|
|
|
Investments
|
|
|
Consolidated
|
|
Nine months ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
36,230,638
|
|
|
$
|
539,713
|
|
|
$
|
36,770,351
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
10,690,426
|
|
|
$
|
526,957
|
|
|
$
|
11,217,383
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
178,695
|
|
|
$
|
|
|
|
$
|
178,695
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
284,089
|
|
|
$
|
|
|
|
$
|
284,089
|
|
|
|
|
|
|
|
|
|
|
|
Gross identifiable assets at March 31, 2007
|
|
$
|
21,486,756
|
|
|
$
|
7,196,757
|
|
|
$
|
28,683,513
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
47,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets at March 31, 2007
|
|
|
|
|
|
|
|
|
|
$
|
28,730,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 11 of 32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Management
|
|
|
Corporate
|
|
|
|
|
|
|
Services
|
|
|
Investments
|
|
|
Consolidated
|
|
Nine months ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
23,731,754
|
|
|
$
|
2,160,608
|
|
|
$
|
25,892,362
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
5,388,833
|
|
|
$
|
2,137,833
|
|
|
$
|
7,526,666
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
100,972
|
|
|
$
|
|
|
|
$
|
100,972
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
390,394
|
|
|
$
|
|
|
|
$
|
390,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
11,990,856
|
|
|
$
|
453,509
|
|
|
$
|
12,444,365
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
3,293,948
|
|
|
$
|
443,780
|
|
|
$
|
3,737,728
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
62,002
|
|
|
$
|
|
|
|
$
|
62,002
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
69,778
|
|
|
$
|
|
|
|
$
|
69,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
9,952,444
|
|
|
$
|
1,604,564
|
|
|
$
|
11,557,008
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
2,506,389
|
|
|
$
|
1,591,914
|
|
|
$
|
4,098,303
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
40,042
|
|
|
$
|
|
|
|
$
|
40,042
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
214,105
|
|
|
$
|
|
|
|
$
|
214,105
|
|
|
|
|
|
|
|
|
|
|
|
Note 10. Contingencies and commitments
The Company continuously reviews all investor, employee and vendor complaints, and pending or
threatened litigation. The likelihood that a loss contingency exists is evaluated under the
criteria of SFAS No. 5, Accounting for Contingencies, through consultation with legal counsel,
and a loss contingency is recorded if the contingency is probable and reasonably estimable at the
date of the financial statements.
During the normal course of business, the Company may be subject to claims, legal proceedings, and
other contingencies. These matters are subject to various uncertainties, and it is possible that
some of these matters may be resolved unfavorably. The Company establishes accruals for matters for
which the outcome is probable and can be reasonably estimated. Management believes that any
liability in excess of these accruals upon the ultimate resolution of these matters will not have a
material adverse effect on the consolidated financial statements of the Company.
Note 11. Items submitted for shareholder approval
On November 8, 2006, the Board of Directors of the Company approved submitting to class A and class
C shareholders a proxy to split the shares (two-for-one), increase the number of authorized shares,
eliminate the dividend and liquidity preference of class A shareholders, and to allow class C
shareholders to convert their shares to class A. The Board also approved paying a $0.25 per share
dividend (post-split) in the event the shareholders approve the proposal to amend the articles of
incorporation to reflect no dividend or liquidation preference for class A shareholders and to
allow the convertibility of class C shares to class A shares. Refer to the proxy filed with the
SEC on November 21, 2006, and amended January 16, 2007, and February 1, 2007, for additional
details. On February 21,
and February 22, 2007, the shareholders approved all proposals
submitted. On March 29, 2007, the stock split became effective and shareholders of record were
paid a $.25 per share dividend (post-split).
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 12 of 32
|
ITEM 1a. Risk Factors
For a discussion of risk factors which could affect the Company, please refer to Item 1A. Risk
Factors, in the Annual Report on Form 10-K for the year ended June 30, 2006.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
U.S. Global Investors, Inc. has made forward-looking statements concerning the Companys
performance, financial condition, and operations in this report. The Company from time to time may
also make forward-looking statements in its public filings and press releases. Such forward-looking
statements are subject to various known and unknown risks and uncertainties and do not guarantee
future performance. Actual results could differ materially from those anticipated in such
forward-looking statements due to a number of factors, some of which are beyond the Companys
control, including but not limited to (i) the volatile and competitive nature of the investment
management industry, (ii) changes in domestic and foreign economic conditions, (iii) the effect of
government regulation on the Companys business, and (iv) market, credit, and liquidity risks
associated with the Companys investment management activities. Due to such risks, uncertainties,
and other factors, the Company cautions each person receiving such forward-looking information not
to place undue reliance on such statements. All such forward-looking statements are current only as
of the date on which such statements were made.
