UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------------- FORM 10-Q -------------------------------------------- [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2001 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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) -------------------------------------------- TEXAS 74-1598370 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) 7900 CALLAGHAN ROAD 78229-2327 San Antonio, Texas (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (210) 308-1234 (REGISTRANT'S 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 twelve months, and (2) has been subject to such filing requirements for the past ninety days. YES [ X ] NO [ ] On May 7, 2001, there were 6,299,474 shares of Registrant's class A common stock issued and 6,031,323 shares of Registrant's class A common stock issued and outstanding, no shares of Registrant's class B non- voting common shares outstanding and 1,496,800 shares of Registrant's class C common stock issued and outstanding.
U.S. GLOBAL INVESTORS, INC. I N D E X PART I. FINANCIAL INFORMATION Item 1. Financial Statements.................................................3 Consolidated Balance Sheets.............................................3 Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited).............................................5 Consolidated Statements of Cash Flows (Unaudited).......................6 Notes to Consolidated Financial Statements (Unaudited)..................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................10 Item 3. Market Risk Disclosures.............................................14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K....................................15 SIGNATURES..................................................................16 EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET INCOME (LOSS) PER SHARE.........17
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 3 of 17 - -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS ASSETS MARCH 31, JUNE 30, 2001 2000 ---------- ---------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $1,665,615 $1,356,903 Trading securities, at fair value 1,104,205 1,424,120 Receivables Mutual funds 665,918 779,809 Other 199,030 447,548 Prepaid expenses 231,002 350,729 Deferred tax asset 429,148 215,077 ---------- ---------- TOTAL CURRENT ASSETS 4,294,918 4,574,186 ---------- ---------- NET PROPERTY AND EQUIPMENT 2,067,341 2,278,744 ---------- ---------- OTHER ASSETS Restricted investments 225,000 240,000 Long-term deferred tax asset 806,445 836,056 Investment securities available-for-sale, at fair value 790,038 1,159,042 Other 30,596 30,596 ---------- ---------- TOTAL OTHER ASSETS 1,852,079 2,265,694 ---------- ---------- TOTAL ASSETS $8,214,338 $9,118,624 ========== ========== The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 4 of 17 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY MARCH 31, JUNE 30, 2001 2000 ---------- ---------- (UNAUDITED) CURRENT LIABILITIES Accounts payable $ 122,907 $ 498,632 Accrued compensation and related costs 228,472 298,826 Current portion of notes payable 60,756 68,257 Current portion of annuity and contractual obligation 8,487 8,487 Other accrued expenses 636,050 561,975 ---------- ---------- TOTAL CURRENT LIABILITIES 1,056,672 1,436,177 ---------- ---------- Notes payable-net of current portion 1,038,931 1,066,705 Annuity and contractual obligations 124,947 131,256 ---------- ---------- TOTAL NON-CURRENT LIABILITIES 1,163,878 1,197,961 ---------- ---------- TOTAL LIABILITIES 2,220,550 2,634,138 ---------- ---------- SHAREHOLDERS' EQUITY Common stock (Class A)-$.05 par value; non-voting; authorized, 7,000,000 shares 314,974 314,974 Common stock (Class C)-$.05 par value; voting; authorized, 1,750,000 shares 74,840 74,840 Additional paid-in-capital 10,628,419 10,578,419 Treasury stock, class A shares at cost; 268,151 and 282,350 shares at March 31, 2001, and June 30, 2000, respectively (625,146) (637,298) Accumulated other comprehensive loss, net of tax (104,892) (51,771) Accumulated deficit (4,294,407) (3,794,678) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 5,993,788 6,484,486 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,214,338 $9,118,624 ========== ========== The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 5 of 17 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) <TABLE> <CAPTION> NINE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, --------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ---------- ----------- ----------- <S> <C> <C> <C> <C> REVENUE Investment advisory fees $ 4,335,283 $4,843,102 $ 1,299,032 $ 1,822,917 Transfer agent fees 2,048,529 2,243,584 644,740 701,770 Custodial and administrative fees 240,147 370,848 72,208 112,685 Investment income (loss) 140,378 619,885 77,697 583,402 Other 307,016 324,397 87,041 114,850 ----------- ---------- ----------- ----------- 7,071,353 8,401,816 2,180,718 3,335,624 EXPENSES General and administrative 7,427,565 7,195,202 2,201,982 2,561,351 Depreciation and amortization 203,715 275,467 68,152 95,906 Interest 88,709 77,308 26,492 23,303 ----------- ---------- ----------- ----------- 7,719,989 7,547,977 2,296,626 2,680,560 ----------- ---------- ----------- ----------- INCOME (LOSS) BEFORE EQUITY INTEREST AND INCOME TAXES (648,636) 853,839 (115,908) 655,064 