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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1996
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
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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 78229-2327
San Antonio, Texas (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(210) 308-1234
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not Applicable
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
On October 24, 1996 there were 6,225,318 shares of Registrant's Class A common
stock outstanding and 563,456 shares of Registrant's Class C common stock issued
and outstanding.
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FORM 10-Q
U.S. GLOBAL INVESTORS, INC.
I N D E X
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and June 30, 1996
Consolidated Statements of Operations -
Three-Months Ended September 30, 1996 and 1995
Consolidated Statements of Changes in Cash Flows
Three-Months Ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
U.S. GLOBAL INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, JUNE 30,
1996 1996
---------------- -----------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 1,120,306 $ 666,250
Trading securities, at fair
value (Note B) 1,089,530 999,500
Government securities
available-for-sale at fair
value (Note D and E) 26,324,125 26,324,125
Receivables (Note C):
Mutual funds 810,204 1,092,961
Accrued interest 94,418 95,847
Custodial fees 269,250 163,296
Employees 21,185 92,765
Receivable from brokers 282,422 75,054
Other 445,886 704,286
Prepaid expenses 443,148 454,567
------------ ------------
TOTAL CURRENT 30,900,474 30,668,651
------------ ------------
NET PROPERTY AND EQUIPMENT 2,595,862 2,621,052
------------ ------------
OTHER ASSETS
Restricted investments 650,446 642,380
Long-term receivables 423,418 368,742
Long-term deferred tax asset
(Note H) 1,120,257 1,096,268
Residual equity interest 217,861 217,861
Investment in joint venture
(Note A & G ) 214,370 255,500
Investment securities
available-for-sale, at fair
value (Note B) 1,306,203 2,210,657
Equity investment in affiliate
(Note A) 1,722,576 1,164,415
Other 59,298 61,670
----------- ------------
TOTAL OTHER ASSETS 5,714,429 6,017,493
----------- ------------
$39,210,765 $39,307,196
=========== ===========
The accompanying notes are an integral part of this statement.
LIABILITIES AND SHAREHOLDERS' EQUITY
SEPTEMBER 30, JUNE 30,
1996 1996
---------------- ----------
(UNAUDITED)
CURRENT LIABILITIES
Current portion of capital
lease obligation $ 6,581 $ 24,354
Current portion of notes
payable 42,445 41,695
Current portion of annuity
and contractual obligation 18,000 18,000
Subordinated debenture 1,383,131 1,533,131
Securities sold under
agreements to repurchase
(Note E) 26,538,000 26,404,375
Accounts payable 170,055 276,116
Accrued interest payable
to third parties 4,347 16,685
Accrued interest payable
on subordinated debenture
(Note D and F) 30,403 70,017
Accrued compensation and
related costs 89,406 204,911
Accrued profit sharing and
401(k) 197,894 110,489
Accrued vacation pay 75,959 75,959
Accrued legal fees 83,946 70,536
Deferred tax liability
(Note H) 14,486 11,312
Litigation accrual 300,000 300,000
Other accrued expenses 116,180 195,065
---------- ----------
TOTAL CURRENT LIABILITIES 29,070,833 29,352,645
---------- ----------
Notes Payable-Net of Current
Portion 1,244,112 1,260,137
Annuity and Contractual
Obligations 148,779 150,342
---------- ----------
TOTAL NON-CURRENT LIABILITIES 1,392,891 1,410,479
---------- ----------
TOTAL LIABILITIES 30,463,724 30,763,124
---------- ----------
Commitments and contingent liabilities
Shareholders' Equity
Common stock (Class A)--
$0.05 par value; non-voting;
authorized, 7,000,000 shares 311,266 310,971
Common stock (Class C)--
$.05 par value; voting;
authorized, 1,750,000 shares 28,173 28,218
Common stock (Class B)--
$.05 par value; non-voting;
authorized, 2,250,000 shares --- ---
Additional paid-in-capital 10,593,767 10,586,666
Treasury stock at cost (473,022) (530,384)
Net unrealized gain on
available-for-sale securities
(net of tax of $98,064
and $294,993, respectively) 190,359 572,634
Equity in net unrealized gain
on available-for-sale securities
