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 September 30, 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 November 6, 2002, there were 6,311,474 shares of Registrant's class A
nonvoting common stock issued and 5,979,202 shares of Registrant's class A
common stock issued and outstanding, no shares of Registrant's class B nonvoting
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 Statements of Financial Condition......................1
Consolidated Statements of Operations and
Comprehensive Loss (Unadited).....................................3
Consolidated Statements of Cash Flows (Unaudited)...................4
Notes to Consolidated Financial Statements (Unaudited)..............5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................8
ITEM 3 MARKET RISK DISCLOSURES..........................................11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................12
SIGNATURES..............................................................13
QUARTERLY CERTIFICATIONS PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002.........................................14
EXHIBIT 11-- SCHEDULE OF COMPUTATION OF NET INCOME (LOSS) PER SHARE.....16
EXHIBIT 99.1 -- QUARTERLY CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002..........17
EXHIBIT 99.2 -- QUARTERLY CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002..........18
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 1 of 18
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
SEPTEMBER 30, JUNE 30,
2002 2002
---------- ----------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $1,169,437 $ 988,936
Due from brokers 60,435 70,871
Trading securities, at fair value 2,385,031 1,409,474
Receivables
Mutual funds 909,827 963,730
Employees 83,331 78,070
Other 33,473 32,194
Prepaid expenses 200,569 279,273
Deferred tax asset 396,522 365,421
---------- ----------
TOTAL CURRENT ASSETS 5,238,625 4,187,969
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NET PROPERTY AND EQUIPMENT 1,842,503 1,869,990
---------- ----------
OTHER ASSETS
Restricted investments 210,000 210,000
Long-term deferred tax asset 776,770 739,154
Investment securities available-for-sale,
at fair value 664,462 853,612
Other 14,296 44,296
---------- ----------
TOTAL OTHER ASSETS 1,665,528 1,847,062
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TOTAL ASSETS $8,746,656 $7,905,021
========== ==========
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 2 of 18
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LIABILITIES AND SHAREHOLDERS' EQUITY
SEPTEMBER 30, JUNE 30,
2002 2002
---------- ----------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable $1,550,743 $ 695,693
Accrued compensation and related costs 203,899 221,282
Current portion of notes payable 66,710 65,637
Current portion of annuity and
contractual obligation 9,930 9,758
Other accrued expenses 279,266 264,625
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TOTAL CURRENT LIABILITIES 2,110,548 1,256,995
---------- ----------
Notes payable-net of current portion 938,872 955,569
Annuity and contractual obligations 109,925 112,398
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TOTAL NON-CURRENT LIABILITIES 1,048,797 1,067,967
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TOTAL LIABILITIES 3,159,345 2,324,962
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SHAREHOLDERS' EQUITY
Common stock (Class A) - $.05 par value;
nonvoting; authorized, 7,000,000
shares; issued, 6,311,474
shares 315,574 315,574
Common stock (Class B) - $.05 par value;
nonvoting; authorized, 2,250,000
shares; no shares issued -- --
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 10,759,009 10,761,276
Treasury stock, class A shares at cost;
332,272 and 345,331 shares at
September 30, 2002, and June 30,
2002, respectively (616,156) (639,407)
Accumulated other comprehensive loss,
net of tax (165,490) (40,651)
Accumulated deficit (4,780,466) (4,891,573)
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TOTAL SHAREHOLDERS' EQUITY 5,587,311 5,580,059
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $8,746,656 $7,905,021
========== ==========
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 3 of 18
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
THREE MONTHS
ENDED SEPTEMBER 30,
-------------------------
2002 2001
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REVENUES
Investment advisory fees $1,227,783 $1,222,801
Transfer agent fees 583,752 632,691
Custodial and administrative fees 34,880 44,516
Investment loss (121,087) (144,986)
Alternative investment fees 205,365 --
Other 40,262 72,479
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1,970,955 1,827,501
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EXPENSES
General and administrative 1,805,265 1,823,893
Depreciation 29,876 34,315
Interest 21,513 21,772
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1,856,654 1,879,980
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INCOME (LOSS) BEFORE INCOME TAXES 114,301 (52,479)
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PROVISION FOR FEDERAL INCOME TAXES
Tax (Benefit) Expense 3,194 (47,578)
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NET INCOME (LOSS) $ 111,107 $ (4,901)
Other comprehensive loss, net of tax
Unrealized losses on
available-for-sale securities (124,839) (36,268)
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COMPREHENSIVE LOSS $ (13,732) $ (41,169)
========== ==========
BASIC AND DILUTED NET INCOME
(LOSS) PER SHARE $ 0.01 $ (0.00)
========== ==========
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 4 of 18
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS
ENDED SEPTEMBER 30,
-------------------------
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 111,107 $ (4,901)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 29,876 34,315
Provision for deferred taxes 3,194 (47,578)
Changes in assets and liabilities,
impacting cash from operations:
Accounts receivable 47,363 (79,402)
Prepaid expenses and other 111,539 18,489
Trading securities (975,556) 198,750
Accounts payable and accrued expenses 852,307 (115,359)
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Total adjustments 68,723 9,215
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NET CASH PROVIDED BY OPERATING ACTIVITIES 179,830 4,314
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,388) --
Purchase of available-for-sale
securities -- --
Proceeds on sale of
available-for-sale securities -- --
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (2,388) --
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on annuity (2,301) (2,215)
Payments on note payable (15,624) (18,902)
Proceeds from issuance or
exercise of stock, warrants,
and options 20,984 20,144
Purchase of treasury stock -- (51,000)
---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,059 (51,973)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 180,501 (47,659)
BEGINNING CASH AND CASH EQUIVALENTS 988,936 1,333,922
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ENDING CASH AND CASH EQUIVALENTS $1,169,437 $1,286,263
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for interest $ 21,513 $ 21,772
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 5 of 18
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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, 2002.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, United Shareholder Services, Inc. (USSI), A&B
Mailers, Inc. (A&B), U.S. Global Investors (Guernsey) Limited (USGG), and U.S.