EQUITY IN NET INCOME OF AFFILIATE -- 51,739 -- -- ----------- ---------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (648,636) 905,578 (115,908) 655,064 PROVISION FOR FEDERAL INCOME TAXES Tax (Benefit) Expense (157,094) 30,473 20,989 213,507 ----------- ---------- ----------- ----------- NET INCOME (LOSS) $ (491,542) $ 875,105 $ (136,897) $ 441,557 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on available-for-sale securities (53,121) 6,743 (42,667) (12,322) ----------- ---------- ----------- ----------- COMPREHENSIVE INCOME (LOSS) $ (544,663) $ 881,848 $ (179,564) $ 429,235 =========== ========== =========== =========== Basic and Diluted Net Income (Loss) Per Share $ (0.07) $ 0.12 $ (0.02) $ 0.06 </TABLE> The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 6 of 17 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED MARCH 31, 2001 2000 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (491,542) $ 875,105 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 203,715 275,467 Net gain on sales of available-for-sale securities (32,662) (450,588) Provision for deferred taxes (157,094) 13,574 Reserve against impairment of equipment 89,928 -- Changes in assets and liabilities, impacting cash from operations: Accounts receivable 362,409 (354,251) Prepaid expenses and other 134,727 (36,172) Trading securities 492,000 497,640 Accounts payable and accrued expenses (372,004) 65,598 ---------- ---------- Total adjustments 721,019 11,268 ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 229,477 886,373 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (82,240) (104,783) Proceeds from redemption of equity affiliate -- 100,000 Purchase of available-for-sale securities (97,175) (433,575) Proceeds on sale of available-for-sale securities 246,269 -- ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 66,854 (438,358) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on annuity (6,309) (5,884) Payments on note payable (35,275) (49,838) Proceeds from issuance or exercise of stock, warrants, and options 80,160 84,685 Purchase of treasury stock (26,195) (34,467) ---------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 12,381 (5,504) ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 308,712 442,511 BEGINNING CASH AND CASH EQUIVALENTS 1,356,903 1,025,247 ---------- ---------- ENDING CASH AND CASH EQUIVALENTS $1,665,615 $1,467,758 ========== ========== SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Receipt of trading and available-for-sale securities in liquidation of equity investment -- $ 701,748 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 88,709 $ 77,308 The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 7 of 17 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for the interim periods presented. U.S. Global Investors, Inc. (the Company or U.S. Global) has consistently followed the accounting policies set forth in the Notes to the Consolidated Financial Statements in the Company's Form 10-K for the year ended June 30, 2000. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, United Shareholder Services, Inc. (USSI), Security Trust & Financial Company (STFC), A&B Mailers, Inc. (A&B), U.S. Global Investors (Guernsey) Limited (USGG), U.S. Global Brokerage, Inc. (USGB), and U.S. Global Administrators, Inc. (USGA). All significant inter-company balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes. The results of operations for the nine-month period ended March 31, 2001, are not necessarily indicative of the results to be expected for the entire year. NOTE 2. SECURITY INVESTMENTS The Company accounts for its investment securities in accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. Accordingly, the cost of investments classified as trading at March 31, 2001, and June 30, 2000, was $1,868,585 and $1,832,282, respectively. The market value of investments classified as trading at March 31, 2001, and June 30, 2000, was $1,104,205 and $1,424,120, respectively. The net change in unrealized holding losses on trading securities held at March 31, 2001, and 2000, which has been included in income for the nine-month period, is $(350,894) and $97,513, respectively. Sales of trading securities generated realized gains of $357,952 and $450,233 for the nine-month periods ended March 31, 2001 and 2000, respectively. The cost of investments in securities classified as available-for-sale, which may not be readily marketable at March 31, 2001, and June 30, 2000, was $948,966 and $1,237,483, respectively. These investments are reflected as non-current assets on the consolidated balance sheet at their fair value at March 31, 2001, and June 30, 2000, of $790,038 and $1,159,042, respectively, with $(104,892) and $(51,771), respectively, net of tax, in unrealized losses being recorded as a separate component of shareholders' equity. NOTE 3. 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. 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, and the Company also receives certain miscellaneous fees directly from USGIF and USGAF shareholders. Fees for providing services to USGIF and USGAF continue to be the Company's primary revenue source. The Company receives additional revenue from several sources including revenues from custodian fees, miscellaneous transfer agency activities including lockbox functions, mailroom operations from A&B, as well as gains on marketable securities transactions. The Company also receives revenues from administrative fees. Management has decided to divest the Company of the 401(k) administration business. This action will result in the loss of revenues, which are deemed immaterial, bth Company will also eliminate costs associated with providing these services. The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses on several USGIF funds through June 30, 2001, or such later date as the Company determines. The aggregate amount of fees waived and
