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 December 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 78229-1234 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 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] On February 7, 2002, there were 6,299,474 shares of Registrant's class A common stock issued and 5,940,794 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.
I N D E X PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 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. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-Q PAGE 3 OF 17 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> ASSETS DECEMBER 31, 2001 JUNE 30, 2001 ----------------- ------------- (UNAUDITED) <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $1,439,099 $1,333,922 Trading securities, at fair value 810,772 1,163,693 Receivables Mutual funds 753,721 773,595 Other 417,157 396,829 Prepaid expenses 269,452 203,565 Deferred tax asset 373,751 435,949 ---------- ---------- TOTAL CURRENT ASSETS 4,063,952 4,307,553 ---------- ---------- NET PROPERTY AND EQUIPMENT 1,967,469 2,029,899 ---------- ---------- OTHER ASSETS Restricted investments 210,000 225,000 Long-term deferred tax asset 717,556 605,066 Investment securities available-for-sale, at fair value 724,460 694,870 Other 59,796 49,796 ---------- ---------- TOTAL OTHER ASSETS 1,711,812 1,574,732 ---------- ---------- TOTAL ASSETS $7,743,233 $7,912,184 ========== ========== </TABLE> The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-Q PAGE 4 OF 17 LIABILITIES AND SHAREHOLDERS' EQUITY <TABLE> <CAPTION> DECEMBER 31, 2001 JUNE 30, 2001 ----------------- ------------- (UNAUDITED) <S> <C> <C> CURRENT LIABILITIES Accounts payable $ 213,066 $ 280,587 Accrued compensation and related costs 255,727 224,094 Current portion of notes payable 63,202 69,094 Current portion of annuity and contractual obligation 9,424 9,100 Other accrued expenses 498,673 477,886 ----------- ----------- TOTAL CURRENT LIABILITIES 1,040,092 1,060,761 ----------- ----------- Notes payable-net of current portion 989,255 1,013,747 Annuity and contractual obligations 117,362 122,156 ----------- ----------- TOTAL NON-CURRENT LIABILITIES 1,106,617 1,135,903 ----------- ----------- TOTAL LIABILITIES 2,146,709 2,196,664 ----------- ----------- SHAREHOLDERS' EQUITY Common stock (Class A) - $.05 par value; non-voting; authorized, 7,000,000 shares; issued, 6,299,474 shares 314,974 314,974 Common stock (Class C) - $.05 par value; voting; authorized, 1,750,000 shares; issued, 1,496,800 shares 74,840 74,840 Additional paid-in-capital 10,678,419 10,678,419 Treasury stock, class A shares at cost; 358,680 and 313,426 shares at December 31, 2001, and June 30, 2001, respectively (659,914) (632,261) Accumulated other comprehensive loss, net of tax (150,644) (102,364) Accumulated deficit (4,661,151) (4,618,088) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 5,596,524 5,715,520 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,743,233 $ 7,912,184 =========== =========== </TABLE> The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-Q PAGE 5 OF 17 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(UNAUDITED) <TABLE> <CAPTION> SIX MONTHS ENDED THREE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------------ ----------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> REVENUES Investment advisory fees $2,417,329 $3,036,251 $1,194,528 $1,430,622 Transfer agent fees 1,259,439 1,403,789 626,748 722,585 Custodial and administrative fees 89,490 167,939 44,974 78,689 Investment income (loss) (222,809) 62,681 (77,823) (299,024) Other 169,761 219,975 97,282 108,103 ----------- ----------- ----------- ----------- 3,713,210 4,890,635 1,885,709 2,040,975 EXPENSES General and administrative 3,656,317 5,225,583 1,832,424 2,623,438 Depreciation and amortization 63,931 135,563 29,616 64,228 Interest 44,814 62,217 23,042 32,367 ----------- ----------- ----------- ----------- 3,765,062 5,423,363 1,885,082 2,720,033 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (51,852) (532,728) 627 (679,058) PROVISION FOR FEDERAL INCOME TAXES Tax (Benefit) Expense (25,421) (178,083) 22,157 (223,286) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ (26,431) $ (354,645) $ (21,530) $ (455,772) Other comprehensive income (loss), net of tax Unrealized gains (losses) on available-for-sale securities (48,280) (10,454) (12,012) (80,947) ----------- ----------- ----------- ----------- COMPREHENSIVE INCOME (LOSS) $ (74,711) $ (365,099) $ (33,542) $ (536,719) =========== =========== =========== =========== BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ (0.00) $ (0.05) $ (0.00) $ (0.06) =========== =========== =========== =========== </TABLE> The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-Q PAGE 6 OF 17 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> SIX MONTHS ENDED DECEMBER 31, ------------------------------------------- 2001 2000 ------------ ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (26,431) $ (354,645) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 63,931 135,563 Net gain on sales of available-for-sale securities -- (32,662) Provision for deferred taxes (25,421) (178,083) Reserve against impairment of equipment -- 63,098 Changes in assets and liabilities, impacting cash from operations: Accounts receivable (454) 56,049 Prepaid expenses and other (60,887) 9,047 Trading securities 352,921 398,304 Accounts payable and accrued expenses (15,101) (216,744) ------------ ------------ Total adjustments 314,989 234,572 ------------ ------------ NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 288,558 (120,073) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,500) (40,691) Purchase of available-for-sale securities (102,742) -- Proceeds on sale of available-for-sale securities -- 243,515 ------------ ------------ NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (104,242) 202,824 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on annuity (4,470) (4,169) Payments on note payable (30,384) (24,770) Proceeds from issuance or exercise of stock, warrants, and options 23,552 79,886 Purchase of treasury stock (67,837) (8,987) ------------ ------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (79,139) 41,960 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 105,177 124,711 BEGINNING CASH AND CASH EQUIVALENTS 1,333,922 1,356,903 ------------ ------------ ENDING CASH AND CASH EQUIVALENTS $ 1,439,099 $ 1,481,614 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 44,814 $ 62,217 </TABLE> The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC. DECEMBER 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, 2001. 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 intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes. The results of operations for the six-month and three-month periods ended December 31, 2001, are not necessarily indicative of the results to be expected for the entire year. NOTE 2. INVESTMENTS The cost of investments classified as trading at December 31, 2001, and June 30, 2001, was $1,761,163 and $1,951,963, respectively. The market value of investments classified as trading at December 31, 2001, and June 30, 2001, was $810,772 and $1,163,693, respectively. The net change in unrealized holding losses on trading securities held at December 31, 2001, and 2000, which has been included in income for the six-month period is ($162,121) and ($404,233), respectively. Sales of trading securities generated realized gains (losses) of ($87,948) and $364,617 for the six-month period ended December 31, 2001, and 2000, respectively. The cost of investments in securities classified as available-for-sale, which may not be readily marketable at December 31, 2001, and June 30, 2001, was $952,708 and $849,966, respectively. These investments are reflected as non-current assets on the consolidated balance sheet at their fair value at December 31, 2001, and June 30, 2001, of $724,460 and $694,870, respectively, with $150,644 and $102,364, respectively, net of tax, in unrealized losses being recorded as a separate component of shareholders' equity. Sales of available-for-sale securities generated realized gains of $0 and $32,662 for the six-month period ended December 31, 2001, and 2000, respectively. NOTE 3. INVESTMENT ADVISORY, 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 custodian fee revenues, revenues from miscellaneous transfer agency activities including lockbox functions, mail room operations from A&B, as well as gains on marketable securities transactions. The Company has voluntarily waived or reduced its advisory fee and/or has agreed to pay expenses on several USGIF funds through June 30, 2002, or such later date as the Company determines. The aggregate fees waived and expenses borne by the Company for the six-month period ended December 31, 2001, and 2000, was $842,785 and $1,019,188, respectively. The investment advisory and related contracts between the Company and USGIF and USGAF will expire in February 2003, and in May 2002, respectively. Management anticipates the board of trustees of both USGIF and USGAF will renew the contracts.
