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, 2002 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 May 8, 2002, there were 6,299,474 shares of Registrant's class A common stock issued and 5,953,254 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. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 2 OF 17 - -------------------------------------------------------------------------------- I N D E X PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets............................................3 Consolidated Statements of Operations and Comprehensive 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 LOSS PER SHARE..................17
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, 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, 2002 2001 ---------- ---------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $1,085,290 $1,333,922 Trading securities, at fair value 904,286 1,163,693 Receivables Mutual funds 793,594 773,595 Other 268,865 396,829 Prepaid expenses 379,643 203,565 Deferred tax asset 341,964 435,949 ---------- ---------- TOTAL CURRENT ASSETS 3,773,642 4,307,553 ---------- ---------- NET PROPERTY AND EQUIPMENT 1,941,887 2,029,899 ---------- ---------- OTHER ASSETS Restricted investments 210,000 225,000 Long-term deferred tax asset 681,329 605,066 Investment securities available-for-sale, at fair value 711,947 694,870 Other 59,796 49,796 ---------- ---------- TOTAL OTHER ASSETS 1,663,072 1,574,732 ---------- ---------- TOTAL ASSETS $7,378,601 $7,912,184 ========== ========== The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 4 OF 17 - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY MARCH 31, JUNE 30, 2002 2001 ---------- ---------- (UNAUDITED) CURRENT LIABILITIES Accounts payable $ 207,645 $ 280,587 Accrued compensation and related costs 228,763 224,094 Current portion of notes payable 64,582 69,094 Current portion of annuity and contractual obligation 9,589 9,100 Other accrued expenses 246,206 477,886 ---------- ---------- TOTAL CURRENT LIABILITIES 756,785 1,060,761 ---------- ---------- Notes payable-net of current portion 972,181 1,013,747 Annuity and contractual obligations 114,901 122,156 ---------- ---------- TOTAL NON-CURRENT LIABILITIES 1,087,082 1,135,903 ---------- ---------- TOTAL LIABILITIES 1,843,867 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; 346,220 and 313,426 shares at March 31, 2002, and June 30, 2001, respectively (633,425) (632,261) Accumulated other comprehensive loss, net of tax (198,614) (102,364) Accumulated deficit (4,701,460) (4,618,088) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 5,534,734 5,715,520 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,378,601 $7,912,184 ========== ========== The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 5 OF 17 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) <TABLE> <CAPTION> NINE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, ---------------------------- ---------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> REVENUES Investment advisory fees $ 3,630,513 $ 4,335,283 $ 1,213,184 $ 1,299,032 Transfer agent fees 1,825,656 2,048,529 566,217 644,740 Custodial and administrative fees 122,772 240,147 33,282 72,208 Investment income (loss) (119,734) 140,378 103,075 77,697 Other 186,527 307,016 16,766 87,041 ----------- ----------- ----------- ----------- 5,645,734 7,071,353 1,932,524 2,180,718 EXPENSES General and administrative 5,472,332 7,427,565 1,816,015 2,201,982 Depreciation and amortization 92,777 203,715 28,846 68,152 Interest 64,641 88,709 19,827 26,492 ----------- ----------- ----------- ----------- 5,629,750 7,719,989 1,864,688 2,296,626 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 15,984 (648,636) 67,836 (115,908) PROVISION FOR FEDERAL INCOME TAXES Tax (Benefit) Expense 67,305 (157,094) 92,726 20,989 ----------- ----------- ----------- ----------- NET LOSS $ (51,321) $ (491,542) $ (24,890) $ (136,897) Other comprehensive loss, net of tax Unrealized losses on available-for-sale securities (96,250) (53,121) (47,970) (42,667) ----------- ----------- ----------- ----------- COMPREHENSIVE LOSS $ (147,571) $ (544,663) $ (72,860) $ (179,564) =========== =========== =========== =========== BASIC AND DILUTED NET LOSS PER SHARE $ (0.01) $ (0.07) $ (0.00) $ (0.02) =========== =========== =========== =========== </TABLE> The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 6 OF 17 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED MARCH 31, -------------------------- 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (51,321) $ (491,542) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 92,777 203,715 Net gain on sales of available-for-sale securities -- (32,662) Provision for deferred taxes 67,305 (157,094) Reserve against impairment of equipment -- 89,928 Changes in assets and liabilities, impacting cash from operations: Accounts receivable 107,965 362,409 Prepaid expenses and other (171,078) 134,727 Trading securities 259,408 492,000 Accounts payable and accrued expenses (299,953) (372,004) ---------- ---------- Total adjustments 56,424 721,019 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,103 229,477 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (4,765) (82,240) Purchase of available-for-sale securities (162,911) (97,175) Proceeds on sale of available-for-sale securities -- 246,269 ---------- ---------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (167,676) 66,854 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on annuity (6,766) (6,309) Payments on note payable (46,078) (35,275) Proceeds from issuance or exercise of stock, warrants, and 43,439 80,160 options Purchase of treasury stock (76,654) (26,195) ---------- ---------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (86,059) 