- --------------------------------------------------------------------------------
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, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to
_________
--------------------
Commission File Number 0-13928
--------------------
U.S. GLOBAL INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Texas 74-1598370
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
7900 Callaghan Road 78229-2327
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 NO X
On April 16, 1997 there were 6,227,074 shares of Registrant's class A common
stock outstanding and 562,200 shares of Registrant's class C common stock issued
and outstanding.
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-Q
U.S. GLOBAL INVESTORS, INC.
I N D E X
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and June 30, 1996 ........................3
Consolidated Statements of Operations -
Nine-Month and Three-Month Periods Ended
March 31, 1997 and 1996 ...............................5
Consolidated Statements of Changes in Cash Flows
Nine-Month Periods Ended March 31, 1997 and 1996............6
Notes to Consolidated Financial Statements..................7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K...........................14
Signatures..................................................................15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. GLOBAL INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .................... $ 810,391 $ 666,250
Trading securities, at fair
value (Note B) ........................... 761,626 999,500
Government securities available-
for-sale, at fair value (Note D) ......... -- 26,324,125
Receivables (Note C):
Mutual funds ............................. 747,957 1,092,961
Accrued interest ......................... -- 95,847
Custodial fees ........................... 128,584 163,296
Employees ................................ 25,763 92,765
Receivable from brokers .................. 109,341 75,054
Other .................................... 327,158 704,286
Prepaid expenses ............................. 727,479 454,567
Deferred tax asset (Note F) .................. 155,465 --
----------- -----------
TOTAL CURRENT ASSETS ......................... 3,793,764 30,668,651
----------- -----------
NET PROPERTY AND EQUIPMENT ....................... 2,567,856 2,621,052
----------- -----------
OTHER ASSETS
Restricted investments ....................... 636,419 642,380
Long-term receivables ........................ 310,171 368,742
Long-term deferred tax asset (Note F) ........ 1,099,039 1,096,268
Residual equity interest ..................... 217,861 217,861
Investment in joint venture (Note A) ......... 110,439 255,500
Investment securities available-for-sale,
at fair value (Note B) ...................... 644,417 2,210,657
Equity investment in affiliate (Note A) ...... 1,716,710 1,164,415
Other ........................................ 71,874 61,670
----------- -----------
TOTAL OTHER ASSETS ....................... 4,806,930 6,017,493
----------- -----------
$11,168,550 $39,307,196
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of capital lease
obligation ............................ $ 15,965 $ 24,354
Current portion of notes payable ........ 44,042 41,695
Current portion of annuity and
contractual obligation ................ 18,000 18,000
Subordinated debenture .................. -- 1,533,131
Securities sold under agreements
to repurchase (Note D) ................ -- 26,404,375
Accounts payable ........................ 327,696 276,116
Accrued interest payable to
third parties ......................... -- 16,685
Accrued interest payable on
subordinated debenture (Note E) ....... 16,114 70,017
Accrued compensation and related costs .. 130,902 204,911
Accrued profit sharing contribution
and 401(k) match ...................... 161,734 110,489
Accrued vacation pay .................... 75,959 75,959
Accrued legal fees ...................... 88,907 70,536
Deferred tax liability (Note F) ......... -- 11,312
Litigation accrual ...................... 300,000 300,000
Other accrued expenses .................. 182,498 195,065
------------ ------------
TOTAL CURRENT LIABILITIES ............... 1,361,817 29,352,645
------------ ------------
Notes payable-net of current portion .... 1,221,612 1,260,137
Annuity and contractual obligations ..... 145,569 150,342
------------ ------------
TOTAL NON-CURRENT LIABILITIES ........... 1,367,181 1,410,479
------------ ------------
TOTAL LIABILITIES ....................... 2,728,998 30,763,124
------------ ------------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Common stock (Class A)--$0.05 par
value; non-voting; authorized,
7,000,000 shares .................... 311,291 310,971
