- --------------------------------------------------------------------------------
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, 1996
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
-------------------------------
UNITED SERVICES ADVISORS, 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 April 26, 1996 there were 564,352 shares of Registrant's Class A common stock
outstanding and 6,219,422 shares of Registrant's preferred stock issued and
outstanding.
- --------------------------------------------------------------------------------
<PAGE>
UNITED SERVICES ADVISORS, INC.
I N D E X
PART I -- FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets -...................................1
March 31, 1996 and June 30, 1995
Consolidated Statements of Operations -.........................3
Nine-Month and Three-Month Periods Ended
March 31, 1996 and 1995
Consolidated Statements of Changes in Cash Flows................4
Nine Months Ended
March 31, 1996 and 1995
Notes to Consolidated Financial Statements......................6
Item 2. Management's Discussion and Analysis of..................13
Financial Condition and Results of Operations
PART II. -- OTHER INFORMATION
Item 1. Legal Proceedings........................................18
Item 6. Exhibits and Reports on Form 8-K.........................18
SIGNATURES...........................................................19
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED SERVICES ADVISORS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................ $ 2,196,616 $ 2,772,221
Trading securities at fair value (Note B) ............................ 1,781,771 1,510,316
Government securities held-to-maturity (Note B and D) ................ 53,013,538 --
Receivables (Note C):
Mutual funds ...................................................... 812,207 720,134
Accrued interest .................................................. 403,305 504,647
Custodian fees .................................................... 114,278 192,248
Employees ......................................................... 88,407 98,121
Receivable from brokers ........................................... 246,828 104,747
Other ............................................................. 338,711 77,098
Prepaid expenses ..................................................... 560,939 488,773
Deferred tax asset ................................................... -- 63,771
------------ ------------
TOTAL CURRENT ASSETS ...................................... 59,556,600 6,532,076
------------ ------------
NET PROPERTY AND EQUIPMENT ............................................... 2,599,239 2,664,820
------------ ------------
OTHER ASSETS
Government securities held-to-maturity (Note B and D) ................ -- 113,260,361
Government securities available-for-sale, at fair value (Note B and D) 16,301,750 --
Investment securities available-for-sale, at fair value (Note B) ..... 4,531,835 1,466,622
Restricted cash and investments (Note B) ............................. 634,499 897,556
Long- term receivables ............................................... 383,450 219,982
Long-term deferred tax asset (Note G) ................................ 1,601,597 2,224,602
Residual equity interest ............................................. 217,861 217,861
Investment in joint venture .......................................... 771,624 518,073
Other ................................................................ 64,044 71,169
------------ ------------
TOTAL OTHER ASSETS ........................................ 24,506,660 118,876,226
------------ ------------
$ 86,662,499 $128,073,122
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED SERVICES ADVISORS, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
-------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable ........................................................... $ 172,515 $ 167,598
Accrued interest payable to third parties .................................. 225,619 388,217
Accrued interest payable to related party (Note F) ......................... 82,510 113,126
Accrued compensation and related costs ..................................... 123,125 53,700
Accrued profit sharing and 401(k) .......................................... 224,489 48,000
Accrued vacation pay ....................................................... 75,959 75,959
Accrued legal fees ......................................................... 114,164 50,722
Other accrued expenses ..................................................... 330,076 146,508
Securities sold under agreement to repurchase (Note E) ..................... 68,739,117 112,201,469
Current portion of capital lease obligations ............................... 40,870 93,658
Current portion of notes payable ........................................... 40,968 38,325
Current portion of annuity obligations ..................................... 18,000 18,000
Current portion of subordinated debenture held by a related party .......... 3,240,818 --
Deferred tax liability (Note G) ............................................ 963,606 --
------------- -------------
TOTAL CURRENT LIABILITIES .................................................. 74,391,836 113,395,282
------------- -------------
Notes Payable-Net of Current Portion ........................................... 1,270,843 1,301,723
Subordinated Debenture Held By a Related Party (Note F) ........................ 809,198 4,534,212
Capital Lease Obligations ...................................................... 953 24,354
Annuity and Contractual Obligations ............................................ 151,878 156,328
Commitments and Contingencies (Note H) ......................................... 300,000 --
------------- -------------
TOTAL NON-CURRENT LIABILITIES ........................................... 2,532,872 6,016,617
------------- -------------
TOTAL LIABILITIES ....................................................... 76,924,708 119,411,899
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock--$.05 par value; non-voting; authorized, 7,000,000 shares .. 310,650 253,575
Common stock (Class A)--$.05 par value; authorized, 1,750,000 shares ....... 28,618 28,539
Common stock (Class B)--$.05 par value; non-voting; authorized, 2,250,000
shares .................................................................. -- 50,000
Additional paid-in-capital ................................................. 11,184,756 12,852,986
Treasury stock at cost ..................................................... (511,204) (198,366)
Net unrealized gain on available-for-sale securities (net of tax of $877,505
and $120,914, respectively) ................................................ 1,703,393 234,716
Retained earnings (deficit) ................................................ (2,978,422) (4,560,227)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY .............................................. 9,737,791 8,661,223
------------- -------------
$ 86,662,499 $ 128,073,122
