-----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, HPjqoyWwsfI1HsrveNhDPzKoJRaXAzEcN0El7eFMHO2bYWWh6mQCGopuhHTUTpz4 VkGisJdd2ORKN3qaaXVyvw== 0000754811-03-000006.txt : 20030515 0000754811-03-000006.hdr.sgml : 20030515 20030515114508 ACCESSION NUMBER: 0000754811-03-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 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: 03702180 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 qmarch2003.txt MARCH 31, 2003, QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------------------ FORM 10-Q ------------------------------------------------------ [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2003 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] On May 12, 2003, there were 6,311,474 shares of Registrant's class A nonvoting common stock issued and 5,960,393 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. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION.................................................1 ITEM 1. FINANCIAL STATEMENTS..........................................1 Consolidated Statements of Financial Condition (Unaudited)...................................................1 Consolidated Statements of Operations and Comprehensive Loss (Unaudited)..............................................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...........................9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................................13 ITEM 4. CONTROLS AND PROCEDURES......................................13 PART II. OTHER INFORMATION...................................................14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................14 SIGNATURES...........................................................15 EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET INCOME (LOSS) PER SHARE..................................................18 EXHIBIT 99.1 -- QUARTERLY CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.........19 EXHIBIT 99.2 -- QUARTERLY CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.........20 U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 1 of 20 - ------------------------------------------------------------------------------ PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) ASSETS MARCH 31, 2003 JUNE 30, 2002 -------------- ------------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $1,051,523 $ 988,936 Due from brokers 123,030 70,871 Trading securities, at fair value 756,143 1,409,474 Receivables Mutual funds 801,540 963,730 Employees 2,231 78,070 Other 342,676 32,194 Prepaid expenses 414,954 279,273 Deferred tax asset 368,292 365,421 ---------- ----------- TOTAL CURRENT ASSETS 3,860,389 4,187,969 ---------- ----------- NET PROPERTY AND EQUIPMENT 1,782,525 1,869,990 ---------- ----------- OTHER ASSETS Restricted investments 195,000 210,000 Long-term deferred tax asset 898,646 739,154 Investment securities available-for-sale, at fair value 415,486 853,612 Other -- 44,296 ---------- ----------- TOTAL OTHER ASSETS 1,509,132 1,847,062 ---------- ----------- TOTAL ASSETS $7,152,046 $7,905,021 ========== =========== The accompanying notes are an integral part of this statement. U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 2 of 20 - ------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY MARCH 31, 2003 JUNE 30, 2002 -------------- ------------- (UNAUDITED) CURRENT LIABILITIES Accounts payable $ 48,186 $ 695,693 Accrued compensation and related costs 218,314 221,282 Current portion of notes payable 68,908 65,637 Current portion of annuity and contractual obligation 10,283 9,758 Other accrued expenses 330,350 264,625 ----------- ----------- TOTAL CURRENT LIABILITIES 676,041 1,256,995 ----------- ----------- Notes payable-net of current portion 904,267 955,569 Annuity and contractual obligations 104,693 112,398 ----------- ----------- TOTAL NON-CURRENT LIABILITIES 1,008,960 1,067,967 ----------- ----------- TOTAL LIABILITIES 1,685,001 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 10,756,655 10,761,276 Treasury stock, class A shares at cost; 351,081 and 345,331 shares at March 31, 2003, and June 30, 2002, respectively (642,036) (639,407) Accumulated other comprehensive loss, net of tax (329,649) (40,651) Accumulated deficit (4,708,339) (4,891,573) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 5,467,045 5,580,059 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,152,046 $ 7,905,021 =========== =========== The accompanying notes are an integral part of this statement. U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 3 of 20 - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, --------------------- --------------------- 2003 2002 2003 2002 ---- ---- ---- ---- REVENUES Investment advisory fees $3,640,193 $3,630,513 $1,227,994 $1,213,184 Transfer agent fees 1,655,045 1,825,656 492,632 566,217 Custodial and administrative fees 120,959 122,772 35,531 33,282 Investment income (loss) (883) (119,734) 80,374 103,075 Private client advisory fees 308,678 -- (16,319) -- Other 161,701 186,527 53,783 16,766 ----------- ----------- ------------ ----------- 5,885,693 5,645,734 1,873,995 1,932,524 EXPENSES General and administrative 5,547,800 5,472,332 1,888,880 1,816,015 Depreciation 96,736 92,777 38,033 28,846 Interest 63,808 64,641 21,316 19,827 ------------ ------------ ----------- ----------- 5,708,344 5,629,750 1,948,229 1,864,688 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 177,349 15,984 (74,234) 67,836 PROVISION FOR FEDERAL INCOME TAXES Tax (Benefit) Expense (5,885) 67,305 (4,384) 92,726 ------------ ----------- ---------- ------------ NET INCOME (LOSS) $ 183,234 $ (51,321) $ (69,850) $ (24,890) Other comprehensive loss, net of tax Unrealized losses on available-for-sale securities (288,998) (96,250) (63,307) (47,970) --------- ------------- ------------ ------------ COMPREHENSIVE LOSS $ (105,764) $ (147,571) $ (133,157) $ (72,860) =========== =========== =========== =========== BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ 0.02 $ (0.01) $ (0.01) $ (0.00) ========== =========== =========== ===========
