UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------
FORM 10-Q/A
Amended January 22, 1999
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1998
OR
[ ] Transition report pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934 for the transition period from ________ to _________
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Commission File Number 0-13928
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U.S. GLOBAL INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-1598370
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
7900 CALLAGHAN ROAD 78229-2327
SAN ANTONIO, TEXAS (Zip Code)
(Address of Principal Executive Offices)
(210) 308-1234
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address And Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [x] NO [ ]
On October 26, 1998, there were 6,299,444 shares of Registrant's Class A common
stock outstanding and 496,830 shares of Registrant's Class C common stock issued
and outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION..................................................3
Item 1. Financial Statements..............................................3
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....................................................14
Item 6. Exhibits and Reports on Form 8-K.................................14
SIGNATURES....................................................................15
EXHIBIT 11--SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE.................16
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, JUNE 30,
1998 1998
------------- -----------
(UNAUDITED)
Current Assets
Cash and cash equivalents $ 1,650,591 $ 1,391,867
Trading securities, at fair
value 794,156 901,647
Receivables:
Mutual funds 906,417 788,019
Custodial fees 275,771 189,715
Receivable from brokers 55,771 16,690
Residual equity interest -- 675,613
Other 220,150 190,421
Prepaid expenses 448,118 466,733
Deferred tax asset 176,655 135,294
---------- -----------
Total Current Assets 4,527,629 4,755,999
---------- -----------
Net Property And Equipment 2,578,263 2,596,091
---------- -----------
Other Assets
Restricted investments 274,805 271,166
Long-term receivables 152,876 218,212
Long-term deferred tax asset 1,097,051 1,068,092
Investment securities
available-for-sale, at fair value 417,690 472,240
Equity investment in affiliate 735,447 866,288
Other 57,289 60,869
---------- -----------
Total Other Assets 2,735,158 2,956,867
---------- -----------
Total Assets $ 9,841,050 $10,308,957
========== ===========
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 4
LIABILITIES AND SHAREHOLDERS' EQUITY
SEPTEMBER 30, JUNE 30,
1998 1998
------------- -----------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable $ 335,667 $ 275,963
Accrued compensation and retirement
costs 175,053 226,324
Current portion of notes payable 64,875 63,525
Current portion of annuity and
contractual obligation 18,000 18,000
Accrued legal fees 83,837 33,855
Other accrued expenses 319,373 418,793
----------- -----------
TOTAL CURRENT LIABILITIES 996,805 1,036,460
----------- -----------
Notes Payable-Net of Current Portion 1,177,393 1,193,599
Annuity and Contractual Obligations 135,283 137,039
----------- -----------
TOTAL NON-CURRENT LIABILITIES 1,312,676 1,330,638
----------- -----------
TOTAL LIABILITIES 2,309,481 2,367,098
----------- -----------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Common stock (Class A)-$0.05 par value;
non-voting; authorized, 7,000,000 shares 314,972 314,972
Common stock (Class C)-$.05 par value;
voting; authorized, 1,750,000 shares 24,842 24,842
Additional paid-in-capital 10,589,541 10,591,708
Treasury stock at cost (449,313) (476,289)
Net unrealized loss on available-for-sale
securities (net of tax of $31,175 and
$12,629, respectively) (60,516) (24,514)
Equity in net unrealized loss on available-
for-sale securities held by affiliate
(net of tax of $60,904 and $26,391,
respectively) (118,224) (51,230)
Retained deficit (2,769,733) (2,437,630)
----------- -----------
Total Shareholders' Equity 7,531,569 7,941,859
----------- -----------
$ 9,841,050 $10,308,957
=========== ===========
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 5
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
REVENUE
Investment advisory fee $1,135,032 $1,637,465
Transfer agent fee 799,084 839,318
Accounting fee -- 260,312
Exchange fee 36,290 47,810
Custodial fees 123,714 133,032
Investment loss (82,920) (45,385)
Other 85,286 73,328
----------- -----------
2,096,486 2,945,880
----------- -----------
EXPENSES
General and administrative 2,165,991 2,624,069