BUSINESS SEGMENTS
The Company, with principal operations located in San Antonio, Texas, manages two business
segments: (1) the Company offers a broad range of investment management products and services to
meet the needs of individual and institutional investors, and (2) the Company invests for its own
account in an effort to add growth and value to its cash position. Although the Company generates
the majority of its revenues from its investment advisory segment, the Company holds a significant
amount of its total assets in investments. The following is a brief discussion of the Companys
two business segments.
Investment Management Products and Services
The Company generates substantially all of its operating revenues from managing and servicing
USGIF, USGAF and other advisory clients. These revenues are largely dependent on the total value
and composition of assets under its management. Fluctuations in the markets and investor sentiment
directly impact the funds asset levels, thereby affecting income and results of operations.
During the nine months ended March 31, 2007, SEC-registered mutual fund assets under management
averaged $4.57 billion versus $2.99 billion for the same period ended March 31, 2006. This increase
was primarily due to significant increase in the natural resource and foreign equity funds under
management.
The Company provides advisory services to various offshore clients, namely Meridian Global Gold and
Resources Fund Ltd., Meridian Global Energy and Resources Fund Ltd., U.S. Global Investors Balanced
Natural Resources Fund, Ltd., and Endeavour Mining Capital Corp. The Company generally receives a
monthly advisory fee and a quarterly or annual performance fee, if any, based on an agreed-upon
performance measurement. Based on information released by Endeavour Mining Capital, for the first
nine months of fiscal 2007, the performance fee to date accruing to U.S. Global totals
approximately $3,412,000. The final performance fee payable to U.S. Global, if any, will be
determined as of June 30, 2007, based on the financial results of Endeavour Mining Capital for the
entire fiscal year. Under the accounting policies adopted by U.S. Global Investors, the performance
fees are calculated and recorded only once a year at the end of the fiscal year in accordance with
the terms of the advisory agreement. This and other performance fees may fluctuate significantly
from year to year based on factors that may be out of the Companys control. These fluctuations
could result in the recording of no performance fees. The contracts between the Company and the
offshore clients expire periodically, and management anticipates that its offshore clients will
renew the contracts.
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 13 of 32
|
Investment Activities
Management believes it can more effectively manage the Companys cash position by broadening the
types of investments used in cash management and continues to believe that such activities are in
the best interest of the Company. Company compliance personnel review and monitor these activities,
and various reports are provided to investment advisory clients.
Investment income (loss) from the Companys investments includes:
|
|
|
realized gains and losses on sales of securities;
|
|
|
|
|
unrealized gains and losses on trading securities;
|
|
|
|
|
realized foreign currency gains and losses;
|
|
|
|
|
other-than-temporary impairments on available-for-sale securities; and
|
|
|
|
|
dividend and interest income.
|
This source of revenue does not remain consistent and is dependent on market fluctuations, the
Companys ability to participate in investment opportunities, and timing of transactions.
As of March 31, 2007, the Company held investments with a market value of approximately $6.7
million and a cost basis of approximately $6.2 million. The market value of these investments is
approximately 23.3 percent of the Companys total assets.
For the nine months ended March 31, 2007, the Company had net realized gains on available-for-sale
securities of $454,388 compared with $544,414 for the nine months ended March 31, 2006, and net
realized gains on trading securities of $229,727 for the nine months ended March 31, 2007, compared
with net realized gains of $235,936 for the nine months ended March 31, 2006. The change in net
unrealized holding gains and losses on trading securities held at March 31, 2007, and 2006, which
has been included in income for the nine-month period, was ($147,032) and $1,420,855, respectively.
For available-for-sale securities with declines in value that are deemed other than temporary, the
cost basis of the securities is reduced accordingly, and the resulting loss is realized in
earnings. The Company recorded other than temporary declines of $0 and $28,655 for the nine months
ended March 31, 2007, and 2006, respectively.
Dividend and interest income for the nine months ended March 31, 2007, was $675,821 compared with
$191,032 for the nine months ended March 31, 2006.
RESULTS OF OPERATIONS NINE MONTHS ENDED MARCH 31, 2007 AND 2006
The Company posted net income of $7,352,809 ($0.49 income per share) for the nine months ended
March 31, 2007, compared with a net income $4,813,936 ($0.32 income per share) for the nine months
ended March 31, 2006.