held by affiliate (net of tax of
$50,495 and $76,823, respectively) 98,020 149,127
Retained earnings (deficit) (2,001,522) (2,573,160)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 8,747,041 8,544,072
------------ ------------
$ 39,210,765 $39,307,196
============ ============
The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1996 1995
--------------- ----------
REVENUE (NOTE C)
Investment advisory fee $1,626,788 $1,406,082
Transfer agent fee 680,847 610,192
Accounting fee 130,703 129,750
Exchange fee 58,865 64,710
Custodial fees 145,582 135,336
Investment income (loss) 582,810 582,530
Miscellaneous transfer
agency fee 151,887 148,261
Other 59,512 60,241
Government security
interest income 286,509 1,354,513
Government security
accretion to par 130,402 524,880
Gains on changes of
interest in affiliate (Note A) 129,132 ---
---------- ----------
3,983,037 5,016,495
---------- ----------
EXPENSES
General and administrative 2,760,835 2,513,239
--------- ----------
Depreciation and amortization 107,438 120,474
Interest-note payable and other 25,032 34,132
Interest expense-securities sold
under agreement to repurchase 378,586 1,733,832
Interest expense-convertible
subordinated debenture 30,403 90,684
--------- ----------
3,302,294 4,492,361
--------- ----------
EARNINGS (LOSS) BEFORE MINORITY INTEREST, EQUITY INTEREST AND
INCOME TAXES 680,743 524,134
Equity in Net Earnings of Joint
Venture (Note A and G) (41,130) ---
Equity In Net Earnings of
Affiliate (Note A) 146,464 ---
---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES 786,077 524,134
PROVISIONS FOR FEDERAL INCOME TAXES
Current 12,000 ---
Deferred (Note H) 202,441 218,644
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214,441 218,644
---------- ----------
NET EARNINGS $ 571,636 $ 305,490
========== ===========
PER SHARE AMOUNTS
Primary and fully diluted
Continuing operations $0 .09 $0 .05
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Primary and fully diluted 6,619,329 6,611,599
========== ===========
The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 571,636 $ 305,490
Adjustments to reconcile to net
cash provided by operating
activities:
Depreciation and amortization 107,438 120,474
Government security accretion (130,402) (524,880)
Net gain on sales of securities (500,101) (228,240)
Gain on disposal of equipment (64) (257)
Gains on changes of interest in
affiliate (129,132) ---
Treasury stock reissued 104,094 ---
Changes in assets and liabilities,
impacting cash from operations:
Restricted investments (8,066) 235,700
Accounts receivable 246,168 (511,914)
Deferred tax asset 202,441 218,644
Prepaid expenses and other (453,917) (24,594)
Trading securities 965,723 40,488
Accounts payable (106,061) (4,752)
Accrued expenses (145,523) 171,121
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Total adjustments 152,598 (508,210)
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NET CASH PROVIDED BY (USED IN) OPERATIONS 724,234 (202,720)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (80,610) (26,793)
Net proceeds on sale of equipment 800 381
Purchase of available-for-sale
securities (100,000) (480,343)
Net purchase of government
securities held-to-maturity --- 32,074
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (179,810) (474,681)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on annuity (1,563) (1,457)
Payments on note payable to bank (15,275) (9,140)
Payments on capital lease (17,773) (27,321)
Net proceeds from securities sold
under agreement to repurchase 133,625 105,918
Payments on subordinated debenture
to related party (150,000) ---
Proceeds from issuance of preferred
stock, warrants, and options 7,500 ---
Proceeds from issuance of Common
Stock (Class B) to related party --- (17,902)
Purchase of Treasury stock (46,882) (75,757)
----------- ----------
NET CASH USED IN FINANCING ACTIVITIES (90,368) (25,659)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 454,056 (703,060)
BEGINNING CASH AND CASH EQUIVALENTS 666,250 2,772,221
----------- ----------
ENDING CASH AND CASH EQUIVALENTS $1,120,306 $2,069,161
=========== ===========
SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest $ 468,229 $1,799,083
The accompanying notes are an integral part of this statement.
