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, 2000
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 [X] NO [ ]
On May 10, 2000, there were 6,299,474 shares of Registrant's class A common
stock outstanding and 1,496,800 shares of Registrant's class C common stock
issued and outstanding.
U.S. GLOBAL INVESTORS, INC.
I N D E X
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) - March 31, 2000, and
June 30, 1999 .................................................3
Consolidated Statements of Operations and Comprehensive Income
(Loss) (Unaudited) - Nine-month and Three- Month Periods
Ended March 31, 2000 and 1999..................................5
Consolidated Statements of Cash Flows (Unaudited) - Nine-month
Period Ended March 31, 2000 and 1999...........................6
Notes to Consolidated Financial Statements (Unaudited)..............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk......13
PART II. OTHER INFORMATION...................................................15
Item 6. Exhibits and Reports on Form 8-K................................15
SIGNATURES...................................................................16
EXHIBIT 11 - Schedule of Computation of Net Income (Loss) per Share..........17
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 3 of 17
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, JUNE 30,
2000 1999
---------- ----------
(UNAUDITED)
Current Assets
Cash and cash equivalents $1,467,758 $1,025,247
Trading securities, at fair value 1,582,068 884,837
Receivables
Mutual funds 1,026,218 794,562
Other 493,177 370,582
Prepaid expenses 388,134 384,506
Deferred tax asset 107,813 141,551
---------- ----------
Total Current Assets 5,065,168 3,601,285
---------- ----------
Net Property and Equipment 2,267,708 2,426,592
---------- ----------
Other Assets
Restricted investments 240,000 255,000
Long-term deferred tax asset 894,781 878,091
Investment securities available-for-sale,
at fair value 771,825 370,840
Equity investment in affiliate -- 749,739
Other 30,596 46,591
---------- ----------
Total Other Assets 1,937,202 2,300,261
---------- ----------
Total Assets $9,270,078 $8,328,138
========== ==========
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 4 of 17
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LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 31, JUNE 30,
2000 1999
---------- ----------
(UNAUDITED)
Current Liabilities
Accounts payable $ 387,851 $ 346,504
Accrued compensation and related costs 199,830 274,667
Current portion of notes payable 66,681 68,988
Current portion of annuity and
contractual obligation 18,000 18,000
Other accrued expenses 551,105 452,017
---------- ----------
Total Current Liabilities 1,223,467 1,160,176
---------- ----------
Notes payable-net of current portion 1,078,535 1,126,066
Annuity and contractual obligations 123,774 129,658
---------- ----------
Total Non-Current Liabilities 1,202,309 1,255,724
---------- ----------
Total Liabilities 2,425,776 2,415,900
---------- ----------
Shareholders' Equity
Common stock (Class A)-$.05 par value;
non-voting; authorized, 7,000,000
shares 314,974 314,974
Common stock (Class C)-$.05 par value;
voting; authorized, 1,750,000 shares 74,840 24,840
Additional paid-in-capital 10,565,919 10,586,628
Treasury stock at cost, 276,746 and
288,029 shares at March 31, 2000
and June 30, 1999, respectively (627,903) (648,830)
Accumulated other comprehensive loss (68,195) (74,938)
Retained earnings (3,415,333) (4,290,436)
---------- ----------
Total Shareholders' Equity 6,844,302 5,912,238
---------- ----------
Total Liabilities and Shareholders'
Equity $9,270,078 $8,328,138
========== ==========
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 5 of 17
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ --------------------------
2000 1999 2000 1999
---------- ----------- ----------- -----------
Revenue
Investment advisory fee $4,843,102 $ 3,910,186 $ 1,822,917 $ 1,366,658
Transfer agent fee 2,243,584 2,572,308 701,770 848,889
Custodial fee 370,848 363,920 112,685 114,140
Investment income 619,885 196,745 583,402 183,975
Other 324,397 269,153 114,850 103,585
---------- ----------- ----------- -----------
8,401,816 7,312,312 3,335,624 2,617,247
Expenses
General and administrative 7,195,202 7,243,959 2,561,351 2,497,381
Depreciation and
amortization 275,467 368,034 95,906 122,294
Interest-note payable and
other 77,308 82,460 23,303 23,367
---------- ----------- ----------- -----------