Revenues
Total consolidated revenues for the nine-month period ended March 31, 2007, increased approximately
$10,878,000 or 42.0 percent, compared with the nine-month period ended March 31, 2006. This
increase was primarily attributable to the following:
|
|
|
Mutual fund investment advisory fees grew by approximately $8,404,000 as a result of
increased assets under management;
|
|
|
|
|
Transfer agent fees increased by approximately $1,988,000 primarily as a result of
growth in the number of shareholder accounts;
|
|
|
|
|
Other advisory fees increased by approximately $1,595,000 as a result of the growth and
performance of offshore funds the Company advises.
|
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 14 of 32
|
Expenses
Total consolidated expenses for the nine-month period ended March 31, 2007, increased approximately
$7,187,000 or 39.1 percent, compared with the nine-month period ended March 31, 2006. This was
largely attributable to the following:
|
|
|
Omnibus fees increased by approximately $2,737,000 due to increased asset flows through
broker/dealer platforms;
|
|
|
|
|
Consistent with continued growth in the Eastern European Fund, subadvisory fees
increased by approximately $1,554,000;
|
|
|
|
|
General and administrative expenses increased by approximately $1,510,000 primarily due
to consulting fees, audit and accounting fees, legal fees, proxy-related expenses, and
travel and entertainment; and
|
|
|
|
|
Driven by strong fund performance, compensation expense increased by approximately
$1,308,000.
|
Much of the mutual fund asset growth across all funds has been realized through broker/dealer
platforms. These broker/dealers typically charge an asset-based fee for assets held through their
platforms. Accordingly, net platform distribution (omnibus) fees have increased as assets have
grown through these platforms.
RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2007 AND 2006
The Company posted net income of $2,412,273 ($0.16 income per share) for the three-month period
ended March 31, 2007, compared with net income of $2,550,408 ($0.17 income per share) for the
three-month period ended March 31, 2006.
Revenues
Total consolidated revenues for the quarter ended March 31, 2007, increased approximately $887,000,
or 7.7 percent, compared with the quarter ended March 31, 2006. This increase was primarily
attributable to the following:
|
|
|
Mutual fund investment advisory fee grew by approximately $1,149,000 as a result of
increased assets under management and growth and performance of offshore funds;
|
|
|
|
|
Other advisory fees increased by approximately $539,000 as a result of the growth and
performance of offshore funds the Company advises; and
|
|
|
|
|
Transfer agent fees increased by approximately $240,000 primarily as a result of growth
in the number of shareholder accounts.
|
Expenses
Total consolidated expenses for the quarter ended March 31, 2007, increased approximately
$1,248,000, or 16.7 percent, compared with the quarter ended March 31, 2006. This was largely
attributable to the following:
|
|
|
General and administrative expenses increased by approximately $660,000 primarily due to
legal and consulting fees, proxy-related expenses, and travel and entertainment; and
|
|
|
|
|
Omnibus platform fees increased by approximately $530,000 due to increased mutual fund
asset flows through broker/dealer omnibus platforms.
|
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2007, the Company had net working capital (current assets minus current liabilities)
of approximately $21.0 million and a current ratio (current assets divided by current liabilities)
of 5.6 to 1. With approximately $12.8 million in cash and cash equivalents and approximately $6.7
million in marketable securities, the Company has adequate liquidity to meet its current
obligations. Total shareholders equity was approximately $24.1 million, with cash, cash
equivalents, and marketable securities comprising 67.8% of total assets.
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 15 of 32
|
As of March 31, 2007, the Company has no borrowings. The Company has access to a $1 million credit
facility with a one-year maturity for working capital purposes. Any use of this credit facility
will be secured by the Companys eligible accounts receivable. As of March 31, 2007, this credit
facility remained unutilized by the Company. The Companys available working capital and potential
cash flow are expected to be sufficient to cover current expenses.
Effective April 25, 2007, subsequent to the fiscal quarter end, the credit agreement was renewed
with the following amendments: the bank dropped the current ratio requirement, released the
Companys accounts receivable as collateral, and agreed to allow borrowings without any form of
borrowing base. The amended credit agreement will expire on February 1, 2008 and will be renewed
annually.
The investment advisory and related contracts between the Company and USGIF and USGAF will expire
on February 28, 2008, and May 31, 2008, respectively. Management anticipates the board of trustees of
both USGIF and USGAF will renew the contracts. The contracts between the Company and the offshore
clients expire periodically and management anticipates that its offshore clients will renew the
contracts.
Management believes current cash reserves, financing obtained and/or available, and potential cash
flow from operations will be sufficient to meet foreseeable cash needs or capital necessary for the
above-mentioned activities and allow the Company to take advantage of opportunities for growth
whenever available.
ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with
SFAS No. 109 by prescribing a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken on a tax
return. If a tax position is more likely than not to be sustained upon examination, then an
enterprise would recognize in its financial statements the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate settlement of the tax position. FIN
48 will be effective for the fiscal years beginning after December 15, 2006. The provisions of FIN
48 are required to be applied to all tax positions in all open tax years. The Company is in the
process of evaluating the impact, if any, of adoption on the Companys financial position and
results of operation.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (FAS 157). FAS 157 establishes a single authoritative definition of fair value,
sets out a framework for measuring fair value, and requires additional disclosures about fair value
measurements. FAS 157 applies only to fair value measurements that are already required or
permitted by other accounting standards. FAS 157 is effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact that adopting SFAS 157 will have
on its financial position and results of operation.