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 8 of 17 - -------------------------------------------------------------------------------- expenses borne by the Company for the nine-month period ended March 31, 2001 and 2000, was $1,497,274 and $1,570,008, respectively. The investment advisory and related contracts between the Company and USGIF and USGAF will expire on February 28, 2002, and on May 31, 2002, respectively. Management anticipates the board of trustees of both USGIF and USGAF will renew the contracts. NOTE 4. BORROWINGS The Company has a note payable to a bank which is secured by land, an office building and related improvements. As of March 31, 2001, the balance on the note was $1,099,687. The loan currently amortizes over a twelve-year period with payments of both principal and interest due monthly based on a floating rate of Bank One Texas Prime. The current monthly payment is $12,320, and the note matures on January 31, 2006. Under this agreement, the Company must maintain certain financial covenants. The Company is not in compliance with certain debt covenants but received a waiver from the bank through March 31, 2001. The Company also 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 Company's eligible accounts receivable. Management believes that the Company has adequate cash, cash equivalents, and equity in the underlying asset to retire its existing loan obligation if necessary. NOTE 5. INCOME TAXES Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and lfor financial and tax purposes resulting from the use of the liability method of accounting for income taxes. For federal income tax purposes at March 31, 2001, the Company has net operating losses (NOLs) of approximately $2.0 million, which will expire between fiscal 2005 and 2010, charitable contribution carryovers of approximately $220,000 expiring between 2001 and 2005, and alternative minimum tax credits of $139,729 with indefinite expirations. Certain changes in the Company's ownership may result in a limitation on the amount of NOLs that could be utilized under Section 382 of the Internal Revenue Code. If certain changes in the Company's ownership occur subsequent to March 31, 2001, there could be an annual limitation on the amount of NOLs that could be utilized. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount wno be realized. Management included a valuation allowance of approximately $462,000 and $293,000 at March 31, 2001, and June 30, 2000, respectively, providing for the utilization of NOLs, charitable contributions, and investment tax credits against future taxable income. NOTE 6. FINANCIAL INFORMATION BY BUSINESS SEGMENT The Company operates principally in two business segments: providing mutual fund investment management services to its clients, 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 (loss) by business segment:
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 9 of 17 - -------------------------------------------------------------------------------- <TABLE> <CAPTION> INVESTMENT MANAGEMENT CORPORATE SERVICES INVESTMENT CONSOLIDATED ----------- ----------- ----------- <S> <C> <C> <C> NINE MONTHS ENDED MARCH 31, 2001: Net revenues $ 7,031,633 $ 39,720 $ 7,071,353 =========== =========== =========== Net income (loss) before income taxes $ (654,006) $ 5,370 $ (648,636) =========== =========== =========== Depreciation and amortization $ 203,715 $ -- $ 203,715 =========== =========== =========== Interest expense $ 88,480 $ 229 $ 88,709 =========== =========== =========== Capital expenditures $ 82,241 $ -- $ 82,241 =========== =========== =========== Gross identifiable assets at March 31, 2001 $ 4,874,718 $ 2,053,171 $ 6,927,889 Deferred tax asset 1,181,557 Accumulated other comprehensive loss 104,892 ----------- Consolidated total assets at March 31, 2001 $ 8,214,338 =========== NINE MONTHS ENDED MARCH 31, 2000: Net revenues $ 7,853,675 $ 548,141 $ 8,401,816 =========== =========== =========== Net income (loss) before income taxes and equity interest $ 305,698 $ 548,141 $ 853,839 Equity in net income of affiliate -- 51,739 51,739 ----------- ----------- ----------- Net income (loss) before income taxes $ 305,698 $ 599,880 $ 905,578 =========== =========== =========== Depreciation and amortization $ 275,467 $ -- $ 275,467 =========== =========== =========== Interest expense $ 77,308 $ -- $ 77,308 =========== =========== =========== Capital expenditures $ 104,783 $ -- $ 104,783 =========== =========== =========== Gross identifiable assets at March 31, 2000 $ 5,913,591 $ 2,285,698 $ 8,199,289 Deferred tax asset 1,002,594 Accumulated other comprehensive loss 68,195 ----------- Consolidated total assets at March 31, 2000 $ 9,270,078 =========== </TABLE>