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED SERVICES ADVISORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ ----------------------------
1996 1995* 1996 1995*
------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE (NOTE C)
Investment advisory fee ................. $ 4,283,302 $ 4,152,347 $ 1,566,795 $ 1,271,589
Transfer agent fee ...................... 2,465,659 2,437,464 840,694 765,455
Accounting fee .......................... 388,847 324,527 134,047 94,332
Exchange fee ............................ 211,740 202,235 90,825 68,410
Custodial fees .......................... 420,986 368,198 126,269 127,813
Investment income (loss) ................ 2,873,299 (171,453) 840,406 (14,197)
Other ................................... 255,856 192,582 109,679 81,319
Government security interest income ..... 3,533,037 2,450,780 795,283 1,147,868
Government security accretion to par .... 1,211,584 963,278 194,887 478,236
------------ ------------ ------------ -------------
15,644,310 10,919,958 4,698,885 4,020,825
EXPENSES
General and administrative .............. 8,028,360 7,175,946 2,793,819 2,262,703
Depreciation and amortization ........... 362,672 392,471 121,724 135,005
Interest-note payable and other ......... 95,023 231,822 32,566 41,880
Government security non-cash charge ..... -- 5,375,269 -- 2,801,425
Interest expense-securities sold under
agreement to repurchase ............. 4,419,065 3,702,846 1,007,263 1,750,683
Interest expense-subordinated debenture . 263,595 320,000 82,227 120,000
------------ ------------ ------------ -------------
13,168,715 17,198,354 4,037,599 7,111,696
------------ ------------ ------------ -------------
EARNINGS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING ............................... 2,475,595 (6,278,396) 661,286 (3,090,871)
PROVISIONS FOR FEDERAL INCOME TAXES
Current ................................. -- -- -- --
Deferred (Note G) ....................... 893,791 (2,082,599) 230,094 (1,148,285)
------------ ------------ ------------ -------------
893,791 (2,082,599) 230,094 (1,148,285)
------------ ------------ ------------ -------------
EARNINGS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING ..................... $ 1,581,804 $ (4,195,797) $ 431,192 $ (1,942,586)
CUMULATIVE EFFECT OF CHANGE IN
ACCTG FOR MARKETABLE SECURITIES ............. $ -- $ 43,284 $ -- $ --
------------ ------------ ------------- -------------
NET EARNINGS ................................ $ 1,581,804 $ (4,152,513) $ 431,192 $ (1,942,586)
============ ============ ============ =============
PER SHARE AMOUNTS
Primary and fully diluted
Continuing operations ................... $ .24 $ (.72) $ .07 $ (.30)
Cumulative effect of change in accounting $ -- $ .01 $ -- $ --
------------ ------------ ------------ -------------
NET EARNINGS ................................ $ .24 $ (.71) $ .07 $ (.30)
============ ============ ============ =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Primary and fully diluted ............... 6,574,926 5,833,628 6,593,029 6,550,076
============ ============ ============ =============
*Reclassified for comparative purposes ......
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED SERVICES ADVISORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------------
1996 1995*
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) .................................................. $ 1,581,804 $ (4,152,513)
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization ..................................... 362,672 392,470
Government security accretion ..................................... (1,211,584) (963,278)
Government security charge ........................................ -- 5,375,269
Net gain on sales of securities ................................... (2,472,872) (136,786)
Gain on disposal of equipment ..................................... (257) (500)
Cumulative effect of change in accounting ......................... -- (43,284)
Treasury stock granted ............................................ 86,803 --
Changes in assets and liabilities, impacting cash from operations:
Restricted investments ............................................ 263,057 (322,095)
Accounts receivable ............................................... (470,209) (685,566)
Deferred tax asset ................................................ 893,791 (2,082,599)
Prepaid expenses and other ........................................ (325,714) 225,986
Trading securities ................................................ 1,406,668 751,129
Accounts payable .................................................. 4,917 (76,111)
Accrued expenses .................................................. 599,710 55,924
------------- -------------
Total adjustments ................................................ (863,018) 2,490,559
------------- -------------
NET CASH PROVIDED BY (USED FOR) OPERATIONS ............................... 718,786 (1,661,954)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of building improvements .................................... -- (28,847)
Purchase of furniture and equipment .................................. (290,093) (354,202)
Net proceeds on sale of equipment .................................... 381 500
Proceeds on sale of available-for-sale securities .................... 156,425 --
Purchase of available-for-sale securities ............................ (1,419,014) (156,611)
Net purchase of government securities held-to-maturity ............... -- (130,113,711)
Proceeds on sale of government securities available-for-sale ......... 46,374,050 --
------------- -------------
44,821,749 (130,652,871)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on annuity .................................................. (4,450) (4,151)
Payments on note payable to bank ..................................... (28,237) (26,091)
Payments on capital lease ............................................ (76,189) (76,708)
Payments on subordinated debenture to related party .................. (484,196) --
Net proceeds from securities sold under agreement to repurchase ...... 1,057,023 123,622,632
Net payments on securities sold under agreement to repurchase ........ (44,519,375) --
Proceeds from issuance of subordinated debenture to related party .... -- 6,000,000
Proceeds from issuance of preferred stock, warrants, and options ..... 3,341,401 70,008
Proceeds from issuance of common stock (Class B) to related party .... -- 5,000,000
Purchase of common stock (Class B) from related party ................ (5,000,000) --
Purchase of treasury stock ........................................... (402,117) (22,782)
------------- -------------
(46,116,140) 134,562,908
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................... (575,605) 2,248,083
BEGINNING CASH AND CASH EQUIVALENTS ...................................... 2,772,221 1,258,599
------------- -------------
ENDING CASH AND CASH EQUIVALENTS ......................................... 2,196,616 $ 3,506,682
============= =============
*Reclassified for comparative purposes ...................................