U.S. GLOBAL INVESTORS, INC. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-Q PAGE 8 OF 17 NOTE 4. BORROWINGS The Company has a note payable to a bank secured by land, an office building, and related improvements. As of December 31, 2001, the balance on the note was $1,052,457. The loan is currently amortizing over a twelve-year period with payments of both principal and interest due monthly based on a fixed rate of 6.50 percent. The current monthly payment is $10,840, and the note matures on January 31, 2006. Under this agreement, the Company must maintain certain financial covenants. The Company is in full compliance with its financial covenants at December 31, 2001. Management believes that the Company has adequate cash, cash equivalents, and equity in the underlying assets to retire the obligation if necessary. 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 Company's eligible accounts receivable and pledged securities. NOTE 5. INCOME TAXES 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. For federal income tax purposes at December 31, 2001, the Company has net operating loss carryovers (NOLs) of approximately $1.6 million, which will expire between fiscal 2005 and 2011, charitable contribution carryovers of approximately $213,000 expiring between 2002 and 2006, and alternative minimum tax credits of $139,729 with indefinite expirations. If certain changes in the Company's ownership occur subsequently to December 31, 2001, there could be an annual limitation on the 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 will not be realized. Management included a valuation allowance of approximately $376,000 and $547,000 at December 31, 2001, and June 30, 2001, 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: <TABLE> <CAPTION> INVESTMENT MANAGEMENT CORPORATE SERVICES INVESTMENTS CONSOLIDATED <S> <C> <C> <C> SIX MONTHS ENDED DECEMBER 31, 2001 Net revenues $ 3,936,019 $ (222,809) $ 3,713,210 ============ ============ ============ Net income (loss) before income taxes $ 171,279 $ (223,131) $ (51,852) ============ ============ ============ Depreciation and amortization $ 63,931 $ -- $ 63,931 ============ ============ ============ Interest expense $ 44,518 $ 296 $ 44,814 ============ ============ ============ Capital expenditures $ 1,500 $ -- $ 1,500 ============ ============ ============ Gross identifiable assets at December 31, 2001 $ 4,966,050 $ 1,535,232 $ 6,501,282 Deferred tax asset 1,091,307 Accumulated other comprehensive loss 150,644 ------------ Consolidated total assets at December 31, 2001 $ 7,743,233 ============
U.S. GLOBAL INVESTORS, INC. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-Q PAGE 9 OF 17 INVESTMENT MANAGEMENT CORPORATE SERVICES INVESTMENTS CONSOLIDATED SIX MONTHS ENDED DECEMBER 31, 2000 Net revenues $ 4,827,954 $ 62,681 $ 4,890,635 ============ ============ ============ Net income (loss) before income taxes $ (563,416) $ 30,688 $ (532,728) ============ ============ ============ Depreciation and amortization $ 135,563 $ -- $ 135,563 ============ ============ ============ Interest expense $ 62,033 $ 184 $ 62,217 ============ ============ ============ Capital expenditures $ 40,691 $ -- $ 40,691 ============ ============ ============ Gross identifiable assets at December 31, 2000 $ 5,323,749 $ 1,958,166 $ 7,281,915 Deferred tax asset 1,234,601 Accumulated other comprehensive loss 62,225 ------------ Consolidated total assets at December 31, 2000 $ 8,578,741 ============ </TABLE>
U.S. GLOBAL INVESTORS, INC. DECEMBER 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. (the Company or U.S. Global) 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 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 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 date on which such statements were made. BUSINESS SEGMENTS The Company, with principal operations in San Antonio, Texas manages two business segments: (1) the Company provides mutual fund investment services to its clients, 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 its operating revenues from the investment management of products and services for the U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF). Notwithstanding that the Company generates the majority of its revenues from this segment, the Company holds a significant portion of its total assets in proprietary investments. The following is a brief discussion of the Company's two business segments. INVESTMENT MANAGEMENT PRODUCTS AND SERVICES As noted above, 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 six-month period ended December 31, 2001, assets under management in USGIF averaged $1.04 billion versus $1.07 billion for the same period ended December 31, 2000. This decline was primarily due to the drop in equity markets as well as a steep fall in Asian markets. Assets under management in USGAF averaged $125 million for the six-month period ended December 31, 2001, versus $243 million for the same period ended December 31, 2000. This decrease is a result of declines in the assets of the Bonnel Growth Fund. During the quarter ended December 31, 2001, assets under management in USGIF averaged $1.03 billion versus $1.07 billion for the quarter ended December 31, 2000. This decrease was primarily due to declines in equity assets and net redemptions out of the money market funds. Assets under management in USGAF averaged $121 million for the quarter ended December 31, 2001, versus $220 million for the quarter ended December 31, 2000. This decrease was primarily attributable to sharp declines in the net assets of the Bonnel Growth Fund. INVESTMENT ACTIVITIES Management believes it can more effectively manage the Company's 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 reviewed and monitored these activities, and various reports are provided to investment advisory clients. On December 31, 2001, the Company held approximately $1.5 million in investment securities. The value of these investments is approximately 20 percent of total assets and 27 percent of shareholders' equity at period end. 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
