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 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 _________
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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 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
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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
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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
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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
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
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)
=========== =========== =========== ===========
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
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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
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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
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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
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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:
INVESTMENT
MANAGEMENT CORPORATE
SERVICES INVESTMENTS CONSOLIDATED
---------- ------------- ----------
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
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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
==========
U.S. GLOBAL INVESTORS, INC.
MARCH 31, 2002, QUARTERLY REPORT ON FORM 10-Q PAGE 10 OF 17
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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
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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
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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
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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
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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.
ESTIMATED INCREASE
HYPOTHETICAL FAIR VALUE AFTER (DECREASE) IN
FAIR VALUE AT PERCENTAGE HYPOTHETICAL SHAREHOLDERS'
MARCH 31, 2002 CHANGE PERCENT CHANGE EQUITY
-------------- ------------ -------------- -------------
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)
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
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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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
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
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EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET LOSS PER SHARE
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
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)
=========== =========== =========== ===========