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED SERVICES ADVISORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1996 1995
--------- ----------
<S> <C> <C>
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of shares for investment in joint venture . $ -- $ 510,000
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest ............................. 4,953,613 2,986,737
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
UNITED SERVICES ADVISORS, 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. United Services
Advisors, Inc. (the "Company" or "USAI") 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, 1995.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, United Shareholder 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
consolidated the balance sheet and results of operations of the Guernsey
offshore fund since it owned the majority of the issued shares of the Fund
during the quarter. 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 nine month period ended March 31, 1996
are not necessarily indicative of the results to be expected for the entire
year.
NOTE B -- SECURITY INVESTMENTS
Investments in securities are accounted for and reported in accordance with
SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective July 1, 1994. Under this pronouncement, management determines the
appropriate classification of securities at the time of purchase and
re-evaluates such designation as of each reporting period date. If the
securities are purchased with the intent and the Company has the ability to hold
the securities until maturity, they are classified as securities
held-to-maturity and carried at amortized cost. Securities that are bought and
held principally for the purpose of selling them in the near-term are classified
as trading securities and stated at fair value with the unrealized gains and
losses included in earnings. Securities which will be held for indefinite
periods of time are classified as available-for-sale and stated at fair value
with the unrealized gains and losses included as a separate component of
shareholders' equity. The Company recognized the cumulative effect of adopting
the pronouncement in the first quarter of fiscal 1995 as a change in accounting
principle. All realized gains on the sale of securities are calculated using
cost determined on the specific identification method.
The market value of investments classified as trading at March 31, 1996 was
approximately $1,782,000. The net change in the market value of trading
securities as of June 30, 1995 versus March 31, 1996 on trading securities that
has been included in earnings for the nine month period was approximately
$290,000.
The Company holds U.S. Government agency notes ("Notes") with a par value
of $70,275,000 of which $53,725,000 are classified as held-to-maturity
securities and reported at their amortized cost of approximately $53,014,000.
The remaining $16,550,000 par value Note is classified as available-for-sale and
is reported at its market value of approximately $16,302,000 with approximately
$18,000 (before tax) in unrealized losses recorded in a separate component of
shareholders' equity at March 31, 1996. The $16,550,000 par value Note was
reclassified from held-to-maturity to available-for-sale during December 1995 in
accordance with the FASB GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING
FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES ("Special Report") at an
amortized cost of approximately $16,320,000. Additionally, Notes with a par
value of $47,250,000 and amortized cost of approximately $45,000,000 were also
reclassified from held-to-maturity to available-for-sale and then sold resulting
in a realized gain in excess of $1,000,000 in December 1995. See further
discussion of the Notes at Note D.
The estimated fair value of the investments classified as
available-for-sale at March 31, 1996, excluding the Notes classified as
available-for-sale discussed above, was approximately $4,532,000 with
approximately $2,600,000 (before tax) in unrealized gains recorded in a separate
component of shareholders' equity as of March 31, 1996. These investments are
reflected as non-current assets on the March 31, 1996 consolidated balance sheet
and are primarily in private placements which were restricted for sale on the
open market as of March 31, 1996. It is anticipated the securities obtained in
these private placements will become free-trading within one year. During the
nine month period, the Company recorded realized gains of approximately $737,000
on securities which were transferred from available-for-sale securities to
trading securities upon such securities becoming free trading. The Company also
recorded unrealized gains of approximately $100,000 on securities which were
transferred from available-for-sale securities to trading securities upon
becoming free trading during the nine month period which are included in the net
change on trading securities of approximately $290,000.
In accordance with the agreement between the Company and United Services
Funds ("USF") discussed in detail in Note C of the Notes to the Consolidated
Financial Statements for the fiscal year ending June 30, 1995, the entire
collateral balance of $900,000 has been returned to the Company.
During the quarter ended March 31, 1996, the Company placed approximately
$335,000 in a collateral account to secure an approximate $335,000 letter of
credit obtained in conjunction with the Company's appeal of the lawsuit
discussed in further detail at Note H.
NOTE C -- INVESTMENT MANAGEMENT, TRANSFER AGENT AND OTHER FEES
The Company serves as investment advisor and transfer agent to USF. 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 accounting services to USF and is reimbursed for in-house legal
services. 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.
The Company is also investment adviser and transfer agent to Accolade
Funds. Additionally, the Company provided administrative services to
Pauze/Swanson United Services Funds ("PSUSF"). However, the Company's
relationship with PSUSF terminated during the third quarter of the fiscal year
ending June 30, 1996.
USAI 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 (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. 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.
USAI 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 nine month
period ended March 31, 1996 and March 31, 1995 was $2,756,333, and $2,589,730,
respectively.
Effective November 1, 1995, the Board of Trustees of USF approved an
increase in the base transfer agency fee charged to the Funds from $20 to $23
per account.
The investment advisory contract and related contracts between the Company
and USF were recently renewed and expire on or about October 25, 1996.
Management anticipates the Trustees of USF will renew the contracts.