12,381 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (248,632) 308,712 BEGINNING CASH AND CASH EQUIVALENTS 1,333,922 1,356,903 ---------- ---------- ENDING CASH AND CASH EQUIVALENTS $1,085,290 $1,665,615 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 64,641 $ 88,709 The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, 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 nine-month and three-month periods ended March 31, 2002, 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 March 31, 2002, and June 30, 2001, was $1,761,185 and $1,951,963, respectively. The market value of investments classified as trading at March 31, 2002, and June 30, 2001, was $904,286 and $1,163,693, respectively. The net change in unrealized holding losses on trading securities held at March 31, 2002, and 2001, which has been included in income for the nine-month period is ($68,670) and ($350,894), respectively. Sales of trading securities generated realized gains (losses) of ($87,948) and $357,952 for the nine-month period ended March 31, 2002, and 2001, respectively. The cost of investments in securities classified as available-for-sale, which may not be readily marketable at March 31, 2002, and June 30, 2001, was $1,012,877 and $849,966, respectively. These investments are reflected as non-current assets on the consolidated balance sheet at their fair value at March 31, 2002, and June 30, 2001, of $711,947 and $694,870, respectively, with $198,614 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 nine-month period ended March 31, 2002, and 2001, 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. USGAF are sub-advised by outside third-party managers, who are in turn paid out of the investment advisory fees received by the Company. In March 2002, an agreement was reached with one of these sub-advisors whereby $165,000 of sub-advisory fees payable were waived. As a result, general and administrative expenses were reduced by this amount in the quarter ended March 31, 2002. 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 nine-month period ended March 31, 2002, and 2001, was $1,234,680 and $1,497,274, respectively.
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 8 OF 17 - -------------------------------------------------------------------------------- The investment advisory and related contracts between the Company and USGIF and USGAF will expire in February 2003, and in May 2003, 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 secured by land, an office building, and related improvements. As of March 31, 2002, the balance on the note was $1,036,763. 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 not in compliance with certain debt covenants but received a waiver from the bank through March 31, 2002. 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. As of March 31, 2002, this credit facility remained unutilized by the Company. 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 March 31, 2002, the Company has net operating loss carryovers (NOLs) of approximately $860,000, which will expire between fiscal 2005 and 2011, charitable contribution carryovers of approximately $18,000 expiring between 2002 and 2006, and alternative minimum tax credits of $139,729 with indefinite expirations. The long-term deferred tax asset includes $102,000 of unrealized losses on available-for-sale securities, $177,000 from the permanent write-down of security valuations, and $42,000 from annuity obligations. If certain changes in the Company's ownership occur subsequently to March 31, 2002, 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 $708,000 and $547,000 at March 31, 2002, 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> NINE MONTHS ENDED MARCH 31, 2002 Net revenues $5,765,468 $ (119,734) $5,645,734 ========== ============= ========== Net income (loss) before income taxes $ 136,118 $ (120,134) $ 15,984 ========== ============= ========== Depreciation and amortization $ 92,777 $ -- $ 92,777 ========== ============= ========== Interest expense $ 64,267 $ 374 $ 64,641 ========== ============= ========== Capital expenditures $ 4,765 $ -- $ 4,765 ========== ============= ========== Gross identifiable assets at March 31, 2002 $4,540,461 $ 1,616,233 $6,156,694
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 9 OF 17 - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT CORPORATE SERVICES INVESTMENTS CONSOLIDATED ---------- ------------- ---------- Deferred tax asset 1,023,293 Accumulated other comprehensive loss 198,614 ---------- Consolidated total assets at March 31, 2002 $7,378,601 ========== NINE MONTHS ENDED MARCH 31, 2001 Net revenues $6,930,975 $ 140,378 $7,071,353 ========== ============= ========== Net income (loss) before income taxes $ (754,664) $ 106,028 $ (648,636) ========== ============= ========== Depreciation and amortization $ 203,715 $ -- $ 203,715 ========== ============= ========== Interest expense $ 88,480 $ 229 $ 88,709 ========== ============= ========== Capital expenditures $ 82,240 $ -- $ 82,240 ========== ============= ========== Gross identifiable assets at March 31, 2001 $4,979,610 $ 1,894,243 $6,873,853 Deferred tax asset 1,235,593 Accumulated other comprehensive loss 104,892 ---------- Consolidated total assets at March 31, 2001 $8,214,338 ========== </TABLE>