In February, 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB
Statement No. 115 (FAS 159). FAS 159 permits companies to measure many financial instruments
and certain other items at fair value. The Company is in the process of evaluating the potential
future effect of FAS 159 on its financial statements.
CRITICAL ACCOUNTING ESTIMATES
For a discussion of additional critical accounting estimates that the Company follows, please refer
to the notes to the consolidated financial statements included in the Annual Report on Form 10-K
for the year ended June 30, 2006.
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 16 of 32
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Companys balance sheet includes assets whose fair value is subject to market risks. Due to the
Companys investments in equity securities, equity price fluctuations represent a market risk
factor affecting the Companys consolidated financial position. The carrying values of investments
subject to equity price risks are based on quoted market prices or, if not actively traded,
managements estimate of fair value as of the balance sheet date. Market prices fluctuate, and the
amount realized in the subsequent sale of an investment may differ significantly from the reported
market value.
The Companys investment activities are reviewed and monitored by Company compliance personnel, and
various reports are provided to investment advisory clients. The Company has in place a code of
ethics that requires pre-clearance of any trading activity by the Company. Written procedures are
also in place to manage compliance with the code of ethics.
The table below summarizes the Companys equity price risks as of March 31, 2007, and shows the
effects of a hypothetical 25% increase and a 25% decrease in market prices.
SENSITIVITY ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
Fair Value after
|
|
(Decrease) in
|
|
|
|
|
|
|
Hypothetical
|
|
Hypothetical
|
|
Shareholders
|
|
|
Fair Value at
|
|
Percentage
|
|
Percent
|
|
Equity, Net
|
|
|
March 31, 2007
|
|
Change
|
|
Change
|
|
of Tax
|
Trading Securities
1
|
|
$
|
5,830,740
|
|
|
25% increase
|
|
$
|
7,288,425
|
|
|
$
|
962,072
|
|
|
|
|
|
|
|
25% decrease
|
|
$
|
4,373,055
|
|
|
$
|
(962,072
|
)
|
Available-for-Sale
2
|
|
$
|
848,984
|
|
|
25% increase
|
|
$
|
1,061,231
|
|
|
$
|
140,082
|
|
|
|
|
|
|
|
25% decrease
|
|
$
|
636,738
|
|
|
$
|
(140,082
|
)
|
|
|
|
1
|
|
Unrealized and realized gains and losses on trading securities are included in earnings in the statement of operations.
|
|
2
|
|
Unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other comprehensive income as a
separate component of shareholders equity until realized.
|
The selected hypothetical change does not reflect what could be considered best-case or worst-case
scenarios. Results could be significantly worse due to both the nature of equity markets and the
concentration of the Companys investment portfolio.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of the Companys disclosure controls
and procedures as of March 31, 2007, was conducted under the supervision and with the participation
of management, including our chief executive officer and chief financial officer. Based on that
evaluation, the chief executive officer and chief financial officer concluded that our disclosure
controls and procedures were effective as of March 31, 2007.
There has been no change in the Companys internal control over financial reporting that occurred
during the quarter ended March 31, 2007, that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
|
|
|
|
|
|
U.S. Global Investors, Inc.
|
|
|
March 31, 2007, Quarterly Report on Form 10-Q
|
|
Page 17 of 32
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PART II. OTHER INFORMATION
ITEM 2. Issuer Purchases of Equity Securities
The Company may repurchase stock from employees. The following table provides information
regarding the Companys repurchases of shares of its class A common stock during the nine months
ended March 31, 2007. There were no repurchases of class B or class C common stock during the
period. Share information has been restated for all periods presented in the table to reflect the
two-for-one stock split effectuated on March 29, 2007.
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Issuer Purchases of Equity Securities
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Fiscal Year Ended 6/30/07
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Maximum
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Number of
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Total
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Total Number of
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Shares that May
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Number of
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Total
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Average
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Shares Purchased
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Yet Be
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Shares
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Amount
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Price Paid
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as Part of Publicly
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Purchased
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Period
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Purchased
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Purchased
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Per Share
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Announced Plan
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Under the Plan
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07-01-06 to 07-31-06
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N/A
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N/A
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08-01-06 to 08-31-06
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88
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$
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1,005
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$
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11.42
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N/A
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N/A
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09-01-06 to 09-30-06
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264
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|
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4,340
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16.44
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N/A
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N/A
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10-01-06 to 10-31-06
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|
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N/A
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N/A
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11-01-06 to 11-30-06
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16,082
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|
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408,257
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25.39
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N/A
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N/A
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12-01-06 to 12-31-06
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9,130
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|
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294,084
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|
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32.21
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N/A
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N/A
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01-01-07 to 01-31-07
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|
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N/A
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N/A
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02-01-07 to 02-28-07
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70
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1,545
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22.07
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N/A
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N/A
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03-01-07 to 03-31-07
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N/A
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N/A
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Total
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25,634
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$
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709,231
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$
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27.67
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N/A
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N/A
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Item 4. Submission of Matters to a Vote of Security Holders
The shareholders of the Company voted on two issues at a Special Meeting of Shareholders of the
Company held on February 21, 2007, and February 22, 2007, for the following purposes:
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(1)
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To act on a proposed amendment to Article Four of the Third Restated and
Amended Articles of Incorporation of U.S. Global to increase the number of authorized shares of common stock, par value $0.05 per share of U.S. Global to 36,000,000, of
which 28,000,000 have been designated as class A Common Stock, 4,500,000 have been
designated as class B Common Stock, and 3,500,000 have been designated as class C
Common Stock, in order to effectuate a related two-for-one stock split and complete
other minor modifications to the Articles on Incorporation;
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(2)
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To act on a proposed amendment to Article Four of the Third Restated and
Amended Articles of Incorporation of U.S. Global to eliminate the dividend and
liquidation preferences for holders of class A Common Stock in order to facilitate the
adoption of a dividend policy and to permit the conversion of class C Common Stock to
class A Common Stock.