NOTE D -- GOVERNMENT SECURITIES
As previously reported, during the fiscal year ended June 30, 1995, USAI
purchased $130,525,000 par value Notes from a USF fund of which $70,275,000 par
value Notes were held by USAI at March 31, 1996. The Notes were financed by
utilizing third party broker-dealer reverse repurchase agreements (see Note E),
issuance of a subordinated debenture, as well as USAI's cash. As the Notes were
recorded at fair value, a pre-tax non-cash charge to the results of operations
of $5,375,269 was recorded during fiscal 1995. The Company has recognized
approximately $1,212,000 in non-cash accretion of the Notes during the nine
months ended March 31, 1996.
The Notes were initially recorded as held-to-maturity securities in
accordance with SFAS 115. However, as discussed in Note B, $63,800,000 par value
Notes were reclassified in December 1995 from the held-to-maturity category to
the available-for-sale category in accordance with the one-time reassessment
allowed by the FASB Special Report. The remaining $53,725,000 par value Notes
retain their held-to-maturity status as defined by SFAS 115 and therefore the
Company anticipates ultimately realizing the Notes par value.
Notes with a par value of $47,250,000 which were reclassified as
available-for-sale were sold in December 1995 resulting in realized gains in
excess of $1,000,000. Additionally, the Company expects to save over $500,000 in
annual interest costs on debt that was used to finance these Notes.
The remaining held-to-maturity Notes of $53,725,000 held at March 31, 1996
mature at their aggregate par amount during the period October 1996-March 1997,
and the $16,550,000 available-for-sale Note held at March 31, 1996 matures
during July 1997 unless otherwise sold prior to its stated maturity date.
NOTE E -- SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
As discussed in Note D, USAI 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 1995,
and as of April 1996, each reverse repurchase agreement has matured and has been
renewed. Management believes that the reverse repurchase agreements can be
periodically renewed until the Notes mature. All reverse repurchase agreements
are with major broker-dealers and are secured by U.S. Government Agency
obligations.
The following is a summary of information as of March 31, 1996 on the
securities sold under agreements to repurchase and the repurchase liability:
<TABLE>
<CAPTION>
MATURES MATURES
LESS THAN 30 DAYS 30 TO 90 DAYS TOTAL
----------------- ------------- -----------
<S> <C> <C> <C>
Carrying Amount of Collateral ........... $53,013,538 $16,320,343 $69,333,881
Market Value of Collateral .............. 52,635,756 16,301,750 68,937,506
Repurchase Liability .................... 52,436,337 16,302,780 68,739,117
Accrued Interest Receivable on Collateral 263,948 139,357 403,305
</TABLE>
NOTE F -- RELATED PARTY TRANSACTIONS.
TRANSACTIONS WITH ML
USAI and Marleau, Lemire Inc. ("ML") closed a transaction on December 29,
1995 covering the issuance of preferred stock and the repurchase of convertible
non-voting common stock and closely related items as discussed below. Pursuant
to the agreement: (1) ML no longer has a right to return its one million shares
of Class B common stock to the Company at its original purchase price of
$5,000,000; (2) in this connection, the Company eliminated any future interest
costs it might have borne had ML converted its investment to debt; and, (3) the
Company canceled ML's warrant and options to acquire additional shares thus
reducing future dilution by approximately 1.65 million shares.
In connection with the December 1995 transaction, ML received $2,500,000
cash and 1,000,000 shares of preferred stock in exchange for USAI canceling (a)
ML's 1,000,000 shares of USAI's Class B common shares, (b) a warrant giving ML
the right to acquire 1,000,000 shares of USAI's voting Class A common stock or
preferred stock, (c) ML's option to convert the remaining balance of its
subordinated debenture into approximately 648,000 shares of USAI's preferred
stock, and (d) other rights under the December 1994 agreements relating to ML's
original purchase, including its right to obtain voting control of USAI. See
Notes N and O in the Notes to Consolidated Financial Statements for the fiscal
year ended June 30, 1995 for disclosure relating to the December 1994
transaction with ML.
As a result of the December 1995 transaction:
1. Messrs. Hubert Marleau and Richard Renaud, ML's representatives,
resigned from USAI's Board of Directors and Frank E. Holmes, USAI's
Chief Executive Officer, resigned from ML's Board of Directors;
2. USAI committed to prepay $50,000 per month toward the principal
balance outstanding on the debenture held by ML in accordance with the
prepayment clause set forth in the USAI-ML Subordinated Debenture
Agreement ("Debenture");
3. The Debenture is being amended to provide that in the event that
voting control of USAI changes, the balance owing ML under the
Debenture shall become due and payable prior to closing on the change
in control and the registration statement covering ML's 1,000,000
shares of preferred stock shall be declared effective by the SEC prior
to said closing;
4. ML has undertaken to immediately transfer the assets and the
management contract(s) of ML's Small Cap Fund ("Small Cap") from ML to
United Services Advisors Canada, Inc. ("USACI") (or one of its
designated subsidiaries), the USAI-ML joint venture previously named
United Services Advisors Wealth Management Inc, subject to regulatory
and shareholder approvals -- with all revenues generated by Small Cap,
effective January 1, 1996, whether the assets and management contracts
have been transferred or not, becoming the revenue of USACI.