Depreciation and amortization 123,446 124,117
Interest-note payable and other 28,208 31,300
----------- -----------
2,317,645 2,779,486
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EARNINGS (LOSS) BEFORE MINORITY INTEREST,
EQUITY INTEREST AND INCOME TAXES (221,159) 166,394
Equity In Net Earnings (Losses) of Affiliate (128,205) 1,743
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (349,364) 168,137
PROVISIONS FOR FEDERAL INCOME TAXES
Deferred (17,261) 53,592
----------- -----------
(17,261) 53,592
----------- -----------
Net Earnings (Loss) $ (332,103) $ 114,545
=========== ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE $ (0.05) $ 0.02
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 6,624,639 6,609,027
Diluted 6,626,023 6,677,878
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (332,103) $ 114,545
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 123,446 124,117
Net gain on sales of securities (2,860) (4,398)
Gain on disposal of equipment -- (602)
Gains on changes of interest in affiliate (96,289) (1,682)
Provision for deferred taxes (17,261) 53,592
Changes in assets and liabilities,
impacting cash from operations:
Restricted investments (3,639) (8,347)
Accounts receivable 467,685 354,298
Prepaid expenses and other 147,805 83,683
Trading securities 110,353 85,346
Accounts payable 59,704 (112,664)
Accrued expenses (100,709) (154,461)
----------- -----------
Total adjustments 688,235 418,882
----------- -----------
NET CASH PROVIDED BY OPERATIONS 356,132 533,427
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (105,605) (143,489)
Net proceeds on sale of equipment -- 602
NET CASH USED IN INVESTING ACTIVITIES (105,605) (42,887)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on annuity (1,756) (1,676)
Payments on note payable to bank (14,856) (10,695)
Payments on capital lease -- (6,475)
Treasury stock reissued 28,725 53,434
Purchase of Treasury stock (3,916) --
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,197 34,588
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 258,724 425,128
BEGINNING CASH AND CASH EQUIVALENTS 1,391,867 722,121
----------- -----------
ENDING CASH AND CASH EQUIVALENTS $ 1,650,591 $ 1,147,249
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 28,208 $ 31,300
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods presented. U.S. Global
Investors, Inc. (the Company or 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, 1998.
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), U.S.
Global Investors (Guernsey) Limited (USGG), and U.S. Global Brokerage, Inc.
(USGB). Additionally, the Company has continued to account for its investment in
the offshore fund, U.S. Global Strategies Fund Limited (the Guernsey Fund),
using the equity method of accounting, as the Company held a 36% and 15%
interest in the Guernsey Fund as of September 30, 1998 and 1997, respectively.
This resulted in the Company recording earnings (losses) of ($224,494) and $61
for the quarters ending September 30, 1998 and 1997, respectively, which is
included in earnings before taxes in the income statement. In addition, due to
changes in its equity interest of the Guernsey Fund during the quarter, the
Company recorded a gain of $96,289 and $1,682 for the quarters ending September
30, 1998 and 1997, respectively.
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 three month period ended September 30,1998,
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 cost of investments classified as trading at September 30, 1998, and June
30, 1998 was $1,189,416, and $1,173,011, respectively. The market value of
investments classified as trading at September 30, 1998, and June 30, 1998 was
$794,156 and $901,647, respectively. The net change in the unrealized holding
loss on trading securities held at September 30, 1998 and 1997 that has been
included in earnings for the three-month period is $124,114 and $80,606,
respectively.
The cost of investments in securities classified as available-for-sale, which
may not be readily marketable at September 30, 1998, and June 30, 1998, was
$509,382. These investments are reflected as non-current assets on the
consolidated balance sheet at their fair value at September 30, 1998 and June
30, 1998 of $417,690 and $472,240, respectively, with $60,516, and $24,514, net
of tax, in unrealized losses being recorded as a separate component of
shareholders' equity. These investments are in private placements which are
restricted for sale as of September 30, 1998. It is anticipated the securities
obtained in these private placements will become free trading within one year.
