UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


þ		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

~~[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

For the Fiscal Year Ended June 30, ~~2004~~2005

~~[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~


o		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.

Incorporated in the State of Texas

IRS Employer Identification No. 74-1598370

Principal Executive Offices:
7900 Callaghan Road
San Antonio, Texas 78229
Telephone Number: 210-308-1234

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Class A common stock
($0.05 par value per share)

Registered: ~~Nasdaq~~NASDAQ Small Cap Issues

Indicate by check mark whether the Company (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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ~~[X] No[ ]~~

þNoo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.~~[ ]~~

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).Yes ~~[ ]~~o Noþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yeso No ~~[X]~~

The aggregate market value of the ~~4,650,804~~4,079,317 shares of nonvoting class A common stock held by nonaffiliates of the registrant on September 9, ~~2004,~~2005, based on the last sale price on ~~Nasdaq~~NASDAQ as of December 31, ~~2003,~~2004, was ~~$19,998,457.~~$16,725,200. Registrant’s only voting stock is its class C common stock, par value of $0.05 per share, for which there is no active market. The aggregate value of the 104,589 shares of the class C common stock held by nonaffiliates of the registrant on December 31, ~~2003~~2004 (based on the last sale price of the class C common stock in a private transaction) was $52,295. For purposes of this disclosure only, the registrant has assumed that its directors, executive officers, and beneficial owners of 5% or more of the registrant’s common stock are affiliates of the registrant.

On September 9, ~~2004,~~2005, there were ~~6,311,974~~6,319,974 shares of Registrant’s class A nonvoting common stock issued and ~~5,976,465~~5,999,714 shares of Registrant’s class A nonvoting common stock issued and outstanding, no shares of Registrant’s class B nonvoting common stock outstanding, and 1,496,800 shares of Registrant’s class C common stock issued and outstanding.

Documents incorporated by reference: None

Table of Contents


Part I of Annual Report on Form 10-K			1
Item 1. Business			1
Item 2. Properties			45
Item 3. Legal Proceedings			45
Item 4. Submission of Matters to a Vote of Security Holders			45
Part II of Annual Report on Form 10-K			6
Item 5. Market for Company’s Common Equity and Related Shareholder Matters			56
Item 6. Selected Financial Data			67
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			79
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			1316
Item 8. Financial Statements and Supplementary Data			1418
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			3336
Item 9A. Controls and Procedures			3337
Part III of Annual Report on Form 10-K			38
Item 10. Directors and Executive Officers of the Company			3438
Item 11. Executive Compensation			3640
Item 12. Security Ownership of Certain Beneficial Owners and Management			4044
Item 13. Certain Relationships and Related Transactions			4246
Item 14. Principal Accounting Fees and Services			4347
Part IV of Annual Report on Form 10-K			48
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K			4448
Signatures			4852
Exhibit ~~14.01 -~~14.02 — Code of Ethics ~~for Principal Executive and Senior Financial Officer~~
Exhibit 21 -— Subsidiaries of the Company, Jurisdiction of Incorporation, and Percentage of Ownership
Exhibit 31.1 — Rule 13a - ~~Rule 13a-14(a) Certificaitons~~14(a) Certifications (under Section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.1 -— Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)
Code of Ethics
List of Subsidiaries
Rule 13a-14(a) Certifications under Section 302
Section 1350 Certifications under Section 906

Part I of Annual Report on Form 10-K

Item 1. Business

U.S. Global Investors, Inc. (Company or U.S. Global) has made forward-looking statements concerning the Company’s performance, financial condition, and operations in this 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.

This discussion reviews and analyzes the consolidated results of operations for the past three fiscal years and other factors that may affect future financial performance. This discussion should be read in conjunction with the Consolidated Financial Statements, Notes to the Consolidated Financial Statements, and Selected Financial Data.

U.S. Global, a Texas corporation organized in 1968, and its wholly owned subsidiaries are in the mutual fund management business. The Company is a registered investment adviser under the Investment Advisers Act of 1940 and is principally engaged in the business of providing investment advisory and other services, through the Company or its subsidiaries, to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts (collectively, the Trusts or Funds). USGIF and USGAF are investment companies offering shares of nine and ~~three~~four mutual funds, respectively, on a no-load basis.