5. USAI agreed to bear up to the next Cdn $250,000 in costs with respect
to USACI; and
6. The requirement that Mr. Holmes exchange 177,280 shares of USAI's
Class A common stock for 400,633 shares of ML (133,551 consolidated
shares based upon 1 new for 3 old) was canceled in its entirety; with
the understanding, however, that the 72,720 Class A common shares held
by ML and the ML shares held by Mr. Holmes are not subject to this
cancellation.
During the nine months ended March 31, 1996, USAI purchased 7,100 shares of
ML common stock through USAI's brokerage account at Marleau, Lemire Securities
Inc. ("MLSI"), a subsidiary of ML, for $28,324. USAI's position in ML common
stock is 42,219 shares, which represents less than 1% of the ML common shares
outstanding.
At various intervals during the quarter ended September 30, 1995, the
Company purchased 175 put options on Eurodollar futures ("Options") for premiums
of $73,938 through Marleau, Lemire Futures which is a division of MLSI. These
Options were purchased with the expectation that they will reduce USAI's
exposure to temporary declines in the value of the Notes discussed in Note D and
reduce USAI's exposure to increased interest costs on the reverse repurchase
agreements discussed in Note E in the event of a significant increase in
interest rates. These Options are exchange traded and require no cash
requirements other than the initial premiums paid. Due to the current interest
rate environment, all Options have expired as of December 31, 1995 resulting in
realized losses of approximately $50,000.
During the quarter ended March 31, 1996, pursuant to agreements with ML,
USAI filed a post-effective amendment to the Registration Statement on Form S-3,
covering ML's offering of 120,000 shares of preferred stock filed in fiscal 1995
and a Registration Statement on Form S-3 covering ML's offering of 1,000,000
shares of preferred stock, which offerings were completed during the quarter.
USAI paid approximately $21,000, the aggregate expenses associated with ML's
offering, which were incurred in the third quarter of fiscal 1996.
Further, during this period, ML sold 17,225 shares of preferred stock to
STFC at the direction of the beneficial owners of various STFC custodial
retirement accounts, and 7,775 shares for $20,410 to USAI, which shares are
included in treasury stock as of March 31, 1996.
As of March 31, 1996, USAI has accrued approximately $83,000 in
subordinated debenture interest payable to ML. Additionally, in connection with
the sale of the Notes discussed in Note D, USAI repaid approximately $330,000 in
principal on the subordinated debenture during the quarter ending December 31,
1995. USAI has also paid an additional $150,000 in principal payments on the
subordinated debenture during the quarter ended March 31, 1996.
OTHER TRANSACTIONS
During the quarter ended March 31, 1996, Mr. Jerold Rubinstein, a Director
of the Company, exercised options covering 25,000 shares at $1.50 per share and
25,000 shares at $2.25 per share. Additionally, during the quarter ended March
31, 1996, Mr. John Budden, a former Director of the Company who retired during
the current fiscal year, exercised options covering 25,000 shares at $1.50 per
share, 25,000 shares at $2.25 per share and 40,000 shares at $2.625 per share.
USAI purchased the shares issued from the exercise of Mr. Rubinstein's stock
options for $3.375 per share, the market price on the day of exercise, which
shares are included in treasury stock as of March 31, 1996.
NOTE G -- 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 March 31,
1996 are presented below:
<PAGE>
MARCH 31,
Deferred Tax Assets: 1996
-----------
Book/tax differences in the balance sheet:
Accumulated depreciation ...................... $ 118,850
Accrued expenses .............................. 24,765
Annuity obligations ........................... 57,759
Net unrealized holding gain ................... 877,505
-----------
1,078,879
Tax carryovers:
NOL carryover ................................. 1,333,731
Investment credit carryover ................... 34,472
Minimum tax credits ........................... 56,786
-----------
1,424,989
Deferred tax asset ................................. 2,503,868
-----------
Deferred Tax Liabilities:
Trading securities ................................. (110,867)
Investment securities available-for-sale ........... (877,505)
-----------
Deferred tax liability ............................. (988,372)
-----------
Net deferred tax asset ............................. $ 1,515,496
===========
For federal income tax purposes at March 31, 1996, the Company has net
operating losses ("NOLs") of approximately $3,900,000 which will expire in
fiscal 2007 and 2010, investment credits of $34,472 expiring in 1998 and minimum
tax credits of $56,786 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 March 31, 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.
NOTE H -- COMMITMENTS AND CONTINGENCIES
As previously reported, on June 17, 1994, Gerald C. Letch sued the Company
in state district court located in San Antonio, Texas for breach of contract.
Mr. Letch asked for an unspecified amount of damages based upon an alleged oral
promise by a deceased Company officer to pay a finder's fee for introducing
certain parties to the Company leading to the organization of PSUSF. During
August 1994 Mr. Letch amended his complaint to include PSUSF and allegations of
fraud and conspiracy between USAI and PSUSF. During June 1995 a summary judgment
was rendered in favor of PSUSF which did not exist at the time the alleged cause
of action arose.
On November 21, 1995, judgment was entered in favor of Letch. While the
jury verdict found that there was no fraud, conspiracy or malice, the jury did
find that: (1) the Company had an oral agreement to pay Letch a fee equal to 1%
of assets existing in PSUSF after it had been in existence for one year; (2)
$187,000 is the amount of damages due Letch for breach of the oral agreement
(plus an additional $16,137 for prejudgment interest); and (3) that Letch is
entitled to 50% of said damages ($93,500) as reasonable attorney's fees. Total
damages therefore aggregate of $296,637.