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, 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 nine-month period ended March 31, 2002, assets under management in USGIF averaged $1.03 billion versus $1.07 billion for the same period ended March 31, 2001. This decline was primarily due to the declines in equity markets and net redemptions out of the money market funds. Assets under management in USGAF averaged $125 million for the nine-month period ended March 31, 2002, versus $224 million for the same period ended March 31, 2001. This decrease is a result of declines in the assets of the Bonnel Growth Fund. During the quarter ended March 31, 2002, assets under management in USGIF averaged $1.02 billion versus $1.08 billion for the quarter ended March 31, 2001. This decrease was primarily due to net redemptions out of the money market funds. However, these redemptions were somewhat offset by increased assets in the gold and precious minerals funds. Assets under management in USGAF averaged $125 million for the quarter ended March 31, 2002, versus $185 million for the quarter ended March 31, 2001. 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 March 31, 2002, the Company held approximately $1.6 million in investment securities. The value of these investments is approximately 22 percent of total assets and 29 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
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 11 OF 17 - -------------------------------------------------------------------------------- fluctuations, the Company's ability to participate in investment opportunities, and timing of transactions. For the nine-month period ended March 31, 2002, the Company had realized losses of approximately $88,000 compared with gains of approximately $391,000 for the nine-month period ended March 31, 2001. The net change in unrealized holding losses on trading securities held at March 31, 2002, and 2001, which has been included in income for the nine-month period is ($68,670) and ($350,894), respectively. The Company expects that gains and losses will continue to fluctuate in the future. RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 2002 AND 2001 The Company posted a net after-tax loss of $51,321 ($0.01 loss per share) for the nine months ended March 31, 2002, compared with a net after-tax loss of $491,542 ($0.07 loss per share) for the nine months ended March 31, 2001. The net loss decreased $440,000 as a result of a decrease of $2.0 million in general and administrative expenses that was offset by declines in investment advisory fees, transfer agent fees, and investment income of $705,000, $223,000, and $260,000, respectively. REVENUES Total consolidated revenues for the nine months ended March 31, 2002, decreased approximately $1,426,000, or 20 percent, compared with the nine months ended March 31, 2001. This was primarily due to the decrease in investment advisory fees, transfer agent fees, and investment income, as stated above. The decrease in investment advisory fees was primarily due to a drop in equity fund assets, particularly in the Bonnel Growth Fund. This decline was partially offset by reduced fee waivers the Company implemented to improve profitability. Transfer agent fees for the nine months ended March 31, 2002, decreased $223,000, or 11 percent, compared with the nine months ended March 31, 2001. This was due to a decline in the overall number of shareholder accounts, a significant portion of which were small accounts. The decline in investment income came as a result of reduced valuations in the Company's investment portfolio in conjunction with declining markets and realized losses of $88,000 from investment transactions in the nine-month period ended March 31, 2002, compared with realized gains of $391,000 in the nine months ended March 31, 2001. Additionally, custodial and administrative fees fell $117,000, or 49 percent, compared with the nine months ended March 31, 2001. 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 nine months ended March 31, 2002, decreased approximately $2,090,000, or 27 percent, compared with the nine months ended March 31, 2001. This decrease was primarily a result of reduced general and administrative expenses, as noted above. The reduction in general and administrative expenses was largely the result of reduced sub-advisory fees paid on the Bonnel Growth Fund, reduced servicing fees paid out to third-party distribution platforms, and non-recurring legal and professional fees paid in the nine months ended March 31, 2001. Additionally, the Company implemented restructuring actions in the last fifteen months, which resulted in a workforce reduction and the elimination of the Company's unprofitable 401(k) administration operations. The Company has realized reduced expenses as it strives to maintain costs at an optimal level. 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 investment gains and losses, interest expense, taxes, or depreciation and amortization expenses. EBITDA for the nine-month period ended March 31, 2002, was $330,020, which was an increase of $726,000 from an EBITDA loss of $395,931 for the nine-month period ended March 31, 2001. The Company has experienced reduced investment advisory fees due to depressed market conditions and an investor shift to alternative products not offered by the Company. Despite these conditions, management has undertaken steps to improve operational efficiencies and enhance profit margins. To streamline operations, the Company instituted a workforce reduction and eliminated its unprofitable 401(k) administration operations. Additionally, the Company maintained a consistent focus on reducing expenses and in July 2001 implemented a reduction in fee waivers in order to enhance profit margins. As a result of these
