-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M1/BMvLIV+Q4XGJUPj8s+tdlz0tu1PPJhBRZmf6Bk+YuehTb5lVom5ZeMnmMNdgp 1I2lAX2bIrCg0Gi7Z3ttAQ== 0000754811-02-000021.txt : 20021114 0000754811-02-000021.hdr.sgml : 20021114 20021114150423 ACCESSION NUMBER: 0000754811-02-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S GLOBAL INVESTORS INC CENTRAL INDEX KEY: 0000754811 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 741598370 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13928 FILM NUMBER: 02824662 BUSINESS ADDRESS: STREET 1: 7900 CALLAGHAN RD CITY: SAN ANTONIO STATE: TX ZIP: 78229 BUSINESS PHONE: 2103081234 MAIL ADDRESS: STREET 1: 7900 CALLAGHAN ROAD CITY: SAN ANTONIO STATE: TX ZIP: 78229 FORMER COMPANY: FORMER CONFORMED NAME: UNITED SERVICES ADVISORS INC /TX/ DATE OF NAME CHANGE: 19950321 10-Q 1 qsept2002.txt 10Q FOR PERIOD ENDED SEPTEMBER 30, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------------------ FORM 10-Q ------------------------------------------------------ [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended 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 _________ ---------------------------------------------- Commission File Number 0-13928 U.S. GLOBAL INVESTORS, INC. (Exact name of registrant as specified in its charter) ---------------------------------------------- TEXAS 74-1598370 (State or Other Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 7900 CALLAGHAN ROAD 78229-1234 SAN ANTONIO, TEXAS (Zip Code) (Address of Principal Executive Offices) (210) 308-1234 (Registrant's Telephone Number, Including Area Code) Not Applicable (Former Name, Former Address, and Former Fiscal Year, if Changed since Last Report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] On 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 - -------------------------------------------------------------------------------- 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 ---------- ---------- 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 ---------- ---------- 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 - -------------------------------------------------------------------------------- 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 ---------- ---------- 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 ---------- ---------- TOTAL NON-CURRENT LIABILITIES 1,048,797 1,067,967 ---------- ---------- TOTAL LIABILITIES 3,159,345 2,324,962 ---------- ---------- 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) ---------- ---------- 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 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, ------------------------- 2002 2001 ---------- ---------- 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 ---------- ---------- 1,970,955 1,827,501 ---------- ---------- EXPENSES General and administrative 1,805,265 1,823,893 Depreciation 29,876 34,315 Interest 21,513 21,772 ---------- ---------- 1,856,654 1,879,980 ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 114,301 (52,479) ---------- ---------- PROVISION FOR FEDERAL INCOME TAXES Tax (Benefit) Expense 3,194 (47,578) ---------- ---------- NET INCOME (LOSS) $ 111,107 $ (4,901) Other comprehensive loss, net of tax Unrealized losses on available-for-sale securities (124,839) (36,268) ---------- ---------- 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 - -------------------------------------------------------------------------------- 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) ---------- ---------- Total adjustments 68,723 9,215 ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 179,830 4,314 ---------- ---------- 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) ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 180,501 (47,659) BEGINNING CASH AND CASH EQUIVALENTS 988,936 1,333,922 ---------- ---------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 -----END PRIVACY-ENHANCED MESSAGE-----