During fiscal year 1999, the Company has not transferred any securities from the
available-for-sale category to the trading category. During fiscal year 1998,
the Company recorded realized losses of $349,579 and unrealized gains of
$103,205 on securities which were transferred from the available-for-sale
category to the trading category upon becoming free trading.
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 8
NOTE C. INVESTMENT MANAGEMENT, TRANSFER AGENT AND OTHER FEES
The Company serves as investment adviser to U.S. Global Investors Funds (USGIF),
U.S. Global Accolade Funds (USGAF) and the Guernsey Fund 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 received a fee based on the
number of shareholder accounts. Additionally, the Company provides in-house
legal services to USGIF and USGAF. The Company also receives exchange,
maintenance, closing, and small account fees directly from USGIF and USGAF
shareholders. Fees for providing services to USGIF continue to be the Company's
primary revenue source.
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 as well as mailroom operations from A&B.
Investment advisory fees, transfer agency fees, accounting fees, custodian fees
and all other fees to the Company are recorded as income during the period in
which services are performed.
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 and USGAF funds and the Guernsey Fund for purposes of enhancing
their performance. The aggregate amount of fees waived and expenses borne by the
Company for the three month period ended September 30, 1998, and September 30,
1997 was $802,241, and $987,198, 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 will expire on or about January 21, 1999, and the contracts between the
Company and USGAF expire on or about March 8, 1999. Management anticipates the
Trustees of both USGIF and USGAF will renew the contracts.
NOTE D. 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 September 30, 1998, the Company has net operating losses
(NOLs) of approximately $1.5 million which will expire in fiscal 2007 and 2010,
charitable contribution carryovers of approximately $342,000 expiring 1999-2001,
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 should occur subsequent to
September 30, 1998, 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. As such, management has
included a valuation allowance of approximately $125,000 at September 30, 1998,
providing for the utilization of NOLs, charitable contributions, and investment
tax credits against future taxable income.
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 9
NOTE E. ACCOUNTING PRONOUNCEMENTS.
In June 1997, the FASB issued Statements No. 130, Reporting Comprehensive Income
("SFAS 130"). SFAS 130 establishes 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 requires
that all items that are recognized under accounting standards as components of
comprehensive income be reported in a statement of financial performance.
Although the Statement does not address disclosure format, it requires an
enterprise to (a) represent total comprehensive income for the financial
statement period, (b) classify items of other comprehensive income by their
nature in a financial statement and (c) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. This
Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company plans to adopt SFAS 130 in fiscal
year 1999. Management has not yet determined the manner in which comprehensive
income might be displayed.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for reporting information in the annual financial statements about a
public entity's operating segments and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. SFAS 131 also establishes standards for related
disclosures regarding products and services, geographic areas, and major
customers. This Statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The Company plans
to adopt SFAS 131 in fiscal year 1999. Management has not yet completed its
determination of what, if any, impact the "management approach" will have on its
financial statement disclosures.
In February 1998, the FASB issued Statement No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits ("SFAS 132"). SFAS 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, and requires additional information on
changes in the benefit obligations and fair values of plan assets that will
facilitate financial analysis. As the Company does not offer pension or other
postretirement benefits, it is not anticipated this Statement will impact the
Company.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
imbedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS 133 generally provides for matching the timing of gain or
loss recognition on the hedging instrument with the recognition of (a) the
changes in fair value of the hedged asset or liability or (b) the earnings of
the hedged forecasted transaction. This Statement is effective for fiscal years
beginning after June 15, 1999. Management is evaluating the impact of the
Statement on the Company.