Global Brokerage, Inc. (USGB).
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 three-month period ended September 30, 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 September 30, 2002, and June
30, 2002, was $2,309,658 and $2,178,041, respectively. The market value of
investments classified as trading at September 30, 2002, and June 30, 2002, was
$2,385,031 and $1,409,474, respectively. The net change in unrealized holding
losses on trading securities held at September 30, 2002, and 2001, which has
been included in income for the quarter is ($129,623) and $(61,088),
respectively. Sales of trading securities generated realized losses of $0 and
$101,276 for the quarter ended September 30, 2002, and 2001, respectively.
Trading securities have been purchased in fiscal 2002 and 2003 for approximately
$581,000. These securities have contingent payables that must be paid upon
liquidation of the security, net of any fees earned. These payables are included
in accounts payable in the statement of financial condition. As the securities
rise or fall in value, the security balances and the payable balances will be
marked-to-market appropriately. At September 30, 2002, these balances had been
marked-to-market to approximately $1,686,000. The Company has a fee arrangement
for these investments whereby it receives 2% of the initial value of the
investments annually plus 20% of any gains from the sale of the investments,
payable at the settlement of the sales. For the quarter ended September 30,
2002, the Company has recorded approximately $205,000 from these fee
arrangements as alternative investment fees on the statement of operations.
The cost of investments in securities classified as available-for-sale, which
may not be readily marketable at September 30, 2002, and June 30, 2002, was
$915,204 and $915,204, respectively. These investments are reflected as
non-current assets on the consolidated balance sheet at their fair value at
September 30, 2002, and June 30, 2002, of $664,462 and $853,612, respectively,
with $165,490 and $40,651, respectively, net of tax, in unrealized losses being
recorded as a separate component of shareholders' equity.
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. 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, mailroom operations from A&B, management of investments for
separate accounts, as well as gains on marketable securities transactions.
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 6 of 18
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The Company has voluntarily waived or reduced its advisory fee and/or has agreed
to pay expenses on several USGIF funds through June 30, 2003, or such later date
as the Company determines. The aggregate fees waived and expenses borne by the
Company for the quarter ended September 30, 2002, and 2001, was $400,885 and
$430,257, respectively.