The Company is currently pursing an appeal--reasserting that there is not
sufficient evidence to support the finding of an enforceable agreement; and,
assuming there is an agreement, that the "Statue of Frauds" applies and the
agreement is not valid because it is not in writing. During the quarter ended
March 31, 1996, the Company was required to post a bond in connection with
perfecting the appeal. The bond is secured by a letter of credit in the amount
of $333,169, which, in turn, is secured by restricted cash of $333,169. The
Company has no balance outstanding on this letter of credit and has no plans to
draw upon it at anytime in the future as the letter of credit was obtained
solely to perfect the appeal.
The Company has accrued approximately $100,000 (management's best estimate
of the fees and expenses necessary to fund an appeal) and $300,000 (the
approximate amount of the judgment) which were both reflected in the Company's
Consolidated Statement of Operations for the second quarter of fiscal 1996.
Through March 1996, legal fees and expenses to defend this action were in
excess of $220,000, a significant portion of which was incurred during fiscal
year 1995. Of this amount, approximately $56,000 was reimbursed to USAI by PSUSF
for the allocable portion of legal representation fees paid by USAI on behalf of
PSUSF.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
The Company posted net earnings of $1,581,804 ($0.24 per share) for the
nine months ended March 31, 1996 as compared to a net loss of $4,152,513 ($0.71
per share) for the nine months ended March 31, 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 United Services Funds ("USF") for the nine
months ended March 31, 1996 averaged $1.28 billion versus $1.35 billion for the
nine months ended March 31, 1995. This decrease in average assets primarily
resulted from a decline in the value of gold-related assets during the first six
months of fiscal 1996. Assets under management for the Accolade Funds
("Accolade"), which commenced operations in October 1994, averaged $30.5 million
for the nine months ended March 31, 1996 versus $2.8 million for the period from
commencement of operations to March 31, 1995.
As of April 25, 1996, total assets under management for USF were
approximately $1.42 billion with gold assets up approximately $125 million from
their nine month average. As of the same date, total assets under management for
Accolade were approximately $61 million.
REVENUES
Total consolidated revenues for the nine months ended March 31, 1996
increased approximately 43 % over the nine months ended March 31, 1995. This
resulted primarily from 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 as well
as realized gains in excess of $1 million on the sale of Notes during December
1995. See Note D to the March 31, 1996 Notes to the Consolidated Financial
Statements for detail regarding the sale of the Notes.
Excluding the income and realized gains from the Notes, revenue for the
period ended March 31, 1996 increased approximately 26 % over the nine months
ended March 31, 1995. This increase resulted primarily from a significant
increase in investment income due to: 1) the Company recognizing approximately
$1.0 million more realized gains on the sales of investments; and 2) the Company
implementing SFAS 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115") as of July 1, 1994 (fiscal 1995) which required the
Company to recognize the change in unrealized gains and losses on investments
defined as trading securities in the Company's income statement. Approximately
$289,000 of unrealized appreciation on trading securities was included in
operations for the nine months ended March 31, 1996 while approximately $392,000
of unrealized depreciation on trading securities that was included in operations
for the nine months ended March 31, 1995. This unrealized appreciation on the
Company's trading securities reflects improved market conditions over the
previous year.
EXPENSES
Total consolidated expenses for the nine months ended March 31, 1996
decreased approximately 23% over the nine months ended March 31, 1995. This net
decrease resulted primarily from a combination of: 1) a non-recurring non- cash
charge of approximately $5 million relating to the purchase of the Notes
incurred in the first and third quarters of fiscal 1995; and 2) an increase in
interest expense of approximately $716,000 during the nine months ended March
31, 1996 on securities sold under agreement to repurchase with broker-dealers
over the previous nine months in fiscal 1995. This increase in interest expense
is due to the fact that the Company held a larger position in Notes during the
nine months ended March 31, 1995 that the nine months ended March 31, 1996.
Exclusive of the expenses attributable to the purchase and financing of the
Notes, expenses of the Company for the nine month period ended March 31, 1996
increased 8% over the nine months ended March 31, 1995 primarily as a result of
an increase in legal fees of approximately 9% and the settlement accrual related
to the Letch litigation (see detail of the facts relating to the Letch
litigation at Note H to the March 31, 1996 Consolidated Financial Statements).
The Company also experienced slight increases in travel expenses, sub-advisory
fees, service fees and fund expenses borne. The Company does not expect any
further significant charges relating to the Letch litigation.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The Company posted net earnings of $431,192 ($0.07 per share) for the three
months ended March 31, 1996, as compared to a net loss of $1,942,586 ($0.30 per
share) for the three months ended March 31, 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 USF for the three months ended March 31, 1996
averaged $1.33 billion versus $1.25 billion for the three months ended March 31,
1995. This increase in average assets primarily resulted from an increase in
gold-related assets. Assets under management for Accolade, which commenced
operations in October 1994, averaged $42.8 million for the three months ended
March 31, 1996 versus $4.0 million for the three months ended March 31, 1995.
REVENUES
Total consolidated revenues for the three months ended March 31, 1996
increased approximately 17% over the three months ended March 31, 1995. This
resulted primarily from interest income and accretion on the Notes purchased
during the fiscal year ended June 30, 1995, a majority of which were purchased
during the first quarter of fiscal 1995, as well as realized gains in excess of
$1 million on the sale of Notes during December 1995.
