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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2003
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _________
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Commission File Number 0-13928
U.S. GLOBAL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
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Texas 74-1598370
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
7900 Callaghan Road 78229-1234
San Antonio, Texas (Zip Code)
(Address of Principal Executive Offices)
(210) 308-1234
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address, and Former Fiscal Year,
if Changed since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
U.S. Global Investors, Inc. (the Company or U.S. Global) has made
forward-looking statements concerning the Company's performance, financial
condition, and operations in this quarterly report. The Company from time to
time may also make forward-looking statements in its public filings and press
releases. Such forward-looking statements are subject to various known and
unknown risks and uncertainties and do not guarantee future performance. Actual
results could differ materially from those anticipated in such forward-looking
statements due to a number of factors, some of which are beyond the Company's
control, including (i) the volatile and competitive nature of the investment
management industry, (ii) changes in domestic and foreign economic conditions,
(iii) the effect of government regulation on the Company's business, and (iv)
market, credit, and liquidity risks associated with the Company's investment
management activities. Due to such risks, uncertainties, and other factors, the
Company cautions each person receiving such forward looking information not to
place undue reliance on such statements. All such forward-looking statements are
current only as of the date on which such statements were made.
BUSINESS SEGMENTS
The Company, with principal operations in San Antonio, Texas, manages two
business segments: (1) the Company provides 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
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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