Common stock (Class C)--$.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 .............. 10,586,587 10,586,666
Treasury stock at cost .................. (454,216) (530,384)
Net unrealized gain (loss) on
available-for-sale securities
(net of tax of ($43,403) and
$294,993, respectively) ............ (84,254) 572,634
Equity in net unrealized gain on
available-for-sale securities
held by affiliate (net of tax
of $24,173 and $76,823, respectively) 46,923 149,127
Retained earnings (deficit) ............. (1,994,952) (2,573,160)
TOTAL SHAREHOLDERS' EQUITY .............. 8,439,552 8,544,072
------------ ------------
$ 11,168,550 $ 39,307,196
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
<TABLE>
<CAPTION>
U.S. GLOBAL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUE (NOTE C)
Investment advisory fee ............................. $ 5,046,596 $ 4,283,302 $ 1,702,315 $ 1,566,795
Transfer agent fee .................................. 2,517,000 2,465,659 803,139 840,694
Accounting fee ...................................... 475,574 388,847 216,697 134,047
Exchange fee ........................................ 198,457 211,740 70,356 90,825
Custodial fee ....................................... 407,754 420,986 119,413 126,269
Investment income ................................... 843,449 2,873,299 (88,463) 840,406
Other ............................................... 278,046 255,856 105,124 109,679
Government security interest income ................. 760,124 3,533,037 186,717 795,283
Government security accretion to par ................ 306,926 1,211,584 68,933 194,887
Gain (Loss) on changes of
interest in affiliate (Note A) .................. 10,081 -- 14,892 --
------------ ------------ ------------ ------------
10,844,007 15,644,310 3,199,123 4,698,885
EXPENSES
General and administrative .......................... 8,640,679 8,028,360 2,943,160 2,793,819
Depreciation and amortization ....................... 350,803 362,672 125,038 121,724
Interest-note payable and other ..................... 89,724 95,023 29,518 32,566
Interest expense-securities sold
under agreement to repurchase ................... 1,007,099 4,419,065 248,986 1,007,263
Interest expense-convertible
subordinated debenture .......................... 73,006 263,595 16,118 82,227
------------ ------------ ------------ ------------
10,161,311 13,168,715 3,362,820 4,037,599
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE MINORITY INTEREST,
EQUITY INTEREST AND INCOME TAXES .................... 682,696 2,475,595 (163,697) 661,286
EQUITY IN NET EARNINGS (LOSS) OF JOINT
VENTURE (NOTE A) .................................... (145,061) -- (47,449) --
EQUITY IN NET EARNINGS OF
AFFILIATE (NOTE A) .................................. 287,068 -- (2,278) --
------------ ------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES ..................... 824,703 2,475,595 (213,424) 661,286
PROVISIONS FOR FEDERAL INCOME TAXES
Current ............................................. 25,000 -- -- --
Deferred (Note F) ................................... 221,497 893,791 (80,047) 230,094
------------ ------------ ------------ ------------
246,497 893,791 (80,047) 230,094
------------ ------------ ------------ ------------
NET EARNINGS ............................................ $ 578,206 $ 1,581,804 $ (133,377) $ 431,192
============ ============ ============ ============
PER SHARE AMOUNTS
Primary and fully diluted ........................... $ .09 $ .24 $ (.02) $ .07
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Primary and fully diluted ........................... 6,585,290 6,574,926 6,559,396 6,593,029
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
U.S. GLOBAL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1997 1996
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) .................................... $ 578,206 $ 1,581,804
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization ...................... 350,803 362,672
Government security accretion ...................... (306,926) (1,211,584)
Net gain on sales of securities .................... (1,057,259) (2,472,872)
Gain on disposal of equipment ...................... (64) (257)
Gain on changes of interest in
affiliate ......................................... (10,081) --
Treasury stock reissued ............................ 388,610 86,803
Changes in assets and liabilities,
impacting cash from operations:
Restricted investments ............................. 5,961 263,057
Accounts receivable ................................ 943,977 (470,209)
Deferred tax asset ................................. 221,497 893,791
Prepaid expenses and other ......................... (839,917) (325,714)
Trading securities ................................. 1,972,140 1,406,668
Accounts payable ................................... 51,580 4,917