U.S. GLOBAL INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A. BASIS OF PRESENTATION.
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods presented. U.S. Global
Investors, Inc. ("the Company" or "USGI") 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, 1996.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, United Shareholders Services, Inc. ("USSI"),
Security Trust and Financial Company ("STFC"), A&B Mailers, Inc. ("A&B") and
U.S. Advisors (Guernsey), Ltd. ("USAG"). Additionally, the Company has continued
to account for its investment in the Guernsey offshore fund under the equity
method of accounting, as the Company held a 27% interest in the Fund as of
September 30, 1996. This resulted in the Company recording earnings of $146,464
for the quarter ending September 30, 1996 which is included in earnings before
taxes in the income statement. In addition, due to changes in its equity
interest of the Fund during the quarter, the Company recorded a gain of $129,132
during the same period. Similarly, the Company has a one-third interest in a
joint venture formed in August 1994, United Services Advisors Canada, Inc.
("USACI"), to offer mutual funds in Canada. The joint venture became operational
during August 1996 and the Company, utilizing the equity method of accounting,
recorded a net loss of $41,130 for the quarter ending September 30, 1996. All
inter-company balances and transactions have been eliminated in consolidation.
Certain amounts have been reclassified for comparative purposes.
The results of operations for the three month period ended September 30,
1996 are not necessarily indicative of the results to be expected for the entire
year.
NOTE B. SECURITY INVESTMENTS.
The Company accounts for its investment securities in accordance with SFAS
115 "Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, the market value of investments classified as trading at September
30, 1996 was $1,089,530. The net change from the market value as of June 30,
1996 and the market value as of September 30, 1996 on trading securities that
has been included in earnings for the three-month period is $48,211.
The estimated fair value of the investments classified as
available-for-sale at September 30, 1996 was $1,306,203 with $512,774 (before
tax) in unrealized gains being recorded as a separate component of Shareholders
Equity as of September 30, 1996. These venture capital investments are reflected
as non-current assets on the September 30, 1996 consolidated balance sheet.
These investments are in private placements which are restricted for sale as of
September 30, 1996. It is anticipated the securities obtained in these private
placements will become free trading within one year. During the quarter, the
Company recorded realized gains of $21,302 on securities which were transferred
from available-for-sale securities to trading securities upon becoming free
trading. The Company also recorded unrealized gains of $18,943 on securities
which were transferred from available-for-sale securities to trading securities
upon becoming free trading during the quarter which are included in the net
change on trading securities of $48,211.
Additionally, the Company holds par value U.S. Government agency notes
("Notes") which are discussed in Note D.
Restricted investments include cash of $-0- and $72,268 held in margin
accounts at brokers at September 30, 1996 and September 30, 1995, respectively.
NOTE C. INVESTMENT MANAGEMENT, TRANSFER AGENT AND OTHER FEES.
The Company serves as investment advisor and transfer agent to United
Services Funds ("USF") and Accolade Funds ("Accolade"). For these services the
Company receives fees based on a specified percentage of net assets under
management and the number of shareholder accounts. The Company also provides
in-house legal and accounting services to USF and Accolade. Accounting services
are provided to USF for an annual fee. The Company also receives exchange,
maintenance, closing, and small account fees directly from USF shareholders.
Fees for providing services to USF continue to be the Company's primary revenue
source.
USGI receives additional revenue from several sources including STFC
custodian and administrative fee revenues, gains on marketable securities
transactions, revenues from miscellaneous transfer agency activities including
lockbox functions as well as mailroom operations from A&B.
Investment advisory fees, transfer agency fees, accounting fees, custodian
fees and all other fees to the Company are recorded as income during the period
in which services are performed.
USGI has voluntarily waived or reduced its advisory fee; guaranteed that
fund expenses will not exceed certain limits; and/or has agreed to pay expenses
on several USF funds for purposes of enhancing their performance. The aggregate
amount of fees waived and expenses borne by the Company for the three month
period ended September 30, 1996 and September 30, 1995 was $782,671, and
$964,489, respectively.