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In total, two matters were voted on and approved at the Special Meeting. A tabulation for each
matter is as follows:
Proposal 1
:
For: 4,292,524 shares of class A common stock
For: 1,467,964 shares of class C common stock
Against: 191,893 shares of class A common stock
Against: 30 shares of class C common stock
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 18 of 32
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Abstain: 92,073 shares of class A common stock
Abstain: 0 shares of class C common stock
Broker Non-Votes: None
Proposal 2
:
For: 4,057,572 shares of class A common stock
For: 1,467,964 shares of class C common stock
Against: 423,028 shares of class A common stock
Against: 30 shares of class C common stock
Abstain: 114,545 shares of class A common stock
Abstain: 0 shares of class C common stock
Broker Non-Votes: None
ITEM 6. EXHIBITS
1. Exhibits
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(3)(i)
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Fourth Amended and Restated Articles of Incorporation of U.S. Global Investors, Inc.
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31
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Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act Of 2002
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32
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Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act Of 2002
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 19 of 32
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereto duly authorized.
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U.S. GLOBAL INVESTORS, INC.
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DATED: May 9, 2007
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BY:
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/s/ Frank E. Holmes
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Frank E. Holmes
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Chief Executive Officer
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DATED: May 9, 2007
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BY:
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/s/ Catherine A. Rademacher
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Catherine A. Rademacher
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Chief Financial Officer
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 20 of 32
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Exhibit (3)(i)
FOURTH
AMENDED AND RESTATED ARTICLES
OF INCORPORATION
OF
U.S. GLOBAL INVESTORS, INC.
SECTION I
U.S. Global Investors, Inc. (the
Corporation
) pursuant to the provisions of Article 4.07 of
the Texas Business Corporation Act, hereby adopts the Fourth Amended and Restated Articles of
Incorporation which accurately copy the Articles of Incorporation of the Corporation and all
amendments thereto that are in effect to date as reflected in the Third Restated and Amended
Articles of Incorporation of the Corporation (
Old Articles
) and the further amendments to such
Third Restated and Amended Articles of Incorporation as hereinafter set forth (
New Articles
) and
which contain no other change in any provision thereof.
SECTION II
The Old Articles of the Corporation are amended by the New Articles as follows:
ARTICLE FOUR of the Old Articles is amended by increasing the total number of shares of Common
Stock the Corporation is authorized to issue to 36,000,000 shares, which are designated into three
classes, of which the number of shares of Class A Common Stock authorized is increased to
28,000,000, the number of shares of Class B Common Stock authorized is increased to 4,500,000 and
the number of shares of Class C Common Stock authorized is increased to 3,500,000 (collectively,
the
Common Stock
). Each class of Common Stock shall have a par value of $0.025 per share.
ARTICLE FOUR of the Old Articles is also amended in Section 2.2(1) of the Old Articles to
remove the dividend and liquidation preference currently available to Class A Common Stock.
ARTICLE FOUR of the Old Articles is also amended so as to remove conversion triggers for
Class B Common Stock as those triggers occurred in October 1997 and to permit the conversion of
Class C Common Stock to Class A Common Stock. Additionally, upon the conversion of a certain
number of shares of Class C Common Stock, all remaining outstanding shares of Class C Common Stock
shall be mandatorily and automatically converted to Class A Common Stock on a one for one basis.
ARTICLE FOUR of the Old Articles is also amended to delete Section 3.5 of the Old Articles in
its entirety.
ARTICLE FOUR is also amended to provide that upon the issuance of these New Articles by the
Secretary of State, each share of Common Stock outstanding shall be split and reconstituted into
two (2) shares of Common Stock (the
Stock Split
);
provided, however,
that the Corporation shall
issue no fractional shares of Common Stock, and all shares shall be
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 21 of 32
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rounded up or down to the nearest whole number of shares. No further adjustment of any preference
or price set forth in ARTICLE FOUR will be made as a result of the Stock Split, as all share
amounts, amounts per share and per share numbers set forth in the New Articles have been
appropriately adjusted to reflect the Stock Split. ARTICLE FOUR of the Old Articles is also
amended to add a new provision Section 5 of the New Articles to reflect the Stock Split.