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 September 30, 2002, the balance on the note was
$1,005,582. 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 September 30, 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
September 30, 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 September 30, 2002, the Company has net operating loss
carryovers (NOLs) of approximately $2.5 million, which will expire between
fiscal 2005 and 2011, charitable contribution carryovers of approximately
$62,000 expiring between 2004 and 2006, and alternative minimum tax credits of
$139,729 with indefinite expirations. The long-term deferred tax asset includes
approximately $85,000 of unrealized losses on available-for-sale securities,
approximately $195,000 from the permanent write-down of security valuations, and
almost $41,000 from annuity obligations. If certain changes in the Company's
ownership occur subsequent to September 30, 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 $618,000 and $684,000 at September 30,
2002, and June 30, 2002, 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 INVESTMENT CONSOLIDATED
----------- ----------- -----------
THREE MONTHS ENDED SEPTEMBER 30, 2002
Net revenues $ 2,100,401 $ (129,446) $ 1,970,955
=========== ============ ===========
Net income (loss) before income taxes $ 244,372 $ (130,071) $ 114,301
=========== ============ ===========
Depreciation and amortization $ 29,876 $ -- $ 29,876
=========== =========== ===========
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 7 of 18
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INVESTMENT
MANAGEMENT CORPORATE
SERVICES INVESTMENT CONSOLIDATED
----------- ----------- -----------
Interest expense $ 20,888 $ 625 $ 21,513
=========== =========== ===========
Capital expenditures $ 2,388 $ -- $ 2,388
=========== =========== ===========
Gross identifiable assets at September 30, 2002 $ 4,342,801 $ 3,065,073 $ 7,407,874
Deferred tax asset 1,173,292
Accumulated other comprehensive loss 165,490
-----------
Consolidated total assets at September 30, 2002 $ 8,746,656
===========
THREE MONTHS ENDED SEPTEMBER 30, 2001
Net revenues $ 1,972,487 $ (144,986) $ 1,827,501
=========== ============ ===========
Net income (loss) before income taxes $ 109,554 $ (162,033) $ (52,479)
=========== ============ ============
Depreciation and amortization $ 34,315 $ -- $ 34,315
=========== =========== ===========
Interest expense $ 21,509 $ 263 $ 21,772
=========== =========== ===========
Capital expenditures $ -- $ -- $ --
=========== =========== ===========
Gross identifiable assets at September 30, 2001 $ 4,852,913 $ 1,604,862 $ 6,457,775
Deferred tax asset 1,107,276
Accumulated other comprehensive gain 138,632
-----------
Consolidated total assets at September 30, 2001 $ 7,703,683
===========
NOTE 7. CONTINGENCIES
In fiscal year 2002, the Company was named as one of several defendants in a
civil lawsuit filed in New York. Management consulted with legal counsel and
determined that the Company had strong merits for either having the case
dismissed or obtaining a favorable ruling. In addition, the Company filed a
claim against its insurance policy, and the carrier agreed to coverage of this
claim. Legal expenses associated with this lawsuit have been expensed as
incurred. As the insurance carrier makes reimbursement on the charges, these
expenses are reversed.
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 8 of 18
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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 quarter ended September 30, 2002, assets under management in USGIF
averaged $1.01 billion versus $1.05 billion for the quarter ended September 30,
2001. This decline was primarily due to declines in equity assets and net
redemptions in the money market funds, which were partially offset by growth in
gold assets and net inflows into the municipal bond funds. Assets under
management in USGAF averaged $101 million for the quarter ended September 30,
2001, versus $129 million for the quarter ended September 30, 2001. This
decrease was primarily attributable to 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 September 30, 2002, the
Company held approximately $1.4 million in unencumbered investment securities.
The value of these investments is approximately 16 percent of total assets and
24 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 quarter ended September 30, 2002, the Company had no
realized losses compared with losses of approximately $101,000 for the quarter
ended September 30, 2001. The net change in unrealized holding losses on trading
securities held at September 30, 2002 and 2001, which has been included in
income for the quarter is ($129,623) and ($61,088), respectively. The Company
expects that gains and losses will continue to fluctuate in the future.
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 9 of 18
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RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 2002 AND 2001
The Company posted net after-tax income of $111,107 ($0.01 income per share) for
the quarter ended September 30, 2002, compared with a net after-tax loss of
$4,901 ($0.00 loss per share) for the quarter ended September 30, 2001. Net
income increased $116,000 as the company recorded $205,000 in alternative
investment fees for the quarter ended September 30, 2002. Combining the
Company's gold-related expertise with improved gold markets, the Company has
been able to participate in alternative investment opportunities in gold
products with higher margins and potentially significant returns.
REVENUES
Total consolidated revenues for the quarter ended September 30, 2002, increased
approximately $143,000, or 8 percent, compared with the quarter ended September
30, 2001. This was primarily due to the alternative investment fees as stated
above. Investment advisory fees for USGIF and USGAF remained relatively flat as
the growth in higher-margin gold assets offset the declines in equity assets and
low-margin money market funds. Transfer agent fees for the quarter ended
September 30, 2002, decreased $49,000, or 8 percent, compared with the quarter
ended September 30, 2001. This was due to a decline in the consolidated number
of shareholder accounts.
The Company instituted a small account fee in January 2002 in an effort to
improve the expense ratios on its gold funds. Market practices in the mutual
fund industry typically demand that low fund expense ratios are necessary in
order to remain competitive. As a result of the small account fees, the gold
funds have realized improvement in their expense ratios, but the Company is also
anticipating a significant drop in accounts under management in January 2003,
resulting in a decline in transfer agent fees.
EXPENSES
Total consolidated expenses for the quarter ended September 30, 2002, decreased
approximately $23,000, or 1 percent, compared with the quarter ended September
30, 2001. Reduced sub-advisory fees and marketing costs offset increased
insurance costs, resulting in relatively flat expenses.
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 expenses.