Accrued expenses ................................... (87,545) 599,710
------------ ------------
Total adjustments ...................................... 1,632,776 (863,018)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATIONS .............. 2,210,982 718,786
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of furniture and equipment ............ (293,549) (290,093)
Proceeds on sale of equipment ...................... 800 381
Proceeds on sale of available-for-sale
securities ........................................ -- 156,425
Purchase of available-for-sale securities .......... (200,000) (1,419,014)
Proceeds on maturation/sale of government
securities available-for-sale ..................... 26,725,000 46,374,050
------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES ................................... 26,232,251 44,821,749
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on annuity ................................ (4,773) (4,450)
Payments on note payable to bank ................... (36,178) (28,237)
Proceeds from capital lease ........................ 25,330 --
Payments on capital lease .......................... (33,719) (76,189)
Net proceeds from securities sold
under agreement to repurchase ..................... 420,844 1,057,023
Payments on securities sold under
agreement to repurchase ........................... (26,825,219) (44,519,375)
Payments on subordinated debenture ................. (1,533,131) (484,196)
Proceeds from issuance of common stock,
warrants, and options ............................. 8,250 3,341,401
Purchase of common stock (Class B)
from related party ................................ -- (5,000,000)
Purchase of treasury stock ......................... (320,496) (402,117)
------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ................................... (28,299,092) (46,116,140)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................... 144,141 (575,605)
BEGINNING CASH AND CASH EQUIVALENTS .................... 666,250 2,772,221
------------ ------------
ENDING CASH AND CASH EQUIVALENTS ....................... $ 810,391 $ 2,196,616
============ ============
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Supplemental disclosures of cash flow information:
Cash paid for interest ............................. $ 1,229,936 $ 4,953,613
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
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) that are, in the opinion of management, necessary for a fair
presentation of results for the interim periods presented. U.S. Global
Investors, Inc. ("the Company" or "U.S. Global") has consistently followed the
accounting policies set forth in the Notes to the Consolidated Financial
Statements in the Company's Form 10-K for the year ended June 30, 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. Global Investors (Guernsey), Ltd [formerly U.S. Advisors
(Guernsey), Ltd.] ("USGG"). 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 22% weighted average interest in the fund for
the nine-month period ended March 31, 1997. This resulted in the Company
recording earnings of $287,068 for the nine months ending March 31, 1997, 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 nine months, the
Company recorded a gain of $10,081. 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 $145,061 for the nine months ending
March 31, 1997. 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 31,1997,
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 March 31,
1997, was $761,626. The net change between the market value as of June 30,1996,
and the market value as of March 31, 1997, on trading securities that has been
included in earnings for the nine-month period is ($323,168).
The estimated fair value of the investments classified as
available-for-sale at March 31, 1997, was $644,417 with $127,657 (before tax) in
unrealized losses being recorded as a separate component of Shareholders' Equity
as of March 31, 1997. These venture capital investments are reflected as
non-current assets on the March 31, 1997, consolidated balance sheet and consist
of private placements which are restricted for sale as of March 31, 1997. It is
anticipated the securities obtained in these private placements will become free
trading within one year. During the nine months, the Company recorded realized
gains of $233,408 on securities that were transferred from available-for-sale
securities to trading securities upon becoming free trading. The Company also
recorded unrealized losses of $17,370 on securities that were transferred from
available-for-sale securities to trading securities upon becoming free trading
during the nine months that are included in the net change on trading securities
of ($323,168) mentioned above.