Excluding the interest and accretion income and realized gains from the
Notes, revenue for the three months ended March 31, 1996 increased approximately
55% over the three months ended March 31, 1995. This increase resulted primarily
from: 1) the Company recognizing approximately $637,000 more in realized gains
on the sales of investments during the three months ended March 31, 1996 versus
the three months ended March 31, 1995; 2) the Company recognizing approximately
$182,000 more in unrealized appreciation on trading securities for the three
months ended March 31, 1996 compared to the three months ended March 31, 1995;
3) an increase of approximately $300,000 in advisory fees due to increased
assets under management primarily due to increases in gold-related assets.
EXPENSES
Total consolidated expenses for the three months ended March 31, 1996
decreased approximately 43% over the three months ended March 31, 1995. This
decrease was primarily the result of a non-recurring non-cash charge of
approximately $2.8 million relating to the purchase of Notes incurred in the
third quarter of fiscal 1995.
Exclusive of the expenses attributable to the purchase and financing of the
Notes, expenses of the Company increased 21% over the three months ended March
31, 1995. This increase is primarily attributable to an increase in the
Company's efforts to market and promote the gold-related mutual funds during a
time of increased market activity and investor interest. There were also slight
increases in travel and salary expenses.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal year 1996, the Company experienced a
decrease in cash and cash equivalents. This net decrease was primarily due to
the cash outflows associated with the transaction with Marleau, Lemire Inc.
("ML") in December 1995. On the other hand, the Company realized positive cash
inflows related to its operations and investment activities.
DECEMBER 1995 MARLEAU, LEMIRE TRANSACTION
As fully disclosed in Note F to the March 31, 1996 Notes to the
Consolidated Financial Statements, USAI and Marleau, Lemire Inc. ("ML") closed a
transaction on December 29, 1995 covering the issuance of preferred stock and
the repurchase of convertible non-voting common stock. Pursuant to the
agreement: (1) ML no longer has a right to return its one million shares of
Class B common stock to the Company at its original purchase price of
$5,000,000; (2) in this connection, the Company eliminated any future interest
costs it might have borne had ML converted its investment to debt; and, (3) the
Company canceled ML's warrants and options to acquire additional shares reduce
future dilution by approximately 1.65 million shares.
In connection with the December 1995 transaction, ML received $2,500,000
cash and 1,000,000 shares of preferred stock in exchange for USAI canceling (a)
ml's 1,000,000 shares of USAI's Class B common shares, (b) warrants giving ML
the right to acquire 1,000,000 shares of USAI's voting Class A common stock or
preferred stock, (c) ML's option to convert the remaining balance of its
subordinated debenture into approximately 648,000 shares of USAI's preferred
stock, and (d) other rights under the December 1994 agreements relating to ML's
original purchase, including its right to obtain voting control of USAI. See
Notes N and O in the Notes to Consolidated Financial Statements for the fiscal
year ended June 30, 1995 for additional disclosure relating to the December 1994
transaction with ML.
Additionally, as result of the December 1995 transaction: (1) USAI
committed to prepay $50,000 per month toward the principal balance outstanding
of the debenture held by ML; (2) ML has undertaken to immediately transfer the
assets and the management contract(s) of ML's Small Cap Fund ("Small Cap") from
ML to United Services Advisors Canada, Inc. ("USACI") (or one of its designated
subsidiaries), the USAI-ML joint venture previously named United Services
Advisors Wealth Management Inc., subject to regulatory and shareholder approvals
- -- with all revenues generated by Small Cap, effective January 1, 1996, whether
the assets and management contracts have been transferred or not, becoming the
revenue of USACI; (3) USAI agreed to bear up to the next CDN $250,000 in costs
with respect to USACI.
As a result of this transaction, ML no longer is able to obtain voting
control of the Company and the Company has simplified its balance sheet and
capital structure and has also reduced potential dilution and future interest
costs. The Company does not expect any more material changes in the ownership of
the Company's common or preferred stock during fiscal 1996.
GOVERNMENT SECURITIES
As previously reported, during the fiscal year ended June 30, 1995, USAI
purchased $130.525 million par value Notes from a USF fund of which $70.275
million par value Notes were held by USAI at March 31, 1996. The Notes were
financed by utilizing third party broker-dealer reverse repurchase agreements,
issuance of a subordinated debenture to ML, as well as USAI's cash. As the Notes
were recorded at fair value, a pre-tax non-cash charge to the results of
operations of $5,375,269 was recorded during fiscal 1995.
The Notes were initially recorded as held-to-maturity securities in
accordance with SFAS 115. However, as discussed in Note B to the March 31, 1996
Notes to the Consolidated Financial Statements, $63.8 million par value Notes
were reclassified in December 1995 from the held-to-maturity category to the
available-for-sale category in accordance with the one-time reassessment allowed
by the FASB Special Report. The remaining $53.725 million par value Notes retain
their held-to-maturity status as defined by SFAS 115; and therefore the Company
anticipates ultimately realizing the Notes' par value. The Company has
recognized approximately $1.2 million in non-cash accretion on the Notes during
the nine months ended March 31, 1996. The Company expects to sell the remaining
available-for-sale $16.55 million par value Note classified as
available-for-sale when market conditions warrant, or in absence of satisfactory
market conditions, to hold this Note to maturity thereby recognizing the Note's
full par value.