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 10 of 17 - -------------------------------------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS U.S. Global Investors, Inc. (Company) has made forward-looking statements concerning the Company's performance, financial condition, and operations in this quarterly 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 vknow and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ mfro those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company's control, including (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 Company's business, and (iv) market, credit, and liquidity risks associated with the Company's 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 don 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. The Company generates substantially all of its operating revenues from the investment management of products and services offered to the U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF). The Company also holds a significant amount of its total assets in investments. The following is a brief discussion of the Company's two business segments. INVESTMENT MANAGEMENT PRODUCTS AND SERVICES The Company generates substantially all of its revenues from managing and servicing USGIF and USGAF. 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-month period ended March 31, 2001, assets under management in USGIF averaged $1.07 billion versus $1.18 billion for the same period ended March 31, 2000. This decline was primarily due to declines in gold-related assets and money market assets in conjunction with the falling equity markets. Assets under management in USGAF averaged $224 million for the nine-month period ended March 31, 2001, versus $221 million for the same period ended March 31, 2000. For the quarter ended March 31, 2001, assets under management in USGIF averaged $1.08 billion versus $1.15 billion for the quarter ended March 31, 2000. The decrease parallels the same movement in assets described above for the nine- month period. The assets under management in USGAF averaged $185 million for the quarter ended March 31, 2001, versus $331 million for the quarter ended March 31, 2000. The decrease was due to asset decline in the Bonnel Growth Fund as the equity markets dropped. In response to the downturn in the economy affecting both the financial markets and the mutual fund industry, the Company took actions to restructure and refocus its business operations. In addition to reducing the size of its workforce and other controllable expenses, the Company is in the process of eliminating its 401(k) administration o Though this action will result in the loss of immaterial revenues, it will also eliminate the costs associated wlin of business. Management believes that the elimination of this high-cost, low-margin line of business will allow fbette focus on its core operations, leading to increased profit margins.
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 11 of 17 - -------------------------------------------------------------------------------- INVESTMENT ACTIVITIES Management believes it can more effectively manage the Company's cash position by broadening the types of investments utilized in its treasury management and continues to believe that such activities are in the best interest of the Company. These activities are reviewed and monitored by Company compliance personnel and various reports are provided to investment advisory clients. On March 31, 2001, the Company held approximately $1.9 million in investment securities. The value of these investments is approximately 23 percent of total assets and 32 percent of shareholders' equity at period end. Of the $1.9 million in investment securities, the Company classified approximately $a trading securities and approximately $790,000 as available-for-sale securities. Investment income from these investments includes realized gains and losses, unrealized gains and losses on trading securities, and dividend and interest income. This source of revenue does not remain at a consistent level and is dependent on market fluctuations, the Company's ability to participate in investment opportunities, and timing of transactions. For the nine months ended March 31, 2001, there were realized gains of $390,614 from the sale of investments, compared with gains of $450,588 for the nine months ended March 31, 2000. The net change in the unrealized holding gains (losses) on trading securities held at March 31, 2001 and 2000, which has been included in earnings for the nine-month period, was $(350,894) and $97,553, respectively. RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 2001 AND 2000 The Company posted a net loss of $491,542 ($0.07 loss per share) for the nine months ended March 31, 2001, compared with net income of $875,105 ($0.12 income per share) for the nine months ended March 31, 2000. The decrease in net income was primarily due to significant declines in investment advisory fees, transfer agent fees, custodian fees, and investment income. REVENUES Total consolidated revenues for the nine months ended March 31, 2001, decreased approximately $1,330,000, or 16%. This was the result of declines in investment advisory fees, transfer agent fees, custodial and administrative fees, and investment income. Investment advisory fees declined $508,000, or 10.5%. Gold-related assets continued to decline, and, to a lesser extent, money market and equity assets dropped as well. Transfer agent fees