7,547,977 7,694,453 2,680,560 2,643,042
---------- ----------- ----------- -----------
Income (Loss) Before Minority
Interest, Equity Interest
and Income Taxes 853,839 (382,141) 655,064 (25,795)
Equity in Net Gain (Loss)
of Affiliate 51,739 (367,358) -- (113,066)
---------- ----------- ----------- -----------
Income (Loss) Before Income Taxes 905,578 (749,499) 655,064 (138,861)
Provisions for Federal Income
Taxes
Tax Expense 30,473 232,639 213,507 132,363
---------- ----------- ----------- -----------
Net Income (Loss) $ 875,105 $ (982,138) $ 441,557 $ (271,224)
Other comprehensive income
(loss), net of tax:
Unrealized gains (losses)
on available-for-sale
securities 6,743 (12,813) (12,322) (19,020)
---------- ----------- ----------- -----------
Comprehensive Income (Loss) $ 881,848 $ (994,951) $ 429,235 $ (290,244)
========== =========== =========== ===========
Basic and Diluted Net Income
(Loss) Per Share $ 0.12 $ (0.15) $ 0.06 $ (0.04)
========== =========== =========== ===========
Weighted Average Number of
Shares Outstanding
Basic 7,372,678 6,579,649 7,524,857 6,503,842
Diluted 7,373,648 6,581,532 7,534,164 6,510,578
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 6 of 17
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
Cash Flows from Operating Activities:
Net income (loss) $ 875,105 $ (982,138)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 275,467 368,034
Net gain on sales of securities (450,588) (77,523)
Gain on changes of interest in
affiliate -- (104,573)
Provision for deferred taxes 13,574 232,639
Changes in assets and liabilities,
impacting cash from operations:
Restricted investments 15,000 16,166
Accounts receivable (354,251) 851,822
Prepaid expenses and other 48,828 (42,469)
Trading securities 497,640 (35,002)
Accounts payable 41,347 61,094
Accrued expenses 24,251 (183,299)
---------- ----------
Total adjustments 111,268 1,086,889
---------- ----------
Net Cash Provided by Operating Activities 986,373 104,751
---------- ----------
Cash Flows from Investing Activities:
Net purchase of furniture and equipment (104,783) (165,281)
Purchase of available-for-sale securities (433,575) (97,056)
---------- ----------
Net Cash Used in Investing Activities (538,358) (262,337)
---------- ----------
Cash Flows from Financing Activities:
Payments on annuity (5,884) (5,447)
Payments on note payable to bank (49,838) (42,168)
Issuance of stock 29,291 --
Treasury stock reissued 55,394 52,491
Purchase of treasury stock (34,467) (227,017)
---------- ----------
Net Cash Used in Financing Activities (5,504) (222,141)
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents 442,511 (379,727)
Beginning Cash and Cash Equivalents 1,025,247 1,391,867
---------- ----------
Ending Cash and Cash Equivalents $1,467,758 $1,012,140
========== ==========
Schedule of Non-Cash Investing and
Financing Activities:
Receipt of trading securities in liquidation
of equity investment $ 701,748 --
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 7 of 17
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods presented. U.S. Global
Investors, Inc. (the Company or 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, 1999.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, United Shareholder Services, Inc. (USSI),
Security Trust & Financial Company (STFC), A&B Mailers, Inc. (A&B), U.S. Global
Investors (Guernsey) Limited (USGG), U.S. Global Brokerage, Inc. (USGB), and
U.S. Global Administrators, Inc. (USGA). On August 11, 1999, the Board of
Directors of the U.S. Global Strategies Fund (the Guernsey Fund) voted to impose
the compulsory redemption provision in the Guernsey Fund's prospectus to close
the fund and redeem all outstanding shares. The Company received its
proportionate share of the liquidation proceeds in securities during the second
quarter of fiscal year 2000.
All significant 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, 2000, are
not necessarily indicative of the results to be expected for the entire year.
Note 2. 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 cost of investments classified as trading at March 31, 2000, and June 30,
1999, was $1,796,951 and $1,197,233, respectively. The market value of
investments classified as trading at March 31, 2000, and June 30, 1999, was
$1,582,068 and $884,837, respectively. The net unrealized holding gains on
trading securities held at March 31, 2000, and 1999, which has been included in
income for the nine-month period is $97,513 and $31,816, respectively.