Receivables from mutual funds represent amounts due the Company and its
wholly-owned subsidiaries for investment advisory fees, transfer agent fees,
accounting fees, and exchange fees and are net of amounts payable to the mutual
funds.
The investment advisory contract and related contracts between the Company
and USF were recently renewed and expire on or about October 26, 1997.
Management anticipates the Trustees of USF will continue to renew the contracts.
NOTE D. GOVERNMENT SECURITIES.
As previously reported, during the fiscal year ended June 30, 1995, USGI
purchased $130,525,000 par value Notes from the U.S. Government Securities Fund
("USG"), a USF fund, of which $26,725,000 par value Notes with an amortized cost
of $26,548,476 and a market value of $26,324,125 were held at September 30,
1996. In accordance with SFAS 115, the Company has currently classified the
Notes as available-for-sale securities which resulted in an unrealized loss
(before tax) in the amount of $224,351. The Notes were financed by utilizing
third party broker-dealer reverse repurchase agreements (see Note E), by the
issuance of a subordinated debenture, as well as USGI's cash. The Company has
also recognized $130,402 and $524,880 in non-cash accretion of the Notes during
the quarters ended September 30, 1996 and 1995, respectively.
During fiscal year 1995, USGI purchased put options on Eurodollar futures
("Options") with the expectation that they would reduce USGI's exposure to
temporary declines in the value of the Notes and reduce USGI's exposure to
increased interest costs of the reverse repurchase agreements in the event of a
significant increase in interest rates. Due to the current interest rate
environment, USGI holds no options as of September 30, 1996. At September 30,
1995 USGI held 140 Options which expired in December 1995 to reduce the risk of
declines in the value of the Notes held by approximately 24% of the Notes'
$117.525 million par value. The Options were exchange-traded and required no
cash requirements other than the initial premiums and USGI's exposure on the
Options was limited to the initial premiums invested of $64,575.
NOTE E. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE.
As discussed in Note D, USGI financed the acquisition of the Notes by
entering into agreements to repurchase securities with third party
broker-dealers. The terms with the broker-dealers provide that the reverse
agreements must be collateralized by the Notes and/or cash. The Notes described
in Note D are held by the broker-dealers as collateral. Throughout fiscal 1996,
and as of October 30, 1996, each reverse repurchase agreement has matured and
has been renewed on a 30-day basis. Management believes that the reverse
repurchase agreements can be periodically renewed until the Notes mature. All
reverse repurchase agreements are with a major broker-dealer and are secured by
U.S. Government Agency obligations.
The following is a summary of information as of September 30, 1996 on the
securities sold under agreements to repurchase and the repurchase liability:
Matures
Less Than
30 DAYS
Carrying Amount of (fair value) $26,324,125
Accrued Interest Receivable on Collateral 94,418
Repurchase Liability (interest rate of 5.55%) 26,538,000
NOTE F. SUBORDINATED DEBENTURE
In conjunction with the purchase of the Notes previously described, USGI
issued a $6 million 8% subordinated debenture to Marleau, Lemire Inc. ("ML"),
the terms of which require monthly principal payments and quarterly interest
payments as the Notes mature. Payments of $150,000 have been made during fiscal
year 1997 leaving an outstanding balance of approximately $1.4 million. As of
September 30, 1996, the Company has accrued approximately $30,000 in interest
payable related to the subordinated debenture. All interest payments to ML have
been made in a timely manner.
NOTE G. INVESTMENT IN JOINT VENTURE.
As previously reported, USGI currently holds a one-third interest in United
Services Advisors Canada, Inc. ("USACI") as of June 30, 1996. During the first
quarter of fiscal year 1997, the joint venture became operational. The Company
accounts for its interest in the joint venture using the equity method of
accounting. As a result, the Company recorded a net loss in equity earnings in
the joint venture in the amount of $41,130 for the quarter ended September 30,
1996, which is included in earnings before taxes in the income statement.