The accompanying notes are an integral part of this statement. U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 4 of 20 - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED MARCH 31, --------------------------------------------------- 2003 2002 ------------------------ ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 183,234 $ (51,321) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 96,736 92,777 Net gains on sale of available-for-sale securities (8,884) -- Net (gains) losses on sale of trading securities (14,142) 87,948 Stock dividends on available-for-sale securities (5,249) -- Provision (benefit) for deferred taxes (5,885) 67,305 Changes in assets and liabilities, impacting cash from operations: Accounts receivable (72,453) 107,965 Prepaid expenses and other (136,145) (171,078) Trading securities 667,473 171,460 Accounts payable and accrued expenses (584,750) (299,953) ------------ ------------ Total adjustments (63,299) 56,424 ------------ ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 119,935 5,103 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (9,271) (4,765) Purchase of available-for-sale securities -- (162,911) Proceeds on sale of available-for-sale securities 14,384 -- ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,113 (167,676) ----------- ------------ CASH FLOW FROM FINANCING ACTIVITIES: Payments on annuity (7,180) (6,766) Payments on note payable (48,031) (46,078) Proceeds from issuance or exercise of stock, warrants, and options 36,899 43,439 Purchase of treasury stock (44,149) (76,654) ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES (62,461) (86,059) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 62,587 (248,632) BEGINNING CASH AND CASH EQUIVALENTS 988,936 1,333,922 ----------- ----------- ENDING CASH AND CASH EQUIVALENTS $ 1,051,523 $ 1,085,290 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 63,808 $ 64,641
The accompanying notes are an integral part of this statement. U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 5 of 20 - ------------------------------------------------------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The Consolidated Financial Statements have been prepared by U.S. Global Investors, Inc. (the Company or U.S. Global) pursuant to accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. The financial information included herein 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. The Company 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 nine-month and three-month period ended March 31, 2003, 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, 2003, and June 30, 2002, was $1,708,737 and $2,178,041, respectively. The market value of investments classified as trading at March 31, 2003, and June 30, 2002, was $756,143 and $1,409,474, respectively. The net change in unrealized holding losses on trading securities held at March 31, 2003, and 2002, which has been included in income for the nine-month period, is $(52,271) and $(68,670), respectively. Sales of trading securities generated realized gains (losses) of $14,142 and $(87,948) for the nine-month period ended March 31, 2003, and 2002, respectively. During fiscal 2002 and the first quarter of fiscal 2003, securities were purchased on behalf of a private advisory client of the Company for approximately $582,000 and were included in trading securities on the Company's statement of financial condition. These securities had contingent payables that were required to be paid by the Company to the private advisory client upon liquidation of the securities, net of any fees earned. These payables were included in accounts payable on the statement of financial condition at June 30, 2002, and September 30, 2002. To better reflect the spirit of the relationship, during December 2002 these securities were re-registered, and, as a result, were no longer recorded as an asset of the Company and there were no longer any associated contingent payables. Beneficial ownership of the securities has been, and still is, maintained by the private advisory client. The Company has a fee arrangement for these securities whereby it receives a 2% administrative fee annually plus 20% of any gains from the sale of the securities, payable at the settlement of the sales. The Company has recorded $308,678 and $(16,319) from these fee arrangements for the nine-month period and quarter ended March 31, 2003, respectively. These amounts have been classified as private client advisory fees on the statement of operations. The cost of investments in securities classified as available-for-sale, which may not be readily marketable, was $914,954 and $915,204 at March 31, 2003, and June 30, 2002, respectively. These investments are reflected as non-current assets on the consolidated balance sheet at their fair market value at March 31, 2003, and June 30, 2002, of $415,486 and $853,612, respectively, with $329,649 and $40,651, 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 $8,884 and $0 for the nine-month period ended March 31, 2003, and 2002, 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. 