The Accounting Standards Executive Committee (AcSEC) recently issued Statement
of Position (SOP) 98-5, Reporting on the Costs of Start-up Activities. The SOP
requires the costs of start-up activities to be expensed as incurred. In a
change from the Exposure Draft, start-up activities now include organization
costs, which could have significant ramifications to certain mutual funds. The
SOP applies to all nongovernmental entities and to start-up costs of
development-stage entities as well as established operating entities. The SOP is
effective for fiscal years beginning after December 15, 1998, except for certain
investment companies (primarily open-end investment funds), which must apply the
SOP prospectively beginning June 30, 1998. The adoption of this Statement is not
expected to materially impact the financial position or results of operations of
the Company.
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
U.S. Global Investors, Inc. (the Company or U.S. Global) posted a net after tax
loss of $332,103 ($0.05 per share) for the quarter ended September 30, 1998,
compared to net after tax earnings of $114,545 ($0.02 per share) for the quarter
ended September 30, 1997.
ASSETS UNDER MANAGEMENT
The primary source of the Company's revenue is advisory fees that are dependent
on 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 October 26, 1998,
total assets under management for U.S. Global Investors Funds (USGIF) and U.S.
Global Accolade Funds (USGAF) were approximately $1.26 billion and $113 million,
respectively.
Assets under management for USGIF for the quarter ended September 30, 1998,
averaged $1.23 billion versus $1.35 billion for the quarter ended September 30,
1997. This decrease in average assets primarily resulted from a decrease in the
value of gold related assets. Assets under management for USGAF averaged $130
million for the quarter ended September 30, 1998 versus $142 million for the
quarter ended September 30, 1997. This decrease in average assets is
attributable to a decrease in assets in the Bonnel Growth Fund.
REVENUES
Total consolidated revenues decreased approximately $850,000 (29%) primarily due
to a 31% decrease in management advisory fees due to a decline in assets under
management, and a 100% decrease in accounting fees, as the Company outsourced
the bookkeeping and accounting functions previously performed by USSI.
Earnings before interest and investment income (expense), taxes, depreciation
and amortization (EBITDA) decreased approximately $354,000 (96%) to $13,000
($0.00 per share) from $367,000 ( $0.09 per share). This was primarily due to a
decrease in operating revenues of $768,000 which was partially offset by a
corresponding decrease in general and administration expenses of over $458,000.
EXPENSES
Total consolidated expenses for the three months ended September 30, 1998,
decreased approximately $465,000. This is attributable to a decrease in general
and administrative expenses of the Company of $458,000 (4%) for the quarter
ended September 30, 1998, resulting from decreases in sales promotion and fund
reimbursement expenditures.
LIQUIDITY AND CAPITAL RESOURCES
INVESTMENT ACTIVITIES
Management believes it can more effectively manage the Company's cash position
by broadening the types of investments utilized in cash management. Management
believes that such activities are in the best interest of the Company. These
activities are reviewed by Company compliance personnel and reported to
investment
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 11
advisory clients. On September 30, 1998, the Company held approximately
$1.2 million in investment securities. The value of these investments is
approximately 16% of total assets and 21%of shareholders' equity at quarter end.
Of the $1.2 million in investment securities, the Company classified ap-
proximately $790,000 as trading securities and approximately $420,000 as
available-for-sale securities. Available-for-sale securities are primarily
private placements that management expects will become free-trading within
one year. During the three months ended September 30, 1998, net realized gains
from the sale of investments aggregated approximately $2,000, compared to
approximately $4,000 for the three months ended September 30, 1997. The net
change in the unrealized holding loss on trading securities held at September
30, 1998 and 1997 that has been included in earnings for the three-month period
is $124,114 and $80,606, respectively.
FEE WAIVERS & 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 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.