The Company also held U.S. Government agency notes that are discussed in
Note D during the nine-months ended March 31, 1997.
NOTE C. INVESTMENT MANAGEMENT, TRANSFER AGENT AND OTHER FEES.
The Company serves as investment advisor and transfer agent to U.S.
Global Investors Funds (formerly United Services Funds) ("USGIF") and U.S.
Global Accolade Funds (formerly Accolade Funds) ("USGAF"). 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 USGIF and USGAF and receives exchange,
maintenance, closing, and small account fees directly from USGIF and USGAF
shareholders. During the quarter ended March 31, 1997, the Boards of Trustees
for USGIF and USGAF approved an increase in fees payable to the Company for
accounting services. Fees for providing services to USGIF continue to be the
Company's primary revenue source.
7
<PAGE>
U.S. Global 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 and 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.
U.S. Global 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 USGIF funds for purposes of enhancing the funds'
performance. The aggregate amount of fees waived and expenses borne by the
Company for the nine-month periods ended March 31, 1997, and March 31, 1996,
were $2,578,235 and $2,756,333, 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 USGIF have been renewed and expire on or about October 26, 1997, and
the contracts between the Company and USGAF expire on or about March 8, 1998.
Management anticipates the Trustees of both USGIF and USGAF will continue to
renew the contracts.
NOTE D. GOVERNMENT SECURITIES.
As previously reported, during the fiscal year ended June 30, 1995, U.S.
Global purchased certain U.S. Government agency notes ("Notes") with a par value
of $130,525,000 from the U.S. Government Securities Savings Fund. The Notes were
originally financed by utilizing third party broker-dealer reverse repurchase
agreements, by the issuance of a subordinated debenture (see Note E), as well as
U.S. Global's cash. During the quarter ended March 31, 1997, the remaining Notes
held by the Company matured and the Company made the final payments on the
reverse repurchase agreements and the subordinated debenture. The Company has
recognized $306,926 and $1,211,584 in non-cash accretion of the Notes during the
nine months ended March 31, 1997, and 1996, respectively.
NOTE E. SUBORDINATED DEBENTURE.
In conjunction with the purchase of the Notes previously described, U.S.
Global 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 with the balance due upon maturation of
the notes. Due to the maturation of the Notes during the quarter, the remaining
principal payments were made and no balance on the debenture remained
outstanding as of March 31, 1997. As of March 31, 1997, the Company has accrued
$16,114 in interest payable related to the subordinated debenture which was paid
during April 1997. All principal and interest payments to ML have been made in a
timely manner.
NOTE F. 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, 1997, are presented below:
March 31,
1997
-----------
Book/tax differences in the balance sheet:
Accumulated depreciation $ 98,401
Accrued expenses 28,270
Annuity obligations 55,613
Reduction in carrying value of joint venture 259,951
Net unrealized holding gain (affiliate) 24,173
Net unrealized holding gain (43,403)
-----------
423,005
Tax carryovers:
NOL carryover 491,374
Contributions carryover 82,272
Investment credit carryover 34,472
Minimum tax credits 139,270
-----------
747,388
8
<PAGE>
Total gross deferred tax asset 1,170,393
Affiliated investment (94,673)
Trading securities 116,151
Available-for-sale securities 43,403
-------------
Total gross deferred tax liability 64,881
-------------
Net deferred tax asset $ 1,235,274
===========
For federal income tax purposes at March 31, 1997, the Company has net
operating losses ("NOLs") of approximately $1.45 million that will expire in
fiscal 2007 and 2010, charitable contribution carryovers of approximately
$242,000 expiring 1998-2000, investment tax credits of $34,472 expiring in 1998,
and alternative minimum tax credits of $139,270 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, 1997, 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company posted net earnings of $578,206 ($0.09 per share) for the
nine months ended March 31, 1997, as compared to net earnings of $1,581,804
($0.24 per share) for the nine months ended March 31,
1996 (as discussed below).