decreased $195,000, or 9%.This was primarily a result of shareholders of gold-related funds closing their accounts in response to continued declines in the gold markets. Custodial and administrative fees dropped $131,000, or 35%, as the Company saw its client base decline and began the process of eliminating its 401(k) administration operations. Finally, investment income declined $480,000, or 77%, as a result of unrealized losses in the Company's investment portfolio. EXPENSES Total consolidated expenses for the nine months ended March 31, 2001, increased approximately $172,000, or 2%. This is attributable to a 3% increase in general and administrative expenses of the Company of approximately $232,000. Specifically, the Company experienced increases in health insurance costs and consulting fees and incurred costs associated with eliminating the 401(k) administration operations. RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 2001 AND 2000 The Company posted a net loss of $136,897 ($0.02 loss per share) for the quarter ended March 31, 2001, compared with net income of $441,557 ($0.06 income per share) for the quarter ended March 31, 2000. The decline in net income was primarily due to a $524,000 drop in investment advisory fees and a $506,000 decline in investment income. These declines in revenue were partially offset by a $384,000 decrease in consolidated expenses. REVENUES Total consolidated revenues for the quarter ended March 31, 2001, decreased approximately $1,155,000, or 35%, as compared with the quarter ended March 31, 2000. As a direct result of market-wide declines suffered by equity securities and the continued fall of the gold sector, net investment advisory fees fell $524,000, or 29%. Additionally, the Company
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 12 of 17 - -------------------------------------------------------------------------------- was able to sell securities at a gain of $433,000 in the quarter ended March 31, 2000, which, given depressed market conditions, it did not duplicate in the March 31, 2001 quarter. EXPENSES Total consolidated expenses for the quarter ended March 31, 2001, decreased approximately $384,000, or 14%, as compared with the quarter ended March 31, 2000. This was a result of decreased sub-advisory fees (which fell proportionately with asset declines in the Bonnel Growth Fund), increased use of fees from fund 12b-1 plans for marketing expenditures, and decreases in travel and entertainment expenses. INCOME TAXES Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and lfor financial and tax purposes, resulting from the use of the liability method of accounting for income taxes. For federal income tax purposes at March 31, 2001, the Company has net operating losses (NOLs) of approximately $2.0 million, which will expire between fiscal 2005 and 2010, charitable contribution carryovers of approximately $220,000 expiring between 2001 and 2005, and alternative minimum tax credits of $139,729 with indefinite expirations. Certain changes in the Company's ownership may result in a limitation on the amount of NOLs that could be utilized under Section 382 of the Internal Revenue Code. If certain changes in the Company's ownership occur, there could be an annual limitation on the amount of NOLs that could be utilized. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount wno be realized. Management included a valuation allowance of approximately $462,000 and $293,000 at March 31, 2001, and June 30, 2000, respectively, providing for the utilization of NOLs, charitable contributions, and investment tax credits against future taxable income. LIQUIDITY AND CAPITAL STRUCTURE LIQUIDITY At March 31, 2001, the Company had net working capital (current assets minus current liabilities) of approximately $3.2 million and a current ratio of 4.1 to 1. With approximately $1.7 million in cash and cash equivalents and approximately $1.9 million in marketable securities, the Company has adequate liquidity to meet its current debt obligations. Total shareholders' equity was approximately $6.0 million and cash, cash equivalents, and marketable securities comprise 43% of total assets. With the exception of operating expenses, the Company's only material commitment is the mortgage on its corporate headquarters. The Company also has access to a $1 million credit facility, which can be utilized fworkin capital purposes. The Company's available working capital and its potential cash flows are expected to be sufficient to cover current expenses, including debt service. The investment advisory and related contracts between the Company and USGIF and USGAF, will expire on February 28, 2002, and May 31, 2002, respectively. Management anticipates the board of trustees of both USGIF and USGAF will renew the contracts. Management believes current cash reserves, financing obtained and/or available, and 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 investment opportunities whenever available. CAPITAL STRUCTURE The Company has three classes of common equity - class A, class B, and class C common stock, par value $0.05 per share. There is no established public trading market for the Company's class B and class C common stock. The Company's class A common stock is traded over-the-counter and is quoted daily under the Nasdaq Small Cap I Trades are reported under the symbol "GROW."