The cost of investments in securities classified as available-for-sale, which
may not be readily marketable at March 31, 2000, and June 30, 1999, was $875,150
and $484,382, respectively. These investments are reflected as non-current
assets on the consolidated balance sheet at their fair value at March 31, 2000,
and June 30, 1999, of $771,825 and $370,840, respectively, with $68,195 and
$74,938, respectively, net of tax, in unrealized losses being recorded as a
separate component of shareholders' equity. These investments are primarily in
private placements, which are restricted for sale as of the balance sheet dates.
During the first nine months of fiscal year 2000 and 1999, the Company recorded
unrealized gains of $0 and $344,394, respectively, on securities transferred
from available-for-sale securities to trading securities.
Note 3. Investment Management, Transfer Agent and Other Fees
The Company serves as investment adviser to U.S. Global Investors Funds (USGIF)
and U.S. Global Accolade Funds (USGAF) and receives a fee based on a specified
percentage of net assets under management. The Company also serves as transfer
agent to USGIF and USGAF and receives a fee based on the number of shareholder
accounts. Additionally, the Company provides in-house legal services to USGIF
and USGAF, and the Company also receives certain miscellaneous fees directly
from USGIF and USGAF shareholders. Fees for providing services to USGIF and
USGAF continue to be the Company's primary revenue source.
U.S. Global receives additional revenue from several sources including custodian
and administrative fee revenues, revenues from miscellaneous transfer agency
activities including lockbox functions, mailroom operations from A&B, as well as
gains on marketable securities transactions. Receivables from mutual funds
represent amounts due the Company and its wholly owned subsidiaries primarily
for investment advisory fees and transfer agent fees and are net of amounts
payable to the mutual funds.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 8 of 17
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U.S. Global has voluntarily waived or reduced its advisory fee, has guaranteed
that fund expenses will not exceed certain limits, and/or has agreed to pay
expenses on several USGIF and USGAF 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, 2000, and 1999, was $1,499,540
and $2,156,890, respectively. The aggregate amount of fees waived and expenses
borne by the Company for the quarter ended March 31, 2000, and 1999, was
$486,587 and $642,164, respectively. Investment advisory fees and transfer agent
fees are recorded net of the above waivers.
The investment advisory and related contracts between the Company and USGIF and
USGAF will expire on February 29, 2001, and on March 8, 2001, respectively.
Management anticipates the board of trustees of both USGIF and USGAF will renew
the contracts.
Note 4. Note Payable
The Company has a note payable to a bank which is secured by land, an office
building and related improvements. As of March 31, 2000, the balance on the note
was $1,131,897. The loan is currently amortizing over a twenty-year period with
payments of both principal and interest due monthly based on the Bank One,
Texas, prime rate plus .25 percent. The current monthly payment is $11,750, and
matures July 2001. Under this agreement, the Company must maintain certain
financial covenants. The Company is in full compliance with its financial
covenants at March 31, 2000. Additionally, the Company believes it has adequate
cash, cash equivalents, and equity in the underlying asset to retire the
obligation if necessary.
Note 5. Income Taxes
Provisions for income taxes include deferred taxes for temporary differences in
the bases of assets and liabilities for financial and tax purposes, resulting
from the use of the liability method of accounting for income taxes. For federal
income tax purposes at March 31, 2000, the Company has net operating losses
(NOLs) of approximately $1.2 million, which will expire in fiscal 2007 and 2010,
charitable contribution carry-overs of approximately $200,000 expiring between
2000 and 2001, and alternative minimum tax credits of $115,228 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 occur
subsequent to March 31, 2000, 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 has reduced
the valuation allowance since prior fiscal year-end due to pro forma earnings
indicating it is more likely than not that a portion of the NOL balance will be
utilized in the current fiscal year. As such, management continues to include a
valuation allowance of approximately $300,000 at March 31, 2000, providing for
the utilization of NOLs, charitable contributions, and investment tax credits
against future taxable income.