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 U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 6 of 20 - ------------------------------------------------------------------------------ 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 a private client, as well as gains on marketable securities transactions for the Company's proprietary account. 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 nine-month period ended March 31, 2003, and 2002, were $1,172,904 and $1,234,680, respectively. The investment advisory and related contracts between the Company and USGIF and USGAF will expire in February 2004 and May 2004, 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, 2003, the balance on the note was $973,175. 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 annually. 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 March 31, 2003. 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. As of March 31, 2003, 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, 2003, the Company has net operating loss carryovers (NOLs) of approximately $2.5 million, which will expire between fiscal 2010 and 2022, charitable contribution carryovers of approximately $64,000 expiring between 2004 and 2006, and alternative minimum tax credits of approximately $140,000 with indefinite expirations. The long-term deferred tax asset includes approximately $170,000 of unrealized losses on available-for-sale securities, approximately $195,000 from the permanent write-down of security valuations, and approximately $39,000 from annuity obligations. If certain changes in the Company's ownership occur subsequent to March 31, 2003, 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 $527,000 and $684,000 at March 31, 2003, 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 investment management services to its mutual funds and private client, 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: U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 7 of 20 - ------------------------------------------------------------------------------
INVESTMENT MANAGEMENT CORPORATE SERVICES INVESTMENTS CONSOLIDATED ----------- -------------- ------------ NINE MONTHS ENDED MARCH 31, 2003 Net revenues $ 5,886,576 $ (883) $ 5,885,693 =========== ============== =========== Net income (loss) before income taxes $ 178,857 $ (1,508) $ 177,349 =========== ============== =========== Depreciation $ 96,736 $ -- $ 96,736 =========== ============== =========== Interest expense $ 63,183 $ 625 $ 63,808 =========== ============== =========== Capital expenditures $ 9,271 $ -- $ 9,271 =========== ============== =========== Gross identifiable assets at March 31, 2003 $ 4,713,479 $ 1,171,629 $ 5,885,108 Deferred tax asset 1,266,938 ----------- Consolidated total assets at March 31, 2003 $ 7,152,046 =========== 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 $ 92,777 $ -- $ 92,777 =========== ============== =========== Interest expense 64,267 $ 374 $ 64,641 =========== ============== =========== Capital expenditures $ 4,765 $ -- $ 4,765 =========== ============== =========== Gross identifiable assets at March 31, 2002 $ 4,739,075 $ 1,616,233 $ 6,355,308 Deferred tax asset 1,023,293 ----------- Consolidated total assets at March 31, 2002 $ 7,378,601 =========== INVESTMENT MANAGEMENT CORPORATE SERVICES INVESTMENTS CONSOLIDATED ----------- -------------- ------------ THREE MONTHS ENDED MARCH 31, 2003 Net revenues $ 1,793,621 $ 80,374 $ 1,873,995 =========== ============== =========== Net income (loss) before income taxes $ (154,608) $ 80,374 $ (74,234) =========== ============== =========== Depreciation $ 38,033 $ -- $ 38,033 =========== ============== =========== Interest expense $ 21,316 $ -- $ 21,316 =========== ============== =========== Capital expenditures $ 8,411 $ -- $ 8,411 =========== ============== =========== THREE MONTHS ENDED MARCH 31, 2002 Net revenues $ 1,829,449 $ 103,075 $ 1,932,524 =========== ============== =========== Net income (loss) before income taxes $ (35,161) $ 102,997 $ 67,836 =========== ============== =========== Depreciation $ 28,846 $ -- $ 28,846 =========== ============== =========== Interest expense $ 19,749 $ 78 $ 19,827 =========== ============== =========== Capital expenditures $ 3,265 $ -- $ 3,265 =========== ============== ===========