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 13 of 17 - -------------------------------------------------------------------------------- The Company's current capital structure, as of May 7, 2001, included 6,299,474 shares of class A common stock, issued and 6,031,323 shares of class A common stock issued and outstanding; no shares of class B common stock issued and outstanding; and 1,496,800 shares of class C common stock issued and outstanding.
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 14 of 17 - -------------------------------------------------------------------------------- ITEM 3. MARKET RISK DISCLOSURES The Company's balance sheet includes assets whose fair value is subject to market risks. Due to the Company's investments in equity securities, equity price fluctuations represent a market risk factor affecting the Company's consolidated financial position. The carrying values of investments subject to equity price risks are based on quoted market prices or, if not actively traded, based on management's 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 Company's investment activities are reviewed and monitored by Company compliance personnel and various reports are provided to investment advisory clients. The table below summarizes the Company's equity price risks at March 31, 2001, and shows the effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices. <TABLE> <CAPTION> ESTIMATED HYPOTHETICAL FAIR VALUE AFTER FAIR VALUE AT PERCENTAGE HYPOTHETICAL INCREASE (DECREASE) IN MARCH 31, 2001 CHANGE PERCENT CHANGE SHAREHOLDERS' EQUITY -------------- -------------- -------------- -------------------- <S> <C> <C> <C> <C> Trading Securities $1,104,205 25% increase $1,380,256 $ 182,194 25% decrease $ 828,154 $(182,194) Available-for-Sale $ 790,038 25% increase $ 987,548 $ 130,357 25% decrease $ 529,528 $(130,357) </TABLE> The selected hypothetical change does not reflect what could be considered best- or worst-case scenarios. Results could be significantly worse due to both the nature of equity markets and the concentration of the Company's investment portfolio.
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 15 of 17 - -------------------------------------------------------------------------------- PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 1. Exhibits 11 Statement re: Computation of Per Share Income 2. Reports on Form 8-K None
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 16 of 17 - -------------------------------------------------------------------------------- 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. U.S. GLOBAL INVESTORS, INC. DATED: May 15, 2001 BY: /S/ FRANK E. HOLMES ----------------------------- Frank E. Holmes Chief Executive Officer DATED: May 15, 2001 BY: /S/ BOBBY D. DUNCAN ----------------------------- Bobby D. Duncan Chief Financial Officer Chief Operating Officer DATED: May 15, 2001 BY: /S/ TRACY C. PETERSON ----------------------------- Tracy C. Peterson Chief Accounting Officer
U.S. Global Investors, Inc. March 31, 2001, Quarterly Report on Form 10-Q Page 17 of 17 - -------------------------------------------------------------------------------- EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET INCOME (LOSS) PER SHARE <TABLE> <CAPTION> NINE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, --------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ---------- ----------- ----------- <S> <C> <C> <C> <C> Net income (loss) $ (491,542) $ 875,105 $ (136,897) $ 441,557 =========== ========== =========== =========== BASIC Weighted average number shares outstanding during the period 7,525,861 7,372,678 7,530,933 7,524,857 Basic income (loss) per share $ (0.07) $ 0.12 $ (0.02) $ 0.06 =========== ========== =========== =========== DILUTED Weighted average number of shares outstanding during the period 7,525,861 7,372,678 7,530,933 7,524,857 Effect of dilutive securities: Common stock equivalent shares (determined using the "treasury stock" method) representing shares issuable upon exercise of preferred or common stock options -- 970 -- 9,307 ----------- ---------- ----------- ----------- Weighted average number of shares used in calculation of diluted income per share 7,525,861 7,373,648 7,530,933 7,534,164 =========== ========== =========== =========== Diluted income (loss) per share $ (0.07) $ 0.12 $ (0.02) $ 0.06 =========== ========== =========== =========== </TABLE>