Note 6. Comprehensive Income
Effective December 31, 1998, the Company adopted Statement No. 130, Reporting
Comprehensive Income (SFAS 130). SFAS 130 established standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements. This
statement required that all items that are recognized under accounting standards
as components of comprehensive income be reported in a statement of financial
performance. The company has disclosed the components of comprehensive income in
the consolidated statements of operations and comprehensive income and has
reclassified prior periods to conform with the new requirements. Additionally,
SFAS 130 requires disclosure of any reclassification adjustments.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 9 of 17
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NINE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
Unrealized gain (loss) on available-for-sale
securities $ 6,743 $ (25,313)
Less: reclassification adjustment for (gain)
loss included in net income -- 12,500
---------- ----------
Net unrealized gain (loss) on
available-for-sale securities, net of tax $ 6,743 $ (12,813)
========== ==========
Note 7. Financial Information by Business Segment
The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information" in fiscal year 1999. SFAS 131 requires companies to present
segment information using the management approach. The management approach is
based on the way that management organizes the segments within a company for
making operating decisions and assessing performance. The Company's principal
operations are located in San Antonio, Texas. The Company operates principally
in two business segments: providing mutual fund investment management services
to its clients, and investing for its own account in an effort to add growth and
value to its cash position. The following schedule details total revenues and
income (loss) by business segment:
INVESTMENT
MANAGEMENT CORPORATE
SERVICES INVESTMENT CONSOLIDATED
----------- ----------- -----------
Nine months ended March 31, 2000:
Net revenues $ 7,853,675 $ 548,141 $ 8,401,816
=========== =========== ===========
Income (loss) before income taxes
and equity interest $ 305,698 $ 548,141 $ 853,839
Equity in net income of affiliate -- 51,739 51,739
----------- ----------- -----------
Net income (loss) before income taxes $ 305,698 $ 599,880 $ 905,578
=========== =========== ===========
Depreciation and amortization $ 275,467 $ -- $ 275,467
=========== =========== ===========
Interest expense $ 77,308 $ -- $ 77,308
=========== =========== ===========
Capital expenditures $ 104,783 $ -- $ 104,783
=========== =========== ===========
Gross identifiable assets at March 31, 2000 $ 5,913,591 $ 2,285,698 $ 8,199,289
Deferred tax asset 1,002,594
Accumulated other comprehensive loss 68,195
-----------
Consolidated total assets at March 31, 2000 $ 9,270,078
===========
Nine months ended March 31, 1999:
Net revenues $ 7,202,973 $ 109,339 $ 7,312,312
=========== =========== ===========
Income (loss) before income taxes and
equity interest $ (491,480) $ 109,339 $ (382,141)
Equity in net loss of affiliate -- (367,358) (367,358)
----------- ----------- -----------
Net income (loss) before income taxes $ (491,480) $ (258,019) $ (749,499)
=========== =========== ===========
Depreciation and amortization $ 368,034 $ -- $ 368,034
=========== =========== ===========
Interest expense $ 82,460 $ -- $ 82,460
=========== =========== ===========
Capital expenditures $ 165,281 $ -- $ 165,281
=========== =========== ===========
Gross identifiable assets at March 31, 1999 $ 5,203,342 $ 2,700,414 $ 7,903,756
Deferred tax asset 977,347
Accumulated other comprehensive loss 88,557
-----------
Consolidated total assets at March 31, 1999 $ 8,969,660
===========
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 10 of 17
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2000
U.S. Global Investors, Inc. (the Company or U.S. Global) posted net income of
$875,105 ($0.12 income per share) for the nine months ended March 31, 2000,
compared to a net loss of $982,138 ($0.15 loss per share) for the nine months
ended March 31, 1999. Revenues increased by approximately $1,090,000 due to
increases in net advisory fees and investment income of $933,000 and $423,000,
respectively. These increases were offset by decreases in transfer agent fees of
$329,000. Total expenses declined approximately $146,000. Additionally, an
equity interest in the net losses of the Guernsey Fund of $367,000 for the nine
months ended March 31, 1999 had reversed into an approximate gain of $52,000 at
the time of the Guernsey Fund's liquidation in September 1999.
QUARTER ENDED MARCH 31, 2000
The Company posted net income of $441,557 ($0.06 income per share) for the
quarter ended March 31, 2000, compared to a net loss of $271,224 ($0.04 loss per
share) for the quarter ended March 31, 1999. Revenues increased by approximately
$718,000 due to increases in net advisory fees and investment income of $456,000
and $400,000, respectively. These increases were offset by decreases in transfer
agent fees of $147,000. Total expenses remained relatively flat. Additionally,
an equity interest in the net losses of the Guernsey Fund of $113,000 for the
quarter ended March 31, 1999 is not applicable for the quarter ended March 31,
2000 due to the liquidation of the Guernsey Fund in September 1999.
ASSETS UNDER MANAGEMENT
The primary source of the Company's revenue is advisory fees that are dependent
on the average net assets of the mutual funds managed by the Company.