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 8 of 20 - ------------------------------------------------------------------------------ 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 on this claim. Insurance reimbursements for legal expenses incurred as a result of this lawsuit have been included in other receivables in the amount of $11,221 at March 31, 2003. U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 9 of 20 - ------------------------------------------------------------------------------ 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 investment management services, and (2) the Company invests for its own account in an effort to add growth and value to its cash position. The Company generates the majority of its operating revenues from the investment management of products and from providing 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 the majority 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. Recent market trends, as reflected in Investment Company Institute (ICI) mutual fund money flow data, have affected the investment industry as a whole, as well as the Company, USGIF and USGAF. The trailing nine-month period has been very difficult for money market funds due to continued interest rate cuts that have resulted in the lowest money market yields in 30 years. As money market investors seek alternative short-term investments with higher yields, along with equity investors rebalancing their portfolios, there has been an increase in bond fund cash flows. In addition, the sustained bear market, coupled with earnings compression and an overall pessimism regarding earnings growth, has resulted in negative cash flows and asset valuation declines in equity funds. In contrast, gold-related investments have performed relatively well during this period and valuations have increased as a result of gold bullion reaching a seven-year high of $389 per ounce during the period. During the nine-month period ended March 31, 2003, mutual fund assets under management averaged $1.08 billion versus $1.16 billion for the same period ended March 31, 2002. This decline was primarily due to net redemptions in the money market funds and declines in equity assets, which were partially offset by growth in gold assets and net inflows into the municipal bond funds. The company has entered into a one-time arrangement with a private client and has a fee arrangement for the securities in the private client account whereby it receives a 2% administrative fee annually plus 20% of any gains from the sale of the securities, payable at the settlement of the sales. The Company has recorded $308,678 and $(16,319) from these fee arrangements for the nine-month period and quarter ended March 31, 2003, respectively. These amounts have been classified as private client advisory fees on the statement of operations. As discussed in Note 2 to the Consolidated Financial Statements, these securities are no longer recorded as an asset of the Company with an offsetting contingent U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 10 of 20 - ------------------------------------------------------------------------------ payable. The aforementioned change had no effect on shareholders' equity or net income of the Company, but reflects only a change in presentation of the relationship with the client. 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, 2003, the Company held approximately $1.2 million in investment securities. The value of these investments is approximately 16 percent of total assets and 21 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 nine-month period ended March 31, 2003, the Company had realized gains of approximately $23,000 compared with net realized losses of approximately $88,000 for the nine-month period ended March 31, 2002. The net change in unrealized holding losses on trading securities held at March 31, 2003, and 2002, which has been included in income for the nine-month period, is $(52,271) and $(68,670), respectively. The Company expects that gains and losses will continue to fluctuate in the future. RESULTS OF OPERATIONS - NINE MONTHS ENDED MARCH 31, 2003 AND 2002 The Company posted net after-tax income of $183,234 ($0.02 income per share) for the nine-month period ended March 31, 2003, compared with a net after-tax loss of $51,321 ($0.01 loss per share) for the nine-month period ended March 31, 2002. Net income increased $234,555 as the company recorded $308,678 in private client advisory fees for the nine-month period ended March 31, 2003. Combining the Company's gold-related expertise with improved gold markets, the Company has been able to participate in investment opportunities in gold products with higher margins and potentially significant returns. REVENUES Total consolidated revenues for the nine months ended March 31, 2003, increased $239,959, or 4 percent, compared with the nine months ended March 31, 2002. This was primarily due to a rise in the value of gold-related investments in the private client account, resulting in increased advisory fees. Investment advisory fees from USGIF and USGAF remained relatively flat as the growth in higher-margin gold assets offset declines in equity assets and low-margin money market assets. Transfer agent fees for the nine months ended March 31, 2003, decreased $170,611, or 9 percent, compared with the nine months ended March 31, 2002. This was due to a decline in the consolidated number of shareholder accounts. The Company instituted a small account fee in January 2002 for shareholders with low account balances in the 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, which serve to reduce expenses borne by the funds, the gold funds have realized improvements in their expense ratios. Conversely, the Company realized a significant drop in accounts