ASSETS UNDER MANAGEMENT
The primary source of the Company's revenue is advisory fees that are
dependent on average net assets of the funds managed and administered by the
Company. Fluctuations in the financial markets and investor sentiment directly
impact the funds' asset levels, therefore affecting income and results of
operations. As of April 17, 1997, total assets under management for U.S. Global
Investors Funds ("USGIF") were approximately $1.36 billion and total assets
under management for U.S. Global Accolade Funds ("USGAF") were approximately
$109 million.
Assets under management for USGIF for the nine months ended March 31,
1997, averaged $1.33 billion versus $1.28 billion for the nine months ended
March 31, 1996. This increase in average assets primarily resulted from an
increase in money market and equity fund assets. Assets under management for
USGAF averaged $103.5 million for the nine months ended March 31, 1997, versus
$30.5 million for the nine months ended March 31, 1996. This increase is due to
increased assets of the Bonnel Growth Fund as well as the addition of the
MegaTrends Fund (November 1996) and the Adrian Day Global Opportunity Fund
(February 1997) to the USGAF group.
REVENUES
Total consolidated revenues for the nine months ended March 31, 1997,
decreased approximately 31% over the nine months ended March 31, 1996. This
decrease resulted primarily from a reduction in interest income and non-cash
accretion on the U.S. Government agency notes ("Notes") purchased during the
fiscal year ended June 30, 1995. In addition, investment income decreased due to
a decline in unrealized income recognized on trading securities and due to the
Company recognizing approximately $1.2 million in realized gains associated with
the sale of $47.25 million par value Notes during the nine-month period ending
March 31, 1996. However, excluding the income from the Notes, revenue for the
nine months ended March 31, 1997, increased approximately 1% over the nine
months ended March 31, 1996.
EXPENSES
At the same time, total consolidated expenses for the nine months ended
March 31, 1997, decreased approximately 23 % over the nine months ended March
31, 1996. This net decrease resulted primarily from a decrease in interest
expense on securities sold under repurchase agreements with broker-dealers and
on the subordinated debenture. This decrease in interest expense resulted from
fewer notes being held substantially throughout the nine months ended March 31,
1997 ($26.725 million par value), while $70.275 million par value Notes were
held substantially for the entire nine months ended March 31, 1996.
Exclusive of the expenses attributable to the financing of the Notes,
expenses of the Company increased approximately 7% over the nine months ended
March 31, 1996, due to increases in travel and marketing to promote the top
performing funds within the USGIF and USGAF fund groups. Performance based
compensation to employees also increased accordingly. On the other hand, fund
expenses and legal related expenses declined significantly over the same period.
As previously reported, the Company has been endeavoring to establish
strategic alliances with other industry participants. In addition to the USGAF
funds mentioned above, the Company, along with Regent Fund Management Ltd., is
creating new funds. Except for Bonnel Growth Fund, all the arrangements were
effective in the current fiscal year. It is anticipated that the advisory,
transfer agent, fund accounting and other fees from the new funds will cause
revenues to increase in future periods and that sub-advisory fees paid to third
parties (generally a portion of the advisory fee) related to such will also
increase.
10
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
The Company posted a net loss of $133,377 ($0.02 per share) for the
three months ended March 31, 1997, as compared to net earnings of $431,192
($0.07 per share) for the three months ended March 31,
1996 (as discussed below).
ASSETS UNDER MANAGEMENT
The primary source of the Company's revenue is advisory fees that are
dependent on average net assets. Fluctuations in the financial markets and
investor sentiment directly impact the funds' asset levels, therefore affecting
income and results of operations.
Assets under management for USGIF for both the three months ended March
31, 1997, and the three months ended March 31, 1996, averaged $1.33 billion.
Assets under management for USGAF averaged $121.4 million for the quarter ended
March 31, 1997, compared to $42.8 million for the quarter ended March 31, 1996.