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 12 OF 17 - -------------------------------------------------------------------------------- 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. The Company has recently experienced a tremendous growth in gold assets as this long-depressed sector has rebounded. RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 2002 AND 2001 The Company posted a net after-tax loss of $24,890 ($0.00 loss per share) for the quarter ended March 31, 2002, compared with a net after-tax loss of $136,897 ($0.02 loss per share) for the quarter ended March 31, 2001. The net loss decreased $112,000 as a decrease in general and administrative expenses of $386,000 was offset by decreases in investment advisory fees and transfer agent fees of $86,000 and $79,000, respectively. REVENUES Total consolidated revenues for the quarter ended March 31, 2002, decreased approximately $248,000, or 11 percent, compared with the quarter ended March 31, 2001. 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 continued drop in the assets of equity funds, particularly in the Bonnel Growth Fund. This decline was partially offset by reduced fee waivers the Company implemented to improve profitability. Transfer agent fees declined as a result of a reduction in the number of shareholder accounts serviced by the Company. EXPENSES Total consolidated expenses for the quarter ended March 31, 2002, decreased approximately $432,000, or 19 percent, compared with the quarter ended March 31, 2001. This decrease was primarily a result of reduced general and administrative expenses, as noted above. The reduction in general and administrative expenses was largely the result of reduced sub-advisory fees paid on the Bonnel Growth Fund, reduced servicing fees paid to third-party distribution platforms, and non-recurring legal and professional fees paid in the quarter ended March 31, 2001. Additionally, the Company's continued focus on reducing cost structures has resulted in incremental expense reductions in other operational areas as well. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA) EBITDA for the quarter ended March 31, 2002, was $23,056, which was an increase of $91,000 from an EBITDA loss of $67,934 for the quarter ended March 31, 2001. In spite of declining investment advisory fees and transfer agent fees, 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 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 March 31, 2002, the Company has net operating loss carryovers (NOLs) of approximately $860,000, which will expire between fiscal 2005 and 2011, charitable contribution carryovers of approximately $18,000 expiring between 2002 and 2006, and alternative minimum tax credits of $139,729 with indefinite expirations. The long-term deferred tax asset includes $102,000 of unrealized losses on available-for-sale securities, $177,000 from the permanent write-down of security valuations, and $42,000 from annuity obligations. If certain changes in the Company's ownership occur subsequently to March 31, 2002, 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 $708,000 and $547,000 at March 31, 2002, and June 30, 2001, respectively, providing for the utilization of NOLs, charitable contributions, and investment tax credits against future taxable income.
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 13 OF 17 - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES At March 31, 2002, the Company had net working capital (current assets minus current liabilities) of approximately $3.0 million and a current ratio of 5.0 to 1. With approximately $1.1 million in cash and cash equivalents and approximately $1.6 million in marketable securities, the Company has adequate liquidity to meet its current debt obligations. Total shareholders' equity was approximately $5.5 million, with cash, cash equivalents, and marketable securities comprising 37 percent 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 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, 2003, 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. MARCH 31, 2002, 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 March 31, 2002, 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' MARCH 31, 2002 CHANGE PERCENT CHANGE EQUITY -------------- ------------ -------------- ------------- <S> <C> <C> <C> <C> Trading Securities $904,286 25% increase $ 1,130,358 $ 149,208 25% decrease $ 678,214 $ (149,208) Available-for-Sale $711,947 25% increase $ 889,934 $ 117,471 25% decrease $ 533,960 $ (117,471) </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, 2002, 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, 2002, 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, 2002 BY: /s/ Frank E. Holmes ---------------------------------------- Frank E. Holmes Chief Executive Officer DATED: May 15, 2002 BY: /s/ Susan B. McGee ---------------------------------------- Susan B. McGee President General Counsel DATED: May 15, 2002 BY: /s/ Tracy C. Peterson ---------------------------------------- Tracy C. Peterson Chief Financial Officer Chief Accounting Officer
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 17 OF 17 - -------------------------------------------------------------------------------- EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET LOSS PER SHARE <TABLE> <CAPTION> NINE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, ---------------------------- ---------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net loss $ (51,321) $ (491,542) $ (24,890) $ (136,897) =========== =========== =========== =========== BASIC Weighted average number of shares outstanding during the period 7,455,450 7,525,861 7,446,610 7,530,933 Basic loss per share $ (0.01) $ (0.07) $ (0.00) $ (0.02) =========== =========== =========== =========== DILUTED Weighted average number of shares outstanding during quarter 7,455,450 7,525,861 7,446,610 7,530,933 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 loss per share 7,455,450 7,525,861 7,446,610 7,530,933 =========== =========== =========== =========== Diluted loss per share $ (0.01) $ (0.07) $ (0.00) $ (0.02) =========== =========== =========== =========== </TABLE>