under management in January 2003, which has resulted in a decline in transfer agent fees for the Company. EXPENSES Total consolidated expenses for the nine months ended March 31, 2003, increased $78,594, or 1 percent, compared with the nine months ended March 31, 2002. A decrease in personnel expenses was offset by increased insurance, software, sub-advisory fees and marketing costs, resulting in relatively flat expenses. U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 11 of 20 - ------------------------------------------------------------------------------ EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA) Management considers EBITDA to be the best measure of the Company's financial performance since this measurement reflects the operations of the Company's primary business segment, managing and servicing USGIF and USGAF. The following is a reconciliation of Income Before Income Taxes to EBITDA: NINE MONTHS ENDED MARCH 31, --------------------------- 2003 2002 --------- -------- INCOME BEFORE INCOME TAXES $ 177,349 $ 15,984 Adjustments: Interest 63,808 64,641 Depreciation 96,736 92,777 Net Realized (Gains) Losses on Securities (23,026) 87,948 Net Unrealized Losses on Trading Securities 52,271 68,670 --------- -------- EBITDA $ 367,138 $330,020 ========= ======== EBITDA for the nine-month period ended March 31, 2003, was $367,138, which was an increase of $37,118 from an EBITDA of $330,020 for the nine-month period ended March 31, 2002. The Company has been able to utilize its expertise in the field of gold and precious minerals to provide investment management services to a private advisory client whereby the Company earns a percentage of the gains realized in the client account. The underlying investments in this account had outstanding performance in the nine months ended March 31, 2003, boosting operational returns relative to prior year. Conversely, during the same period the Company experienced a reduction in transfer agent fee revenue and an increase in operating expenses. RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 2003 AND 2002 The Company posted a net after-tax loss of $69,850 ($0.01 loss per share) for the quarter ended March 31, 2003, compared with a net after-tax loss of $24,890 ($0.00 loss per share) for the quarter ended March 31, 2002. REVENUES Total consolidated revenues for the quarter ended March 31, 2003, decreased $58,529, or 3 percent, compared with the quarter ended March 31, 2002. Investment advisory fees from USGIF and USGAF remained relatively flat as the growth in higher-margin gold assets offset declines in equity assets and low-margin money market assets. Transfer agent fees for the quarter ended March 31, 2003, decreased $73,585, or 13 percent, compared with the quarter ended March 31, 2002. This was due to a decline in the consolidated number of shareholder accounts. EXPENSES Total consolidated expenses for the quarter ended March 31, 2003, increased $83,541, or 4 percent, compared with the quarter ended March 31, 2002. An increase in sub-advisory fees and marketing costs was partially offset by a reduction in personnel expenses. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA) THREE MONTHS ENDED MARCH 31, ---------------------------- 2003 2002 --------- -------- INCOME (LOSS) BEFORE INCOME TAXES $ (74,234) $ 67,836 Adjustments: Interest 21,316 19,827 Depreciation 38,033 28,846 Net Realized (Gains) Losses on Securities (23,026) - Net Unrealized Gains on Trading Securities (42,857) (93,453) ----------- ---------- EBITDA $ (80,768) $ 23,056 ============ ========= U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 12 of 20 - ------------------------------------------------------------------------------ EBITDA for the quarter ended March 31, 2003, was $(80,768), which was a decrease of $103,824 from an EBITDA of $23,056 for the quarter ended March 31, 2002. This decrease was primarily a result of a $73,585 reduction in transfer agent fee revenue coupled with an increase in operating expenses. 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, 2003, the Company has net operating loss carryovers (NOLs) of approximately $2.5 million, which will expire between fiscal 2010 and 2022, charitable contribution carryovers of approximately $64,000 expiring between 2004 and 2006, and alternative minimum tax credits of approximately $140,000 with indefinite expirations. The long-term deferred tax asset includes approximately $170,000 of unrealized losses on available-for-sale securities, approximately $195,000 from the permanent write-down of security valuations, and approximately $39,000 from annuity obligations. If certain changes in the Company's ownership occur subsequent to March 31, 2003, 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 $527,000 and $684,000 at March 31, 2003, 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 March 31, 2003, the Company had net working capital (current assets minus current liabilities) of approximately $3.2 million and a current ratio of 6 to 1. With approximately $1.1 million in cash and cash equivalents and more than $1.2 million in marketable securities, the Company has adequate liquidity to meet its current debt obligations. The Company has a note payable to a bank whereby it must maintain certain financial covenants. One of the covenants requires that