ARTICLE FIVE of the Old Articles is deleted in its entirety.
ARTICLE SIX of the Old Articles is hereby redesignated as ARTICLE FIVE.
ARTICLE SEVEN of the Old Articles is hereby redesignated as ARTICLE SIX and is amended to
enumerate the number of authorized directors and identify the current members of the Corporations
Board of Directors.
ARTICLE EIGHT of the Old Articles is deleted in its entirety.
ARTICLE NINE of the Old Articles is amended to provide additional clarity and modernize the
indemnification provision and is hereby redesignated as ARTICLE SEVEN and provides that the
Corporation is authorized to indemnify the directors and officers of the Corporation to the
fullest extent permissible under Texas law.
ARTICLE TEN is hereby redesignated as ARTICLE EIGHT.
ARTICLE ELEVEN is hereby redesignated as ARTICLE NINE and serves to limit the liability of
the Corporations directors as permitted by the Texas Miscellaneous Corporation Law-Act.
ARTICLE TWELVE is hereby redesignated as ARTICLE TEN. ARTICLE X is
amended and is hereby redesignated as ARTICLE VII.
ARTICLE XII of the Old Articles is amended and redesignated as ARTICLE IX and provides that
the Board can authorize future splits without consent.
SECTION III
The amendment made by these Fourth Amended and Restated Articles of Incorporation has been
effected in conformity with the provisions of the Texas Business Corporation Act, and such
amendment was duly adopted by the holders of the Corporations Common Stock at meetings of the
shareholders held on February 21, 2007 and February 22, 2007.
SECTION IV
This amendment has been approved in the manner required by the Texas Business Corporation Act
and the constituent documents of the Corporation.
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 22 of 32
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SECTION
V
This amendment will not effect a change of the stated capital of the Corporation.
SECTION VI
The Old Articles and all amendments and supplements thereto are hereby superseded by the
following Amended and Restated Articles of Incorporation, which accurately copy the entire text
thereof, and as amended as set forth above.
SECTION VII
This document will become effective on March 19, 2007, which is not more than ninety (90)
days from the date of its filing by the Secretary of State.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 23 of 32
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FOURTH AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
U.S. GLOBAL INVESTORS, INC.
ARTICLE ONE
The name of the corporation is U.S. GLOBAL INVESTORS, INC. (
Corporation
).
ARTICLE TWO
The period of its duration is perpetual, unless sooner dissolved according to law.
ARTICLE THREE
The purposes or purpose for which the Corporation is organized are:
1. To serve as an investment advisor and to manage one or more mutual funds and engage in
other investment advisory services permitted by the laws of the State of Texas and the United
States of America; to engage in the business of advising others directly and through publications
and/or writings as to the advisability of investing in, purchasing or selling securities; and to
engage in the business of buying and selling securities for its own account.
2. To provide information, pamphlets and data concerning securities.
3. To establish, operate and maintain one or more mutual funds, as permitted by the laws of
the State of Texas and the United States of America.
4. To engage in any commercial and industrial enterprises calculated or designed to be
profitable to the Corporation and in conformity with the laws of the State of Texas; to engage in
any business whatsoever either as principal or as agent or as both, or as a syndicate, which the
Corporation may deem convenient or proper in furtherance of any of the purposes hereinabove
mentioned or otherwise; to conduct its business in any lawful manner in any place in the State,
Nation, or any place or country in the world whenever desired and upon compliance and in accordance
with and pursuant to the laws, rules, statutes, treaties, regulations and customs thereof; and to
have and to execute all powers authorized by the laws of the State of Texas under which this
Corporation is formed, whether expressly set forth in this article or not, as such laws are now in effect, or may at any time hereafter be amended.
ARTICLE FOUR
1.
General
. The corporation is authorized to issue three classes of Common Stock, one
designated Class A Common Stock, one designated Class B Common Stock, and one designated Class C
Common Stock (collectively referred to herein as
Common Stock
), the total number of
shares which the Corporation is authorized to issue is 36,000,000 shares. The number of shares of
Class A Common Stock authorized is 28,000,000, and the par value of each
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 24 of 32
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such share is $0.025. The number of shares of Class B Common Stock authorized is 4,500,000, and
the par value of each such share is $0.025. The number of shares of Class C Common Stock
authorized is 3,500,000, and the par value of each such share is $0.025. Except for the voting and
conversion rights set forth in paragraphs 2 and 5 of this Article Four, all other rights and
preferences of the Class A, Class B and Class C Common Stock are equal.
2.