As previously mentioned, this increase is due to increased assets of the Bonnel
Growth Fund as well as the addition of the MegaTrends Fund (November 1996) and
the Adrian Day Global Opportunity Fund (February 1997) to the USGAF group.
REVENUES
Total consolidated revenues for the three months ended March 31, 1997,
decreased approximately 32% over the three months ended March 31, 1996. This
decrease resulted primarily from a reduction in interest income and non-cash
accretion on the Notes, as well as decreases in investment income due to the
decline in unrealized income on trading securities as well as a decline in
realized gains.
When excluding the interest and accretion income and realized gains from
the Notes, revenue for the three months ended March 31, 1997, decreased
approximately 21% over the three months ended March 31, 1996. Although the
Company experienced an increase in advisory and accounting fees, investment
income, as previously mentioned, decreased during the same time period. As
stated above, fluctuations in debt and equity markets impact the Company in that
mutual fund shareholders move their monies in response to such changes. During
the last half of the quarter, interest rates have risen while gold and equity
markets have declined. As a result, revenues derived from funds with higher
asset-based fees (particularly gold-related funds) declined during the same
period.
EXPENSES
Total consolidated expenses for the three months ended March 31, 1997,
decreased approximately 17% over the three months ended March 31, 1996. This
decrease resulted primarily from a decrease in interest expense on securities
sold under repurchase agreements with broker-dealers and on the subordinated
debenture from the previous quarter. This decrease in interest expense is due to
the fact that $26.725 million par value Notes were held during a substantial
portion of the quarter ended March 31, 1997, while $70.275 million par value
Notes were held for the entire quarter ended March 31, 1996.
Exclusive of the expenses attributable to the purchase and financing of
the Notes, expenses of the Company increased approximately 5% over the three
months ended March 31, 1996, primarily as a result of an increase in travel to
promote the top performing funds within the USGIF and USGAF fund groups.
Performance based compensation to employees also increased accordingly. On the
other hand, marketing and legal related expenses decreased significantly over
the same period.
LIQUIDITY AND CAPITAL RESOURCES
EQUITY INVESTMENT IN JOINT VENTURE AND AFFILIATE
As previously reported, U.S. Global currently holds a one-third interest
in United Services Advisors Canada Inc. ("USACI"). 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 $145,061 for the nine months ended March 31, 1997, which is
included in earnings before taxes in the income statement.
11
<PAGE>
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 22%
weighted average interest in the fund for the nine-month period ended March 31,
1997. As a result, the Company recorded earnings of $287,068 for the nine months
ended March 31, 1997, which is included in earnings before taxes in the income
statement.
GOVERNMENT SECURITIES/SUBORDINATED DEBENTURE
As previously reported, during the fiscal year ended June 30, 1995, U.S.
Global purchased $130,525,000 par value Notes from the U.S. Government
Securities Fund. 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 U.S. Global's cash. During the quarter
ended March 31, 1997, the remaining Notes matured and the Company made the final
payments on the reverse repurchase agreements and the subordinated debenture
leaving no outstanding balances as of March 31, 1997. The Company has accrued
approximately $16,000 in interest payable related to the subordinated debenture
as of March 31, 1997, which was paid to ML in April 1997. The Company has
recognized $306,926 and $1,211,584 in non-cash accretion of the Notes during the
nine months ended March 31, 1997, and 1996, respectively.
INVESTMENT ACTIVITIES
Management believes it can more effectively manage the Company's cash
position by broadening the types of investments utilized in cash management. On
March 31, 1997, the Company held approximately $1.4 million in investment
securities. The value of these investments is approximately 17% of stockholders'
equity at quarter end. Company investments in marketable securities classified
as trading securities totaled approximately $760,000 (market value). In
addition, there was approximately $640,000 of 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 nine months ending March 31, 1997, net realized gains from the sale
of investments aggregated approximately $1,050,000, compared to approximately
$1,200,000 (which excluded the sale of Notes and sales or expirations of
Eurodollar puts) for the nine months ending March 31, 1996. 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'
performance and, subsequently, their 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 these waivers and expense limitations, the Company
may reduce the amount of fund expenses it is bearing.