NOTE H. INCOME TAXES.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of these
temporary differences that give rise to the deferred tax asset as of September
30, 1996 are presented below:
September 30,
1996
-------------
Book/tax differences in the balance sheet:
Accumulated depreciation $ 115,544
Accrued expenses 32,791
Annuity obligations 56,705
Reduction in carrying value of joint venture 210,630
Net unrealized holding gain (affiliate) 50,495
Net unrealized holding gain 98,064
-----------
564,229
Tax carryovers:
NOL carryover 748,228
Contributions carryover 71,084
Investment credit carryover 34,472
Minimum tax credits 129,786
-----------
983,570
Total gross deferred tax asset 1,547,799
Affiliated investment (185,287)
Trading securities (10,118)
Available-for-sale securities 98,064)
------------
Total gross deferred tax liability (293,469)
-----------
Net deferred tax asset $1,254,330
==========
For federal income tax purposes at September 30, 1996 the Company has net
operating losses ("NOLs") of approximately $2.2 million which will expire in
fiscal 2007 and 2010, charitable contribution carryovers of approximately
$209,000 expiring 1998-2000, investment tax credits of $34,472 expiring in 1998,
and alternative minimum tax credits of $129,786 with indefinite expirations.
Certain changes in the Company's ownership may result in a limitation on the
amount of NOLs that could be utilized under Section 382 of the Internal Revenue
Code. If certain changes in the Company's ownership should occur subsequent to
September 30, 1996, there could be an annual limitation on the amount of 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 believes
that taxable income during the carryforward periods will be sufficient to
utilize the NOLs which give rise to the deferred tax asset.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The Company posted net earnings of $571,636 ($0.09 per share) for the
quarter ended September 30, 1996, as compared to a net earnings of $305,490
($0.05 per share) for the quarter ended September 30, 1995.
ASSETS UNDER MANAGEMENT
The Company's investment advisory fee revenue is based upon a percentage of
average net assets under management. Therefore, fluctuations in financial
markets impact revenues and results of operations.
Assets under management for the United Services Funds ("USF") for the
quarter ended September 30, 1996 averaged $1.33 billion versus $1.27 billion for
the quarter ended September 30, 1995. This increase in average assets primarily
resulted from an increase in the value of money market and equity related
assets. Assets under management for the Accolade Funds ("Accolade"), averaged
$81 million for the quarter ended September 30, 1996 versus $19 million for the
quarter ended September 30, 1995.
As of October 24, 1996, total assets under management for USF were
approximately $1.37 billion and total assets under management for Accolade were
$94.3 million.
REVENUES
Total consolidated revenues for the quarter ended September 30, 1996
decreased approximately 21% over the quarter ended September 30, 1995. This
resulted primarily from a reduction in interest income and accretion on the U.S.
Government Agency Notes ("Notes") purchased during the fiscal year ended June
30, 1995, a majority of which were purchased during the first quarter of fiscal
1995.
Excluding the income from the Notes, revenue for the period ended September
30, 1996 increased approximately 14% over the quarter ended September 30, 1995.
This increase resulted primarily from an increase in advisory fee and transfer
agency fee income due to increased assets under management. In addition, the
Company recorded approximately $129,000 in gains from changes of its equity
interest in an affiliated company (namely unrealized gains of the offshore fund
sponsored by the Company). The Company expects such interests will change in the
future as changes in ownership occur; the magnitude of such amounts will be
affected by fluctuations in the market value of the affiliate's investments.
EXPENSES
Total consolidated expenses for the quarter ended September 30, 1996
decreased approximately 26% over the quarter ended September 30, 1995. This net
decrease resulted primarily from a decrease in interest expense of $1.4 million
on securities sold under agreement to repurchase to broker-dealers from the
previous first quarter. This decrease in interest expense is due to the fact
that $26.75 million par value Notes were held throughout the quarter ended
September 30, 1996, while $117.525 million par value Notes were held for the
entire quarter ended September 30, 1995.
Exclusive of the expenses attributable to the purchase and financing of the
Notes, expenses of the Company increased 8% over the quarter ended September 30,
1995 due to increases in travel, sales and promotion, and salaries and benefits.
On the other hand, fund expenses and depreciation and amortization declined
significantly over the same period.
