UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[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 _________
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Commission File Number 0-13928
U.S. GLOBAL INVESTORS, INC.
(Exact name of registrant as specified in
its charter)
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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
ASSETS
DECEMBER 31, 2001 JUNE 30, 2001
----------------- -------------
(UNAUDITED)
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
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TOTAL CURRENT ASSETS 4,063,952 4,307,553
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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
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TOTAL OTHER ASSETS 1,711,812 1,574,732
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TOTAL ASSETS $7,743,233 $7,912,184
========== ==========
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
DECEMBER 31, 2001 JUNE 30, 2001
----------------- -------------
(UNAUDITED)
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
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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
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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)
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TOTAL SHAREHOLDERS' EQUITY 5,596,524 5,715,520
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,743,233 $ 7,912,184
=========== ===========
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)
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ -----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
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)
=========== =========== =========== ===========
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)
SIX MONTHS ENDED DECEMBER 31,
-------------------------------------------
2001 2000
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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)
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Total adjustments 314,989 234,572
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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
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:
INVESTMENT
MANAGEMENT CORPORATE
SERVICES INVESTMENTS CONSOLIDATED
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
============
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.
ESTIMATED INCREASE
HYPOTHETICAL FAIR VALUE AFTER (DECREASE) IN
FAIR VALUE AT PERCENTAGE HYPOTHETICAL SHAREHOLDERS'
DECEMBER 31, 2001 CHANGE PERCENT CHANGE EQUITY
----------------- ------------ -------------- -------------
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)
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
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ -----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
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)
=========== =========== =========== ===========