TAX LOSS CARRYFORWARDS
Management assessed the likelihood of realization of the recorded deferred tax
asset at September 30, 1998. Net operating losses (NOLs) of $1.5 million,
primarily resulting from the non-cash charge to earnings related to the purchase
of certain government agency notes during fiscal 1995, do not expire until
fiscal 2010. A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax amount will not be realized. As such,
management has included a valuation allowance of approximately $125,000 at
September 30, 1998, providing for the utilization of NOLs, charitable
contributions, and investment tax credits against future taxable income.
SETTLEMENT POOL
In June 1992, the Company made its final payment to the settlement pool
established under the June 1988 settlement agreement relating to the original
Prospector Fund (now operating as the Global Resources Fund), and the settlement
pool made the final payout to "Eligible Shareholders" thereof. Under the
agreement, any amounts payable to "Eligible Shareholders" who could not be
located, together with interest thereon, would be held until June 22, 1998. At
that time, such amounts would be made available to all persons claiming
subrogation. The Company had first right of subrogation to these amounts. As
such, the Company subsequently received approximately $676,000 in July 1998,
thus relieving the outstanding residual equity interest.
YEAR 2000 READINESS
The Company has taken an inventory of all hardware, software, networks and other
various processing platforms, and customer and vendor interdependencies. The
Company has initiated formal communications with all of its significant
suppliers and vendors to determine the extent to which the Company is vulnerable
to third-party failure to remedy their own Y2K issues.
The Company is utilizing internal resources to reprogram, replace and test the
software and hardware for Y2K modifications. Management currently anticipates
that the project will be completed no later than June 30, 1999, and will not
have a material impact on the Company's financial results or position.
The Company has begun to develop Year 2000 contingency plans, in accordance with
its regular disaster recovery plans. While the Company has taken measures
reasonably designed to prevent a negative impact resulting from the Year 2000
issue, there can be no assurance that factors outside the Company's control will
not disrupt its operations.
CONCLUSION
Management believes current cash reserves of $1.7 million, plus 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, as well as allow the Company to take advantage of investment
opportunities whenever available.
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 12
ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statements No. 130, Reporting Comprehensive Income
("SFAS 130"). SFAS 130 establishes 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 requires
that all items that are recognized under accounting standards as components of
comprehensive income be reported in a statement of financial performance.
Although the Statement does not address disclosure format, it requires an
enterprise to (a) represent total comprehensive income for the financial
statement period, (b) classify items of other comprehensive income by their
nature in a financial statement and (c) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. This
Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company plans to adopt SFAS 130 in fiscal
year 1999. Management has not yet determined the manner in which comprehensive
income might be displayed.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for reporting information in the annual financial statements about a
public entity's operating segments and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. SFAS 131 also establishes standards for related
disclosures regarding products and services, geographic areas, and major
customers. This Statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The Company plans
to adopt SFAS 131 in fiscal year 1999. Management has not yet completed its
determination of what, if any, impact the "management approach" will have on its
financial statement disclosures.
In February 1998, the FASB issued Statement No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits ("SFAS 132"). SFAS 132
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, and requires additional information on
changes in the benefit obligations and fair values of plan assets that will
facilitate financial analysis. As the Company does not offer pension or other
postretirement benefits, it is not anticipated this Statement will impact the
Company.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
imbedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS 133 generally provides for matching the timing of gain or
loss recognition on the hedging instrument with the recognition of (a) the
changes in fair value of the hedged asset or liability or (b) the earnings of
the hedged forecasted transaction. This Statement is effective for fiscal years
beginning after June 15, 1999. Management is evaluating the impact of the
Statement on the Company.
The Accounting Standards Executive Committee (AcSEC) recently issued Statement
of Position (SOP) 98-5, Reporting on the Costs of Start-up Activities. The SOP
requires the costs of start-up activities to be expensed as incurred. In a
change from the Exposure Draft, start-up activities now include organization
costs, which could have significant ramifications to certain mutual funds. The
SOP applies to all nongovernmental entities and to start-up costs of
development-stage entities as well as established operating entities. The SOP is
effective for fiscal years beginning after December 15, 1998, except for certain
investment companies (primarily open-end investment funds), which must apply the
SOP prospectively beginning June 30, 1998. The adoption of this Statement is not
expected to materially impact the financial position or results of operations of
the Company.