the Company maintain cash and cash equivalents and eligible marketable securities to meet or exceed $1 million at the end of each quarter. The Company is in full compliance with all of its financial covenants at March 31, 2003. Total shareholders' equity was approximately $5.5 million, with cash, cash equivalents, and marketable securities comprising 31 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, 2004, and May 31, 2004, 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, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 13 of 20 - ------------------------------------------------------------------------------ ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 sensitivity analysis below summarizes the Company's equity price risks as of March 31, 2003, and shows the effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices. SENSITIVITY ANALYSIS ESTIMATED INCREASE HYPOTHETICAL FAIR VALUE AFTER (DECREASE) IN FAIR VALUE AT PERCENTAGE HYPOTHETICAL SHAREHOLDERS' MARCH 31, 2003 CHANGE PERCENT CHANGE EQUITY -------------- ------------ ---------------- ------------- Trading Securities $756,143 25% increase $945,179 $ 124,764 25% decrease $567,107 $(124,764) Available-for-Sale $415,486 25% increase $519,358 $ 68,556 25% decrease $311,614 $ (68,556) 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. ITEM 4. CONTROLS AND PROCEDURES An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of May 2, 2003, was conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based on that evaluation, our management, including our chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective as of May 2, 2003. In the quarter ended March 31, 2003, there were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 14 of 20 - ------------------------------------------------------------------------------ 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 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002 99.2 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. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 15 of 20 - ------------------------------------------------------------------------------ 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, 2003 BY: /s/Frank E. Holmes ---------------------------------------- Frank E. Holmes Chief Executive Officer DATED: May 15, 2003 BY: /s/Tracy C. Peterson ---------------------------------------- Tracy C. Peterson Chief Financial Officer U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 16 of 20 - ------------------------------------------------------------------------------ QUARTERLY CERTIFICATION OF CHIEF EXECUTIVE OFFICER 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 U.S. Global Investors, Inc.; 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: May 15, 2003 /s/Frank E. Holmes - --------------------------------- Signature Frank E. Holmes, Chief Executive Officer U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 17 of 20 - ------------------------------------------------------------------------------ QUARTERLY CERTIFICATION OF CHIEF FINANCIAL OFFICER 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 U.S. Global Investors, Inc.; 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: May 15, 2003 /s/Tracy C. Peterson - ---------------------------------- Signature Tracy C. Peterson, Chief Financial Officer U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 18 of 20 - ------------------------------------------------------------------------------ EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
NINE MONTHS ENDED THREE MONTHS ENDED MARCH 31, MARCH 31, ------------------------- -------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ------------ Net income (loss) $ 183,234 $ (51,321) $ (69,850) $ (24,890) =========== =========== =========== =========== BASIC Weighted average number of shares outstanding during the period 7,462,437 7,455,450 7,456,340 7,446,610 Basic income (loss) per share $ 0.02 $ (0.01) $ (0.01) $ (0.00) =========== =========== =========== =========== DILUTED Weighted average number of shares outstanding during the period 7,462,437 7,455,450 7,456,340 7,446,610 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 7,785 -- 30,516 -- Weighted average number of shares used in calculation of ----------- ----------- ----------- ----------- diluted income (loss) per share 7,470,222 7,455,450 7,486,856 7,446,610 =========== =========== =========== =========== Diluted income (loss) per share $ 0.02 $ (0.01) $ (0.01) $ (0.00) =========== ============ =========== ===========
U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 19 of 20 - ------------------------------------------------------------------------------ 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 March 31, 2003, 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. /s/Frank E. Holmes Date: May 15, 2003 ----------------------- Frank E. Holmes Chief Executive Officer U.S. GLOBAL INVESTORS, INC. MARCH 31, 2003, QUARTERLY REPORT ON FORM 10-Q PAGE 20 of 20 - ------------------------------------------------------------------------------ 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 March 31, 2003, 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. /s/Tracy C. Peterson Date: May 15, 2003 ----------------------- Tracy C. Peterson Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----