Notes with a par value of $47.250 million, which were reclassified as
available-for-sale, were sold in December 1995 resulting in realized gains and
cash flow in excess of $1 million. Additionally, the Company expects to save
over $500,000 in annual interest costs on debt that was used to finance these
Notes.
During calendar 1994 the Federal Reserve Board raised interest rates to
address perceived inflationary pressures and could raise rates for such reason
in the future. Notwithstanding the fact that the coupon on the Notes resets
every 30 days, the Notes have been and may in the future be priced to actual
maturity as opposed to the reset date due to the lagging index used to determine
the coupon rate. As a consequence, as interest rates increase, the market value
of the Notes may decrease, which could result in the broker-dealers under the
reverse repurchase agreements requesting additional collateral. In addition, the
spread between interest due to the broker-dealers and the interest earning on
the Notes with a lagging index may increase, increasing the Company's interest
expense. To reduce this risk the Company may purchase put options on Eurodollar
futures ("Options"). In light of the current interest rate environment, the
Company holds no Options as of March 31, 1996. The Company will continue to
monitor the interest rate environment and evaluate the necessity of purchasing
Options in the future to reduce its interest rate risk.
SUBORDINATED DEBENTURE
In conjunction with the purchase of the Notes described above, USAI issued
a $6 million 8% subordinated debenture to ML, the terms of which require
quarterly interest payments and principal payments as the Notes mature.
Principal payments of approximately $1.5 million were made during fiscal 1995, a
payment of approximately $330,000 was made during the quarter ended December 31,
1995. Additionally, due to the ML transaction discussed above, beginning in the
third quarter of fiscal 1996, USAI prepaid $150,000 to ML on the outstanding
principal balance of the debenture leaving an outstanding balance of
approximately $4 million at March 31, 1996. 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
March 31, 1996, the Company held approximately $6 million in investment
securities other than the Notes, a substantial portion of which ($2.9 million)
is attributable to unrealized appreciation during the fiscal year. The value of
these investments is approximately 65% of stockholders' equity at March 31,
1996. Company investments in marketable securities classified as trading
securities totaled approximately $1.8 million (market value). In addition, there
were approximately $4.5 million (market value) in investments in securities
classified as available-for-sale. These securities were primarily private
placements that management expects will become free-trading within one year.
During the nine months ended March 31, 1996 net realized gains from the sale of
investments aggregated approximately $1.2 million which excluded the sales of
Notes or expirations of Options, compared to approximately $320,000 for the nine
months ended March 31, 1995. Management believes that such activities are in the
best interest of the Company and the activities are scrutinized by Company
compliance personnel and reported to investment advisory clients and the
Company's Board of Directors.
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. Further, the Company, in conjunction with USF's Board of
Trustees, has been assessing the viability of the funds receiving such support.
In this regard, one small USF fund (with no asset growth and less than $6
million in average net assets) was closed during the quarter ended December 31,
1995. It is anticipated that the assessment of funds will continue in the future
and other such funds may be closed, thereby reducing the amount of fees waived
and/or expenses borne by the Company.
CONCLUSION
At March 31, 1996, the Notes purchased by the Company had an average
maturity of less than eleven months. The Notes have a face value of $70.275
million which is greater than the Company's purchase price. As of March 31, 1996
the Company had approximately $72.7 million in debt related to the Notes
(comprised of the approximate $4 million balance on the ML debenture and the
approximate $68.7 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 $68.9 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 to cover the brokers and there would be approximately $200,000
available to repay the ML Note, leaving a balance to ML of $3.8 million. As of
March 31, 1996, USAI had unrestricted cash and investment securities with an
aggregate value of over $8.5 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 related fiscal years, which income will include accretion related
to the Notes in excess of the non-cash charge discussed above. 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.
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by this item is contained in the accompanying
financial statements, Part I, Item 1, Note H "Commitments and Contingencies."
Note H is hereby incorporated by reference into Part II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - None
(B) REPORTS ON FORM 8-K
On January 4, 1996, the Company filed a Current Report on Form 8-K to
report an agreement reached on December 29, 1995 with Marleau, Lemire Inc.
("ML"), a major shareholder of the Company. The agreement principally provided
that in exchange for $2,500,000 cash and one million shares of preferred stock,
ML would (1) cancel one million shares of USAI's Class B common shares, (2)
cancel warrants giving ML the right to acquire 1 million shares of USAI's voting
Class A common stock or preferred stock, and (3) cancel the option to convert
the remaining balance of its subordinated debenture into approximately 648,000
shares of USAI's preferred stock. Proforma financial information -- Unaudited
Consolidated Balance Sheet and Statement of Operations of Registrant at
September 30, 1995 was an exhibit to the Form 8-K.
<PAGE>
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.
UNITED SERVICES ADVISORS, INC.
DATED: April 30, 1996 By: /S/ BOBBY D. DUNCAN
------------------------
Bobby D. Duncan
President
Chief Financial Officer
Chief Operating Officer
DATED: April 30, 1996 By: JANE K. HATTON
------------------------
Jane K. Hatton
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Financial Data Schedule contains summary financial information extracted
from the Company's quarterly report on Form 10-Q for the period ended March 31,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
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