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's balance sheet includes assets whose fair value is subject to
market risks. As of September 30, 1998 and June 30, 1998, the Company held
approximately $1.2 and $1.4 million, respectively, in securities (trading and
available-for-sale categories) other than USGIF money market mutual fund shares.
The decrease in the value of investment securities for the quarter ended
September 30, 1998 was due primarily to unrealized losses on securities held by
the Company as well as trading activity.
Management believes it can more effectively manage the Company's cash position
by broadening the types of investments utilized in cash management. Management
attempts to maximize the Company's cash position by using a diversified venture
capital approach to investing. Strategically, management invests in early-stage
or start-up businesses seeking initial financing as well as more mature
businesses in need of capital for expansion, acquisitions, management buyouts or
recapitalization. The Company also uses other investment techniques such as
private placement arbitrage. This involves the contemporaneous purchase of a
quantity of an issuer's securities at a discount in a private placement and a
short sale of the same, or substantially the same, security in the public
market.
Due to the Company's investments in equity securities, equity price fluctuations
represent a market risk factor affecting the Company's consolidated financial
position. The carrying values of investments subject to equity price risks are
based on quoted market prices or management's estimate of fair value as of the
balance sheet date. Market prices fluctuate and the amount realized in the
subsequent sale of an investment may differ significantly from the reported
market value. The Company's investment activities are reviewed by Company
compliance personnel and reported to investment advisory clients.
The table below summarizes the Company's equity price risks as of September 30,
1998, and shows the effects of a hypothetical 25 percent increase and a 25
percent decrease in market prices. A comparison of quarter-end stock prices on
the individual stocks within the Company's equity portfolios over the three
years ending June 30, 1998, indicated that the change from one quarter to the
next was 25 percent or less approximately 90 percent of the time.
Estimated Hypothetical
Fair Value after Percentages
Fair Value at Hypothetical Hypothetical Increase (Decrease) in
September 30, 1998 Price Change Change in Prices Shareholders' Equity
------------------ ---------------- ---------------- ----------------------
Trading Securities $794,156 25% increase $ 992,695 $ 131,036
25% decrease $ 595,617 $(131,036)
Available-for-sale $417,690 25% increase $ 522,113 $ 68,919
25% decrease $ 313,267 $ (68,919)
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.
September 30, 1998, Quarterly Report on Form 10-Q Page 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
1. Exhibits
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
2. Reports on Form 8-K
None
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 15
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: November 12, 1998 BY: /s/ Susan B. McGee
---------------------------------
Susan B. McGee
President
Corporate Secretary
General Counsel
DATED: November 12, 1998 BY: /s/ David J. Clark
--------------------------------
David J. Clark
Chief Financial Officer
Chief Operating Officer
DATED: November 12, 1998 BY: /s/ J. Michael Edwards
--------------------------------
J. Michael Edwards
Chief Accounting Officer
U.S. Global Investors, Inc.
September 30, 1998, Quarterly Report on Form 10-Q Page 16
EXHIBIT 11--SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
Quarter Ended September 30,
1998 1997
---------- ----------
Net earnings $ (332,103) $ 114,545
========== ==========
BASIC
Weighted average number shares
outstanding during the year: 6,624,639 6,609,027
Basic earnings (loss) per share $ (0.05) $ 0.02
========== ==========
DILUTED
Weighted average number shares
outstanding during the year: 6,624,639 6,609,027
Effect of dilutive securities:
Common stock equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon exercise
of preferred or common stock options 1,384 68,851
---------- ----------
Weighted average number of shares used in
calculation of diluted earnings per share 6,626,023 6,677,878
========== ==========
Diluted earnings (loss) per share $ (0.05) $ 0.02
========== ==========