Fluctuations in the markets and investor sentiment directly impact the funds'
asset levels, therefore affecting income and results of operations. As of April
30, 2000, total assets under management for U.S. Global Investors Funds (USGIF)
and U.S. Global Accolade Funds (USGAF) were approximately $1.09 billion and $298
million, respectively.
NINE MONTHS ENDED MARCH 31, 2000
Assets under management for USGIF for the nine months ended March 31, 2000,
averaged $1.18 billion versus $1.26 billion for the nine months ended March 31,
1999. This decrease in average assets is primarily a result of a decrease in the
value of gold-related assets, partially offset by increases in equity and
emerging market assets. Assets under management for USGAF averaged $221 million
for the nine months ended March 31, 2000, versus $127 million for the nine
months ended March 31, 1999. This increase in average assets is primarily
attributable to increases in the Bonnel Growth Fund.
QUARTER ENDED MARCH 31, 2000
Assets under management for USGIF for the quarter ended March 31, 2000, averaged
$1.15 billion versus $1.28 billion for the quarter ended March 31, 1999. This
decrease in average assets is primarily a result of a decrease in the value of
gold-related and money market assets, partially offset by increases in emerging
market assets. Assets under management for USGAF averaged $331 million for the
quarter ended March 31, 2000, versus $134 million for the quarter ended March
31, 1999. This increase in average assets is primarily attributable to increases
in the Bonnel Growth Fund.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 11 of 17
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REVENUES
NINE MONTHS ENDED MARCH 31, 2000
Total consolidated revenues increased approximately $1,090,000, or 15 percent.
The net advisory fees increased nearly $933,000, or 24 percent. This was largely
due to improved operational efficiency in the funds which has allowed the funds
to remain competitive while reducing fund-related fee waivers by approximately
$657,000. Gross advisory fees increased $279,000, or five percent, as continued
declines in gold-related assets were exceeded by increases in equity and
emerging market assets. Investment income increased $423,000, or 215 percent.
The increase was a result of the sale of appreciated securities as part of the
corporate investment process. This additional revenue offset a decrease of
$329,000, or 12 percent, in transfer agency fees, which accompanied the decline
in gold-related assets.
Earnings before interest and investment income (expense), taxes, depreciation,
and amortization (EBITDA) for the nine-month period ended March 31, 2000,
increased approximately $715,000, compared to the same period ended March 31,
1999. EBITDA for the nine-month period ended March 31, 2000, approximated
$587,000 ($0.08 per share) compared to a loss of approximately $128,000 ($0.02
per share) for the same period ended March 31, 1999. This increase was primarily
due to the increase in net advisory fees and offset by the decrease in transfer
agency fees mentioned above .
QUARTER ENDED MARCH 31, 2000
Total consolidated revenues increased approximately $718,000, or 27 percent. The
net advisory fees increased nearly $456,000, or 33 percent. This was largely due
to improved operational efficiency in the funds which has allowed the funds to
remain competitive while reducing fund-related fee waivers by approximately
$156,000. Gross advisory fees increased $299,000, or 15 percent, as continued
declines in gold-related and money market assets were exceeded by increases in
equity and emerging market assets. Investment income increased $399,000, or 217
percent. The increase was a result of the sale of appreciated securities as part
of the corporate investment process. This additional revenue offset a decrease
of $147,000, or 17 percent, in transfer agency fees, which accompanied the
decline in gold-related and money market assets.
Earnings before interest and investment income (expense), taxes, depreciation,
and amortization (EBITDA) for the quarter ended March 31, 2000, increased
approximately $255,000, compared to the same period ended March 31, 1999. EBITDA
for the quarter ended March 31, 2000, approximated $191,000 ($0.03 per share)
compared to a loss of approximately $64,000 ($0.01 per share) for the quarter
ended March 31, 1999. This increase was due to the increase in net advisory fees
and offset by the decrease in transfer agency fees mentioned above.
EXPENSES
NINE MONTHS ENDED MARCH 31, 2000
Total consolidated expenses for the nine months ended March 31, 2000, decreased
almost $146,000, or two percent. This is attributable to a decrease in general
and administrative expenses of the Company of almost $49,000, or one percent,
for the nine months ended March 31, 2000. More specifically, the majority of the
decrease in general and administrative expenses included decreases in salary
expenses and travel expenses offset by increases in training costs and
sub-advisory fees. Depreciation and amortization expenses decreased
approximately $90,000, or 25 percent, as a portion of the Company's operating
equipment reached the end of its depreciable life.