LIQUIDITY AND CAPITAL RESOURCES
INVESTMENT IN JOINT VENTURE
As previously reported, USGI held a one-third interest in United Services
Advisors Canada, Inc. ("USACI") as of June 30, 1996. During the first quarter of
fiscal year 1997, the joint venture became operational. The Company accounts for
its interest in the joint venture using the equity method of accounting. As a
result, the Company recorded a net loss in equity earnings in the joint venture
in the amount of $41,130 for the quarter ended September 30, 1996, which is
included in earnings before taxes in the income statement.
GOVERNMENT SECURITIES
As previously reported, during the fiscal year ended June 30, 1995, USGI
purchased $130,525,000 par value Notes from the U.S. Government Savings Fund
("USG"), a USF fund, of which $26,725,000 par value Notes with a market value of
$26,324,125 were held at September 30, 1996. The Notes were financed by
utilizing third party broker-dealer reverse repurchase agreements, by the
issuance of a subordinated debenture to Marleau, Lemire Inc. ("ML"), as well as
USGI's cash. In accordance with SFAS 115, the Company has currently classified
the Notes as available-for-sale securities which has resulted in an unrealized
loss in the amount of $224,351. The Company has also recognized $130,402 and
$524,880 in non-cash accretion of the Notes during the quarters ended September
30, 1996 and 1995, respectively.
During fiscal year 1995, USGI purchased put options on Eurodollar futures
("Options") with the expectation that they would reduce USGI's exposure to
temporary declines in the value of the Notes and reduce USGI's exposure to
increased interest costs of the reverse repurchase agreements in the event of a
significant increase in interest rates. Due to the current interest rate
environment, USGI holds no options as of September 30, 1996.
At September 30, 1995, USGI held 140 Options which expired in December 1995 to
reduce the risk of declines in the value of the Notes held by approximately 24%
of the Notes' $117.525 million par value. The Options were exchange-traded and
require no cash requirements other than the initial premiums and USGI's exposure
on the Options is limited to the initial premiums invested of $64,575.
SUBORDINATED DEBENTURE
In conjunction with the purchase of the Notes described above, USGI issued a
$6 million 8% subordinated debenture to ML, the terms of which require monthly
principal payments and quarterly interest payments as the Notes mature. Payments
of $150,000 have been made during fiscal year 1997 leaving an outstanding
balance of approximately $1.4 million as of September 30, 1996, as compared to a
balance of approximately $4.5 million as of September 30, 1995. The Company has
accrued approximately $30,000 in interest payable related to the subordinated
debenture, while at September 30, 1995 the Company accrued interest of
approximately $91,000. All interest payments to ML have been made in a timely
manner.
INVESTMENT ACTIVITIES
Management believes it can more effectively manage the Company's cash
position by broadening the types of investments utilized in cash management. At
September 30, 1996 the Company held approximately $2.4 million in investment
securities other than the Notes. The value of these investments is approximately
27% of stockholders' equity at quarter end. Company investments in marketable
securities classified as trading securities totaled approximately $1.1 million
(market value). In addition, there was approximately $1.3 million in investments
in securities classified as available- for- sale. These securities are primarily
private placements that Management expects will become free-trading within one
year. During the quarter ending September 30, 1996, net realized gains from the
sale of investments aggregated approximately $500,000, compared to approximately
$226,000 (which excluded the sales or expirations of Eurodollar puts) for the
quarter ending September 30, 1995. Management believes that such activities are
in the best interest of the Company. The activities are scrutinized by Company
compliance personnel and reported to investment advisory clients.
FEE WAIVERS
The Company has agreed to waive a portion of its fee revenues and/or to pay
for expenses of certain mutual funds for purposes of enhancing the funds'
competitive market position. Should assets of these funds increase, fund
expenses borne by the Company would increase to the extent that such expenses
exceed any expense caps in place. The Company expects to continue to waive fees
and/or pay for fund expenses as long as market and economic conditions warrant.
However, subject to the Company's commitment to certain funds with respect to
fee waivers and expense limitations, the Company may reduce the amount of fund
expenses it is bearing.