U.S. GLOBAL INVESTORS, INC. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-Q PAGE 11 OF 17 six-month period ended December 31, 2001, the Company had realized losses of approximately $88,000 compared with gains of approximately $397,000 for the six-month period ended December 31, 2000. The net change in unrealized holding losses on trading securities held at December 31, 2001, and 2000, which has been included in income for the six-month period is ($162,121) and ($404,233), respectively. The Company expects that gains and losses will continue to fluctuate in the future. RESULTS OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000 The Company posted a net after-tax loss of $26,431 ($0.00 loss per share) for the six months ended December 31, 2001, compared with a net after-tax loss of $354,645 ($0.05 loss per share) for the six months ended December 31, 2000. The net loss decreased $328,000 as a decrease of $1.6 million in general and administrative expenses was offset by declines in investment advisory fees and investment income of $619,000 and $285,000, respectively. REVENUES Total consolidated revenues for the six months ended December 31, 2001, decreased approximately $1,177,000, or 24 percent, compared with the six months ended December 31, 2000. This was primarily due to the decrease in investment income and investment advisory fees as stated above. The decline in investment income came as a result of reduced valuations in the Company's investment portfolio in conjuction with declining markets and realized losses of $88,000 from investment transactions in the six-month period ended December 31, 2001, compared with realized gains of $397,000 in the six months ended December 31, 2000. The decrease in investment advisory fees was primarily due to a sharp drop in the assets of the Bonnel Growth Fund, as well as other equity funds. Transfer agent fees for the six months ended December 31, 2001, decreased $144,000, or 10 percent, compared with the six months ended December 31, 2000. This was due to a decline in the overall number of shareholder accounts, a significant portion of which were small accounts. Additionally, custodial and administrative fees fell $78,000, or 47 percent, compared with the six months ended December 31, 2000. This was a direct result of the divestiture of the Company's 401(k) administration operations in early 2001. EXPENSES Total consolidated expenses for the six months ended December 31, 2001, decreased approximately $1,658,000, or 31 percent, compared with the six months ended December 31, 2000. This decrease, as noted above, was primarily a result of reduced general and administrative expenses. The reduction in general and administrative expenses was largely the result of reduced sub-advisory fees paid on the Bonnel Growth Fund, reduced expense reimbursements paid out to funds with expense caps, and non-recurring legal and professional fees paid in the six months ended December 31, 2000. Additionally, the Company implemented restructuring actions in the second half of fiscal year 2001, which resulted in a workforce reduction and the elimination of the Company's unprofitable 401(k) administration operations. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA) Management considers EBITDA to be the best measure of the Company's financial performance. This measurement reflects the operations of the Company's primary business segment, managing and servicing USGIF and USGAF. It does not take into consideration realized and unrealized gains and losses, interest expense, taxes, or depreciation and amortization expenses. EBITDA for the six-month period ended December 31, 2001, was $306,962, which was an increase of $635,000 from an EBITDA loss of $327,994 for the six-month period ended December 31, 2000. The Company has experienced reduced investment advisory fees due to depressed market conditions and a shareholder shift to money market and fixed-income funds, which have lower profit margins. Despite these conditions, management has undertaken steps to improve operational efficiencies and enhance profit margins. In January 2001, the Company began a restructuring process. To streamline operations, the Company instituted a workforce reduction and initiated steps to eliminate its unprofitable 401(k) administration operations. Additionally, the Company maintained a consistent focus on reducing expenses and in July 2001 implemented profit-margin enhancing initiatives. As a result of these efforts, EBITDA has improved dramatically despite depressed equity values, and the Company is poised for continued operational growth when the markets begin a sustained rebound.
U.S. GLOBAL INVESTORS, INC. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-Q PAGE 12 OF 17 RESULTS OF OPERATIONS - QUARTER ENDED DECEMBER 31, 2001 AND 2000 The Company posted a net after-tax loss of $21,530 ($0.00 loss per share) for the quarter ended December 31, 2001, compared with a net after-tax loss of $455,772 ($0.06 loss per share) for the quarter ended December 31, 2000. The net loss decreased $434,000 as a decrease in general and administrative expenses of $791,000 was offset by decreases in investment advisory fees and transfer agent fees of $236,000 and $96,000, respectively. REVENUES Total consolidated revenues for the quarter ended December 31, 2001, decreased approximately $155,000, or 8 percent, compared with the quarter ended December 31, 2000. This was primarily due to the decrease in investment advisory fees and transfer agent fees as stated above. The decrease in investment advisory fees was primarily due to a sharp drop in the assets of the Bonnel Growth Fund, as well as other equity funds. Transfer agent fees declined as a result of a reduction in the consolidated number of shareholder accounts. EXPENSES Total consolidated expenses for the quarter ended December 31, 2001, decreased approximately $835,000, or 31 percent, compared with the quarter ended December 31, 2000. This decrease, as noted above, was primarily a result of reduced general and administrative expenses. The reduction in general and administrative expenses was largely the result of reduced sub-advisory fees paid on the Bonnel Growth Fund, reduced expense reimbursements paid out to funds with expense caps, and non-recurring legal and professional fees paid in the quarter ended December 31, 2000. Additionally, the Company's continued focus on reducing cost structures has resulted in incremental reductions in other operational areas as well. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA) EBITDA for the quarter ended December 31, 2001, was $140,989, which was an increase of $384,000 from an EBITDA loss of $243,510 for the quarter ended December 31, 2000. The Company has experienced reduced investment advisory fees due to continued depressed market conditions, which were exacerbated by the tragic events of September 11, 2001. The Company has maintained its focus on expenses and has continued to benefit from its profit-margin enhancing initiatives. As a result of these efforts, EBITDA has improved dramatically despite revenue declines. INCOME TAXES 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. For federal income tax purposes at December 31, 2001, the Company has net operating loss carryovers (NOLs) of approximately $1.6 million, which will expire between fiscal 2005 and 2011, charitable contribution carryovers of approximately $213,000 expiring between 2002 and 2006, and alternative minimum tax credits of $139,729 with indefinite expirations. If certain changes in the Company's ownership occur subsequently to December 31, 2001, there could be an annual limitation on the 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 will not be realized. Management included a valuation allowance of approximately $376,000 and $547,000 at December 31, 2001, and June 30, 2001, respectively, providing for the utilization of NOLs, charitable contributions, and investment tax credits against future taxable income. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2001, the Company had net working capital (current assets minus current liabilities) of approximately $3.0 million and a current ratio of 3.9 to 1. With approximately $1.4 million in cash and cash equivalents and approximately $1.5 million in marketable securities, the Company has adequate liquidity to meet its current debt obligations. Total shareholders' equity was approximately $5.6 million, with cash, cash equivalents, and marketable securities comprising 38 percent of total assets. With the exception of operating expenses, the Company's only material
U.S. GLOBAL INVESTORS, INC. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-Q PAGE 13 OF 17 commitment is the mortgage on its corporate headquarters. The Company also has access to a $1 million credit facility, which can be utilized for working capital purposes. The Company's available working capital and potential cash flow are expected to be sufficient to cover current expenses and debt service. The investment advisory and related contracts between the Company and USGIF and USGAF will expire on February 28, 2003, 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 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.
U.S. GLOBAL INVESTORS, INC. DECEMBER 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 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. Company compliance personnel reviewed and monitored the Company's investment activities, and various reports are provided to investment advisory clients. The table below summarizes the Company's equity price risks as of December 31, 2001, and shows the effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices. <TABLE> <CAPTION> ESTIMATED INCREASE HYPOTHETICAL FAIR VALUE AFTER (DECREASE) IN FAIR VALUE AT PERCENTAGE HYPOTHETICAL SHAREHOLDERS' DECEMBER 31, 2001 CHANGE PERCENT CHANGE EQUITY ----------------- ------------ -------------- ------------- <S> <C> <C> <C> <C> Trading Securities $810,772 25% increase $ 1,013,465 $ 133,777 25% decrease $ 608,079 $ (133,777) Available-for-Sale $724,460 25% increase $ 905,575 $ 119,536 25% decrease $ 543,345 $ (119,536) </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. DECEMBER 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. DECEMBER 31, 2001, QUARTERLY REPORT ON FORM 10-QPAGE 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: February 14, 2002 BY: /s/ Frank E. Holmes ---------------------------------------- Frank E. Holmes Chief Executive Officer DATED: February 14, 2002 BY: /s/ Susan B. McGee ---------------------------------------- Susan B. McGee President General Counsel DATED: February 14, 2002 BY: /s/ Tracy C. Peterson ---------------------------------------- Tracy C. Peterson Chief Accounting Officer
U.S. GLOBAL INVESTORS, INC. DECEMBER 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> SIX MONTHS ENDED THREE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------------ ----------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net income (loss) $ (26,431) $ (354,645) $ (21,530) $ (455,772) =========== =========== =========== =========== BASIC Weighted average number of shares outstanding during the period 7,459,774 7,523,381 7,448,859 7,529,986 Basic income (loss) per share $ (0.00) $ (0.05) $ (0.00) $ (0.06) =========== =========== =========== =========== DILUTED Weighted average number of shares outstanding during quarter 7,459,774 7,523,381 7,448,859 7,529,986 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 -- -- -- -- ----------- ----------- ----------- ----------- Weighted average number of shares used in calculation of diluted income (loss) per share 7,459,774 7,523,381 7,448,859 7,529,986 =========== =========== =========== =========== Diluted income (loss) per share $ (0.00) $ (0.05) $ (0.00) $ (0.06) =========== =========== =========== =========== </TABLE>