EBITDA for the quarter ended September 30, 2002, was $295,313, which was an
increase of $129,000 from an EBITDA of $165,972 for the quarter ended September
30, 2001. The Company has been able to utilize its expertise in the field of
gold and precious minerals to participate in alternative investment
opportunities. These investments had outstanding performance in the quarter
ended September 30, 2002, boosting operational returns relative to prior year.
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 September 30, 2002, the Company has net operating loss
carryovers (NOLs) of approximately $2.5 million, which will expire between
fiscal 2005 and 2011, charitable contribution carryovers of approximately
$62,000 expiring between 2004 and 2006, and alternative minimum tax credits of
$139,729 with indefinite expirations. The long-term deferred tax asset includes
approximately $85,000 of unrealized losses on available-for-sale securities,
approximately $195,000 from the permanent write-down of security valuations, and
almost $41,000 from annuity obligations. If certain changes in the Company's
ownership occur subsequent to September 30, 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 $618,000 and $684,000 at September 30,
2002,
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 10 of 18
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and June 30, 2002, respectively, providing for the utilization of NOLs,
charitable contributions, and investment tax credits against future taxable
income
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, the Company had net working capital (current assets minus
current liabilities) of approximately $3.1 million and a current ratio of 2.5 to
1. With approximately $1.2 million in cash and cash equivalents and almost $1.4
million in unencumbered 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 unencumbered
marketable securities comprising 29 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.
September 30, 2002, Quarterly Report on Form 10-Q Page 11 of 18
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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 September 30,
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'
SEPTEMBER 30, 2002 CHANGE PERCENT CHANGE EQUITY
------------------ ------------ -------------- -------------
Trading Securities $2,385,031 25% increase $ 2,981,289 $ 170,924
25% decrease $ 1,788,773 $ (170,924)
Available-for-Sale $664,462 25% increase $ 830,577 $ 109,636
25% decrease $ 498,347 $ (109,636)
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.
September 30, 2002, Quarterly Report on Form 10-Q Page 12 of 18
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
11 Statement re: Computation of Per Share Income
99.1 Quarterly Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act Of 2002
99.2 Quarterly Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act Of 2002
2. Reports on Form 8-K
None
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 13 of 18
- --------------------------------------------------------------------------------
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: November 14, 2002 BY: /s/ Frank E. Holmes
----------------------------------------
Frank E. Holmes
Chief Executive Officer
DATED: November 14, 2002 BY: /s/ Tracy C. Peterson
----------------------------------------
Tracy C. Peterson
Chief Financial Officer
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 14 of 18
- --------------------------------------------------------------------------------
QUARTERLY CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Frank E. Holmes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of [identify
registrant];
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Frank E. Holmes
- ----------------------------------------
Signature
Frank E. Holmes, Chief Executive Officer
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 15 of 18
- --------------------------------------------------------------------------------
QUARTERLY CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Tracy C. Peterson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of [identify
registrant];
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Tracy C. Peterson
- ----------------------------------------
Signature
Tracy C. Peterson, Chief Financial Officer
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 16 of 18
- --------------------------------------------------------------------------------
EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2002 2001
---------- ----------
Net income (loss) $ 111,107 $ (4,901)
========== ==========
BASIC
Weighted average number of shares
outstanding during quarter 7,465,845 7,470,689
Basic income (loss) per share $ 0.01 $ (0.00)
========== ==========
DILUTED
Weighted average number of shares
outstanding during quarter 7,465,845 7,470,689
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 5,657 --
---------- ----------
Weighted average number of shares used
in calculation of diluted
income (loss) per share 7,471,502 7,470,689
========== ==========
Diluted income (loss) per share $ 0.01 $ (0.00)
========== ==========
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 17 of 18
- --------------------------------------------------------------------------------
EXHIBIT 99.1 - QUARTERLY CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of Section 1350, Chapter 63 of Title 18, United States Code), the
undersigned officer of U.S. Global Investors, Inc. (the "Company") does hereby
certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, of
the Company fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and information contained in the Form 10-Q
fairly presents, in all material respects, the financial condition and results
of the operations of the Company.
Date: November 14, 2002 /s/ Frank E. Holmes
----------------------------------------
Frank E. Holmes
Chief Executive Officer
U.S. Global Investors, Inc.
September 30, 2002, Quarterly Report on Form 10-Q Page 18 of 18
- --------------------------------------------------------------------------------
EXHIBIT 99.2 - QUARTERLY CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of Section 1350, Chapter 63 of Title 18, United States Code), the
undersigned officer of U.S. Global Investors, Inc. (the "Company") does hereby
certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, of
the Company fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and information contained in the Form 10-Q
fairly presents, in all material respects, the financial condition and results
of the operations of the Company.
Date: November 14, 2002 /s/ Tracy C. Peterson
----------------------------------------
Tracy C. Peterson
Chief Financial Officer