QUARTER ENDED MARCH 31, 2000
Total consolidated expenses for the quarter ended March 31, 2000, increased
almost $38,000, or one percent. This is attributable to an increase in general
and administrative expenses of the Company of almost $64,000, or three percent,
for the quarter ended March 31, 2000. This increase was primarily caused by
increases in sub-advisory fees which were offset by decreases in salary expenses
and travel expenses. Depreciation and amortization expenses decreased
approximately $26,000, or 22 percent, as a portion of the Company's operating
equipment reached the end of its depreciable life.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 12 of 17
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BUSINESS SEGMENTS
The Company operates principally in two business segments: providing mutual fund
investment management services to its clients and investing for its own account
in an effort to add growth and value to its cash position. The Company's
principal operations are located in San Antonio, Texas.
INVESTMENT MANAGEMENT SERVICES The Company serves as investment adviser to U.S.
Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF) and
receives a fee based on a specified percentage of net assets under management.
See Note 3 for a detailed discussion of these services.
CORPORATE INVESTMENT Management believes it can more effectively manage the
Company's cash position by broadening the types of investments utilized in cash
management and continues to believe that such activities are in the best
interest of the Company. These activities are reviewed and monitored by Company
compliance personnel and various reports are provided to investment advisory
clients. On March 31, 2000, the Company held approximately $2.4 million in
investment securities. The value of these investments is approximately 25
percent of total assets and 34 percent of shareholders' equity at period end. Of
the $2.4 million in investment securities, the Company classified approximately
$1,582,000 as trading securities and approximately $772,000 as
available-for-sale securities. Available- for-sale securities are primarily
private placements. During the nine months ended March 31, 2000, there were
realized gains of $450,588 from the sale of investments, compared with gains of
$77,523 for the nine months ended March 31, 1999. The net change in the
unrealized holding gains (losses) on trading securities held at March 31, 2000
and 1999, which has been included in earnings for the nine-month period, was
$97,513 and $31,816, respectively.
On August 11, 1999, the Board of Directors of the U.S. Global Strategies Fund
(the Guernsey Fund) voted to close the fund and redeem all outstanding shares.
The Company received its proportionate share of the liquidation proceeds in
securities during the second quarter of fiscal year 2000.
The table below summarizes operating income and net income by each segment.
NINE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
Investment management services $ 305,698 $ (491,480)
Corporate investment activity 548,141 109,339
---------- ----------
Income (loss) before income taxes and
equity interest $ 853,839 $ (382,141)
Net income (loss) $ 875,105 $ (982,138)
INCOME TAXES
Provisions for income taxes include deferred taxes for temporary differences in
the bases of assets and liabilities for financial and tax purposes, resulting
from the use of the liability method of accounting for income taxes. For federal
income tax purposes at March 31, 2000, the Company has net operating losses
(NOLs) of approximately $1.2 million, which will expire in fiscal 2007 and 2010,
charitable contribution carry-overs of approximately $200,000 expiring between
2000 and 2001, and alternative minimum tax credits of $115,228 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 occur,
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 has reduced
the valuation allowance due to pro forma earnings indicating it is more likely
than not that a portion of the NOL balance will be utilized in the current
fiscal year. As such, management has continued to include a valuation allowance
of approximately $300,000 at March 31, 2000, providing for the utilization of
NOLs, charitable contributions, and investment tax credits against future
taxable income.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 13 of 17
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FEE WAIVERS AND FUND REIMBURSEMENTS
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 may increase. 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.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had net working capital (current assets minus
current liabilities) of approximately $3.8 million and a current ratio of 4.1 to
1. With approximately $1.5 million in cash and cash equivalents and
approximately $1.6 million in marketable securities, the Company has adequate
liquidity to meet its current debt obligations. Total shareholders' equity was
approximately $6.8 million, and cash, cash equivalents, and marketable
securities comprise 33 percent of total assets. With the exception of operating
expenses, the Company's only material commitment is the mortgage on its
corporate headquarters, a long-term debt. The Company's cash flow is expected to
be sufficient to cover current expenses, including debt service.
Management believes current cash reserves, financing obtained and/or available,
and cash flow from operations will be sufficient to meet foreseeable cash needs
or capital necessary for the above mentioned activities and allow the Company to
take advantage of investment opportunities whenever available.