CONCLUSION
The remaining Notes held by the Company at September 30, 1996 are scheduled to
mature during the third quarter of fiscal year 1997. The Notes have a face value
of $26.5 million which is greater than the Company's purchase price. As of
September 30, 1996 the Company had approximately $27.9 million in debt related
to the Notes (comprised of the $1.4 million balance on the ML debenture and
$26.5 million advanced by brokers pursuant to reverse repurchase agreement
transactions). The ML note is essentially unsecured with ML looking to the
collateral under the reverse repurchase agreements as its primary source of
repayment. The reverse repurchase agreements with the broker-dealers are backed
with collateral valued at approximately $26.3 million. The broker-dealers have
and continue to extend the agreements; however, if all of the broker-dealers
refused to roll-over their repurchase agreements there would be sufficient
collateral and liquidity to cover the brokers and to repay the ML note. As of
September 30, 1996, USGI had unrestricted cash and marketable securities with an
aggregate value of approximately $2.21 million which could be used to fully
retire the debt related to the notes as well as sustain the continued operations
of the Company.
Based upon available information and internal analyses, through the last
maturity date of the Notes, management anticipates positive cash flow and net
income in the current fiscal year, which income will include accretion related
to the Notes in excess of the non-cash charge taken by the Company during fiscal
year 1995. Management believes current cash reserves, plus financing obtained
and cash flow from operations, will be sufficient to meet foreseeable cash needs
or capital necessary for the above mentioned activities, as well as allow the
Company to take advantage of investment opportunities whenever available.
However, it is difficult to predict future events and should cash flow be
insufficient due to some unexpected event, the Company would seek additional
sources of financing to meet future working capital requirements.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K PAGE NO.
1. Exhibits
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
2. Reports on Form 8-K None
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: October 30, 1996 BY: /s/ BOBBY D. DUNCAN
---------------------
BOBBY D. DUNCAN
PRESIDENT
CHIEF FINANCIAL OFFICE
CHIEF OPERATING OFFICER
DATED: October 30, 1996 BY: /s/ KEVIN C. WHITE
----------------------
KEVIN C. WHITE
CHIEF ACCOUNTING OFFICER
U.S. GLOBAL INVESTORS, INC.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
QUARTER ENDED SEPTEMBER 30,
---------------------------
1996 1995
--------- ----------
Net earnings $786,077 $305,490
========= ========
PRIMARY
Weighted average number shares
outstanding during the year 6,580,052 6,545,921
Add:
Common stock equivalent shares
(determined using the "treasury
stock" method) representing
shares issuable upon exercise
of preferred or common stock warrants --- ---
Common stock equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon exercise
of preferred or common stock options 39,277 65,678
--------- ------------
Weighted average number of shares used in
calculation of primary earnings per share 6,619,329 6,611,599
========= ==========
Primary earnings (loss) per share
Net Earnings Per Share $0.09 $0.05
===== =====
FULLY DILUTED
Weighted average number of shares outstanding
during the year 6,580,052 6,545,921
Add:
Common stock equivalent shares
(determined using the "treasury stock"
method) representing shares issuable
upon exercise of preferred or common
stock warrants --- ---
Common stock equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon exercise
of preferred or common stock options 39,277 65,678
--------- ---------
Weighted average number of shares used
in calculation of fully diluted earnings
per share 6,619,329 6,611,599
========= ==========
Fully diluted earnings (loss) per share
Net Earnings Per Share $0.09 $0.05
========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Financial Data Schedule contaitns summary financial information extracted
from the Company's quarterly report on Form 10-Q for the period ended September
30, 1996 and is qualified in itws entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 1120306
<SECURITIES> 28719858
<RECEIVABLES> 2346783
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30900474
<PP&E> 7108754
<DEPRECIATION> (4512892)
<TOTAL-ASSETS> 39210765
<CURRENT-LIABILITIES> 29070833
<BONDS> 0
0
0
<COMMON> 339439
<OTHER-SE> 8407602
<TOTAL-LIABILITY-AND-EQUITY> 39210765
<SALES> 3436994
<TOTAL-REVENUES> 4088371
<CGS> 0
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<OTHER-EXPENSES> 2868273
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 786077
<INCOME-TAX> 214441
<INCOME-CONTINUING> 571636
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<EPS-PRIMARY> 0.09
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</TABLE>