Voting Rights
. The holders of shares of Class C Common Stock shall have full
voting rights at any annual or special meeting of the shareholders and as provided for in the
Texas Business Corporation Act. Except as otherwise expressly provided by law, all voting
rights shall be in the Class C Common Stock, and the holders of shares of Class A Common
Stock and Class B Common Stock shall have no voting rights at any annual or special meeting of
die shareholders. Notwithstanding the foregoing, at such time as there are no longer any
shares
of Class C Common Stock issued and outstanding, then Class A Common Stock shall have full
voting rights at any annual or special meeting of the shareholders and as provided for in the
Texas Business Corporation Act. There shall be no cumulative voting.
3.
Dividends
. The holders of Class A Common Stock, Class B Common Stock, and
Class C Common Stock shall then be entitled to receive, when and as declared by the Board of
Directors, out of any funds legally available therefor, cash dividends which shall be paid
simultaneously to the holders of Class A Common Stock, Class B Common Stock and Class C
Common Stock in the same proportionate amounts per share.
4.
Purchase
. Nothing herein shall limit the right of the Corporation to repurchase
any of its outstanding shares of Class A Common Stock, Class B Common Stock or Class C
Common Stock in accordance with law, by public or private transaction.
5.
Conversion Rights
. The shares of Class A Common Stock shall not be
convertible into the shares of any other class of stock of the Corporation. The holders of
the
shares of Class B Common Stock shall have the right to convert Class B Common Stock shares
into Class C Common Stock shares on a one-to-one ratio and shall have the right to convert
Class
B Common Stock shares into shares of Class A Common Stock, on a one-to-one basis. The
holders of each share of Class C Common Stock shall have the right to convert any or all of
such
holders Class C Common Stock shares into shares of Class A Common Stock, on a one-to-one
basis, at the option of the holder thereof, at any time and from time to time.
Upon the earlier of (A) a date specified by vote or written consent of at least 50% of the holders
of the then outstanding shares of Class C Common Stock or (B) such date that less than 200,000
shares of Class C Common Stock remain outstanding (
Mandatory Conversion Date
), all
outstanding shares of Class C Common Stock shall automatically be converted into shares of Class A
Common Stock on a one-to-one basis. Upon the occurrence of a Mandatory Conversion Date, the
Corporation shall prepare a notice stating that a Mandatory Conversion Date has occurred and
setting forth in detail the facts, and such notice shall forthwith be mailed by first class mail to
the holders of the Class C Common Stock at their last known address shown on the stock books of the
Corporation.
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 25 of 32
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Upon transmission by the Corporation of written notice of a Mandatory Conversion Date, each holder
of Class C Common Stock shall (i) surrender the certificate or certificates therefor, duly
endorsed, at the office of any transfer agent for such Class C Common Stock, or if there is no
such transfer agent, then at the principal executive offices of the Corporation and (ii) state in
writing therein the name or names in which such holder wishes the certificate or certificates for
the Class A Common Stock to be issued. The Corporation shall, as soon as practicable thereafter,
issue and deliver at the last known address of each holder of the Class C Common Stock, or to his
nominee or nominees, certificates for the number of full shares of Class A Common Stock to which
he shall be entitled, as aforesaid, together with cash in lieu of any fraction of a share as
hereinafter provided. Such conversion shall be deemed to have been made on the Mandatory
Conversion Date, and the person or persons entitled to receive the Class A Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or holders of such
Class A Common Stock on said date. Such shares of Class C Common Stock may not be reissued as
shares of such class, and the Corporation may thereafter take such appropriate action (without the
need for shareholder action) as may be necessary to reduce the authorized number of shares of
Class C Common Stock to zero.
As further provided in paragraph 1 of this Article Four, upon the occurrence of a Mandatory
Conversion Date, shares of Class A Common Stock shall have full voting rights.
6.
Liquidation
,
In the event of dissolution, liquidation or winding up of the
Corporation (whether voluntary or involuntary), after payment or provision for payment of
debts,
the assets of the Corporation upon liquidation shall be distributed pro rata among the holders
of
the shares of Class A Common Stock, Class B Common Stock and Class C Common Stock.
None of the following events is a dissolution, liquidation or winding up within the meaning of
this paragraph: consolidation, merger, or reorganization of the Corporation with any other
corporation or corporations, sale of all or substantially all the assets of the Corporation,
or any
purchase or redemption by the Corporation of any of its outstanding shares.
7.
Denial of Preemptive Rights
. No holder of shares of any class of the Corporation,
Class A Common Stock, Class B Common Stock or Class C Common Stock, shall have any
preemptive right to subscribe for or acquire additional shares of the Corporation of the same
or
any other class, whether such shares shall be hereby or hereafter authorized; and no holder of shares of any class of the Corporation shall have any right to acquire any shares which may be
held in the treasury of the Corporation. All such additional or treasury shares may be sold
for
such consideration, at such time, and to such person or persons as the Board of Directors may
from time to time determine.