CONCLUSION
Based upon available information and internal analyses, management
anticipates positive cash flow and net income in the current fiscal year.
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 including
open-market purchases of its Class A common stock. The Company has access to a
line of credit of approximately $1 million obtained during the quarter ended
March 31, 1997, and may seek additional sources of financing, as necessary, to
meet future working capital requirements should some unexpected event arise.
12
<PAGE>
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 16
27 Financial Data Schedule
2. Reports on Form 8-K None
13
<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.
U.S. GLOBAL INVESTORS, INC.
DATED: April 30, 1997 /S/ FRANK E. HOLMES
-----------------------------------
BY: Frank E. Holmes
CEO
President
Chief Financial Officer
DATED: April 30, 1997 /S/ KEVIN C. WHITE
-----------------------------------
BY: Kevin C. White
Chief Accounting Officer
14
EXHIBIT 11
U.S. GLOBAL INVESTORS, INC.
SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net earnings .................................. $ 578,206 $ 1,581,804 ($ 133,377) $ 431,192
=========== =========== ============ ===========
PRIMARY
Weighted average number shares
outstanding during the period ............. 6,555,195 6,542,625 6,529,301 6,560,728
Add:
Common stock equivalent shares
(determined using the
"treasury stock" method)
representing shares issuable
upon exercise of common stock
warrants .............................. -- -- -- --
Common stock equivalent shares
(determined using the
"treasury stock" method)
representing shares issuable
upon exercise of common
stock options ......................... 30,095 32,301 30,095 32,301
----------- ----------- ----------- -----------
Weighted average number of shares
used in calculation of primary
earnings per share .................... 6,585,290 6,574,926 6,559,396 6,593,029
=========== =========== =========== ===========
Primary earnings (loss) per share
Net Earnings Per Share .................... $ 0.09 $ 0.24 $ (0.02) $ 0.07
=========== =========== ============ ===========
FULLY DILUTED
Weighted average number of shares
outstanding during the period ............. 6,555,195 6,542,625 6,529,301 6,560,728
Add:
Common stock equivalent shares
(determined using the
"treasury stock" method)
representing shares issuable
upon exercise of common stock
warrants .............................. -- -- -- --
Common stock equivalent shares
(determined using the "treasury
stock" method) representing
shares issuable upon exercise
of common stock options ............... 30,095 32,301 30,095 32,301
----------- ----------- ----------- -----------
Weighted average number of shares
used in calculation of fully
diluted earnings, per share ........... 6,585,290 6,574,926 6,559,396 6,593,029
=========== =========== =========== ===========
Fully diluted earnings (loss) per share
Net Earnings Per Share .................... $ 0.09 $ 0.24 $ (0.02) $ 0.07
=========== =========== ============ ===========
</TABLE>
15
<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>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 810,391
<SECURITIES> 1,406,043
<RECEIVABLES> 1,648,974
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,793,764
<PP&E> 7,321,696
<DEPRECIATION> (4,753,840)
<TOTAL-ASSETS> 11,168,550
<CURRENT-LIABILITIES> 1,361,817
<BONDS> 0
0
0
<COMMON> 339,464
<OTHER-SE> 8,100,088
<TOTAL-LIABILITY-AND-EQUITY> 11,168,550
<SALES> 9,766,876
<TOTAL-REVENUES> 10,986,014
<CGS> 0
<TOTAL-COSTS> 10,161,311
<OTHER-EXPENSES> 8,991,482
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,169,829
<INCOME-PRETAX> 824,703
<INCOME-TAX> 246,497
<INCOME-CONTINUING> 578,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 578,206
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