FORWARD-LOOKING INFORMATION
The Company has made forward-looking statements concerning the Company's
performance, financial condition, and operations in this quarterly report. The
Company from time to time may also make forward-looking statements in its public
filings and press releases. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and do not guarantee future
performance. Actual results could differ materially from those anticipated in
such forward-looking statements due to a number of factors, some of which are
beyond the Company's control, including (i) the volatile and competitive nature
of the investment management industry, (ii) changes in domestic and foreign
economic conditions, (iii) the effect of government regulation on the Company's
business, and (iv) market, credit, and liquidity risks associated with the
Company's investment management activities. Due to such risks, uncertainties,
and other factors, the Company cautions each person receiving such forward
looking information not to place undue reliance on such statements. All such
forward looking statements are current only as of the date on which such
statements were made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's balance sheet includes assets whose fair value is subject to
market risks. At March 31, 2000, the Company held approximately $2.4 million in
securities (trading and available-for-sale categories) other than USGIF money
market mutual fund shares.
Due to the Company's investments in equity securities, equity price fluctuations
represent a market risk factor affecting the Company's consolidated financial
position. The carrying values of investments subject to equity price risks are
based on quoted market prices or if not actively traded based on management's
estimate of fair value as of the balance sheet date. Market prices fluctuate,
and the amount realized in the subsequent sale of an investment may differ
significantly from the reported market value. The Company's investment
activities are reviewed and monitored by Company compliance personnel, and
various reports are provided to investment advisory clients.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 14 of 17
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The table below summarizes the Company's equity price risks at March 31, 2000,
and shows the effects of a hypothetical 25 percent increase and a 25 percent
decrease in market prices.
ESTIMATED
HYPOTHETICAL FAIR VALUE AFTER INCREASE (DECREASE) IN
FAIR VALUE AT PERCENTAGE HYPOTHETICAL SHAREHOLDERS' EQUITY,
MARCH 31, 2000 CHANGE PERCENT CHANGE NET OF TAX
-------------- -------------- -------------- ----------
Trading Securities $ 1,582,068 25% increase $ 1,977,585 $ 261,041
25% decrease $ 1,186,551 $ (261,041)
Available-for-Sale $ 771,825 25% increase $ 964,781 $ 127,351
25% decrease $ 578,869 $ (127,351)
The selected hypothetical change does not reflect what could be considered best-
or worst-case scenarios. Results could be significantly worse due to both the
nature of equity markets and the concentration of the Company's investment
portfolio.
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 15 of 17
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
11 Statement re: Computation of Per Share Income
27 Financial Data Schedule
2. Reports on Form 8-K
None
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 16 of 17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
U.S. GLOBAL INVESTORS, INC.
DATED: May 15, 2000 BY: /s/ Frank E. Holmes
---------------------
Frank E. Holmes
Chief Executive Officer
DATED: May 15, 2000 BY: /s/ David J. Clark
-------------------
David J. Clark
Chief Financial Officer
Chief Operating Officer
DATED: May 15, 2000 BY: /s/ Tracy C. Peterson
---------------------
Tracy C. Peterson
Chief Accounting Officer
U.S. Global Investors, Inc.
March 31, 2000, Quarterly Report on Form 10-Q Page 17 of 17
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EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
NINE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ------------------------
2000 1999 2000 1999
---------- ----------- ---------- -----------
Net income (loss) $ 875,105 $ (982,138) $ 441,557 $ (271,224)
========== =========== ========== ===========
Basic
Weighted average number shares
outstanding during the period 7,372,678 6,579,649 7,524,857 6,503,842
Basic income (loss) per share $ 0.12 $ (0.15) $ 0.06 $ (0.04)
========== =========== ========== ===========
Diluted
Weighted average number of
shares outstanding during
the period 7,372,678 6,579,649 7,524,857 6,503,842
Effect of dilutive securities:
Common stock equivalent
shares (determined
using the "treasury
stock" method) repre-
senting shares issuable
upon exercise of
preferred or common
stock options 970 1,883 9,307 6,736
---------- ----------- ---------- -----------
Weighted average number
of shares used in
calculation of diluted
income per share 7,373,648 6,581,532 7,534,164 6,510,578
========== =========== ========== ===========
Diluted income (loss) per share $ 0.12 $ (0.15) $ 0.06 $ (0.04)
========== =========== ========== ===========