8.
Common Stock Split
. Upon the issuance of these Fourth Amended and Restated
Articles of Incorporation by the Secretary of State of the State of Texas, each share of
Common
Stock, of each class, outstanding shall be split and reconstituted into two (2) shares of
Class A
Common Stock, Class B Common Stock or Class C Common Stock, respectively;
provided,
however,
that the Corporation shall issue no fractional shares of Common Stock, and all shares
shall be rounded up or down to the nearest whole number of shares.
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 26 of 32
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ARTICLE FIVE
The post office address of its registered office is 7900 Callaghan Road, San Texas 78229, and
the name of its registered agent at such address is Frank E. Holmes.
ARTICLE SIX
The number of directors constituting the present Board of Directors is four, and the names
and addresses of those persons who presently serve as directors and who will continue to serve as
directors until their successors are elected and qualified are:
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NAME
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ADDRESS
|
Frank E. Holmes
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7900 Callaghan Road
San Antonio, TX 78229
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Jerold H. Rubinstein
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7900 Callaghan Road
San Antonio, TX 7S229
|
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Roy D. Terracina
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7900 Callaghan Road
San Antonio, TX 78229
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Thomas F. Lydon, Jr.
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7900 Callaghan Road
San Antonio, TX 78229
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ARTICLE SEVEN
The Corporation will, to the fullest extent permitted by the Texas Business Corporation Act,
as the same exists or may hereafter be amended, indemnify any and all persons who are or were
serving as director or officer of the Corporation, or who are or were serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee or employee of another
corporation, partnership, limited liability company, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise, from and against any and all of the expenses,
liabilities or other matters referred to in or covered by such Act. Such indemnification may be
provided pursuant to any Bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in the capacity of director or officer and as to action in another
capacity while holding such office, will continue as to a person who has ceased to be a director or
officer and inure to the benefit of the heirs, executors and administrators of such a person.
ARTICLE EIGHT
Any contract or other transaction between the Corporation and one or more of its, directors,
or between the Corporation and any firm of which one or more of its directors are members or
employees, or in which they are interested, or between the Corporation and any corporation or
association of which one or more of its directors are shareholders, members, directors, officers,
or in which they are interested, shall be valid for all purposes, notwithstanding
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 27 of 32
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the presence of the interested director or directors at the meeting of the Board of Directors of
the Corporation that acts upon, or in reference to, the contract or transaction, and
notwithstanding his or their participation in the action, if the fact of such interest shall be
disclosed or otherwise known to the Board of Directors and the Board of Directors shall
nevertheless authorize or ratify the contract or transaction, the interested director or directors
to be counted in determining whether a quorum is present and to be entitled to vote on such
authorization or ratification, and no director shall be liable to account to the Corporation for
any profits realized by reason of interest therein when such contract or other transaction has
been authorized or ratified in accordance with the foregoing. This Article Eight shall not be
construed to invalidate any contract or transaction which would otherwise be valid in the absence
of this provision
ARTICLE NINE
Notwithstanding any provision in Article Nine to the contrary, no director of the Corporation
shall be liable to the Corporation or its shareholders for monetary damages or an act or omission
in the directors capacity as a director, except for liability for (i) any breach of a directors
duty of loyalty to the Corporation or its shareholders, (ii) an act or omission not in good faith
or which involves intentional misconduct or a knowing violation of law, (iii) any transaction from
which as director received an improper benefit, whether or not the benefit resulted from an action
taken within the scope of the directors office, (iv) an act or omission for which the liability
of a director is expressly provided for by statute or (v) an act related to an unlawful stock
repurchase or payment of a dividend.
If the Texas law is hereafter amended to authorize the further elimination or limitation of
the liability of directors, then the liability of a director of the Corporation, in addition to the
limitation of personal liability provided herein, shall be limited lo the fullest extent permitted
by the amended Texas laws. Any repeal or modification of this paragraph by the shareholders of the
Corporation shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such repeal or
modification.
ARTICLE TEN
Any action required by the Texas Business Corporation Act to be taken at any annual or
special meeting of shareholders, or any action which may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice, and without a vote
provided: (1) a consent or consents in writing, setting forth the action so taken, are signed by
the holder or holders of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares entitled to vole on
the action were present and voted; and (2) prompt notice of such action is given to those
shareholders entitled to vote who did not consent in writing to the action.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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U.S. Global Investors, Inc.
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March 31, 2007, Quarterly Report on Form 10-Q
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Page 28 of 32
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IN WITNESS WHEREOF, the undersigned has executed these Amended and Restated Articles of
Incorporation of U.S. Global Investors, Inc. to be effective as of the 19th day of March, 2007.
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U.S. GLOBAL INVESTORS, INC.
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By:
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/s/ Susan B. McGee
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Susan B. McGee
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President and General Counsel
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