As part of the mutual fund management business, the Company provides: (1) investment advisory services through the Company or its subsidiaries to institutions (namely, mutual funds) and other persons; (2) transfer agency and record keeping services; (3) mailing services; and (4) distribution services, through its wholly owned broker/dealer, to mutual funds advised by the Company. The fees from investment advisory and transfer agent services, as well as investment income, are the primary sources of the Company’s revenue.

Domestic Funds under Management


			AUM at June 30, 2005
Fund	Ticker	Category	in thousands
U.S. Global Investors Funds
All American Equity	GBTFX	Large cap core	$	19,296
China Region	USCOX	China region		30,513
Global Resources	PSPFX	Natural resources		486,625
Gold Shares	USERX	Gold oriented		67,463
Near-Term Tax Free	NEARX	Short / intermediate municipal debt		18,675
Tax Free	USUTX	General municipal debt		22,371
U.S. Government Securities Savings	UGSXX	U.S. Government money market		410,484
U.S. Treasury Securities Cash	USTXX	U.S. Government money market		111,255
World Precious Minerals	UNWPX	Gold and precious minerals		276,826
U.S. Global Accolade Funds
Eastern European	EUROX	Emerging markets		594,611
Global Emerging Markets⁽¹⁾	GEMFX	Emerging markets		10,835
Holmes Growth	ACBGX	Mid-cap growth		65,587
MegaTrends	MEGAX	Large-cap growth		13,763

Total AUM at June 30, 2005			$	2,128,304


⁽¹⁾		The Global Emerging Markets Fund was launched on February 24, 2005.

The Company also provides management and advisory services to two offshore funds: the Meridian Global Gold and Resources Fund Ltd., established in the first quarter of fiscal 2005 and the U.S. Global Investors Balanced Natural Resources Fund, Ltd., established on July 1, 2005, subsequent to the Company’s fiscal year end.

In addition to ~~managing USGIF and USGAF,~~mutual fund activity, the Company is actively engaged in trading for its ~~proprietary~~own account. 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.

Lines of Business

Investment Management Services

Investment Advisory Services.The Company furnishes an investment program for each of the mutual funds it manages and determines, subject to overall supervision by the boards of trustees of the funds, the funds’ investments pursuant to advisory agreements (Advisory Agreements). Consistent with the investment restrictions, objectives and policies of the particular fund, the portfolio team for each fund determines what investments should be purchased, sold and held, and makes changes in the portfolio deemed to be necessary or appropriate. In the Advisory Agreements, the Company is charged with seeking the best overall terms in executing portfolio transactions and selecting brokers or dealers.

The Company also manages, supervises, and conducts certain other affairs of the funds, subject to the control of the boards of trustees. It provides office space, facilities, and certain business equipment as well as the services of executive and clerical personnel for administering the affairs of the mutual funds. U.S. Global and its affiliates compensate all personnel, officers, directors, and interested trustees of the funds if such persons are also employees of the Company or its affiliates. However, the funds are required to reimburse the Company for a portion of the compensation of the Company’s employees who perform certain state and federal securities law regulatory compliance work on behalf of the funds based upon the time spent on such matters. The Company is responsible for costs associated with marketing fund shares to the extent not otherwise covered by any fund distribution plans adopted pursuant to Investment Company Act Rule 12b-1 (12b-1 Plan).

As required by the Investment Company Act of 1940, the Advisory Agreements are subject to annual renewal and are terminable upon 60-day notice. The boards of trustees of USGIF and USGAF will consider renewal of the applicable agreements in February and May ~~2005,~~2006, respectively. Management anticipates that the Advisory Agreements will be renewed.

Transfer Agent and Other Services.The Company’s wholly owned subsidiary, United Shareholder Services, Inc. (USSI), is a transfer agent registered under the Securities Exchange Act of 1934 providing transfer agency, lockbox, and printing services to investment company clients. The transfer agency utilizes a third-party external system providing the Company’s fund shareholder communication network with computer equipment and software designed to meet the operating requirements of a mutual fund transfer agency.

The transfer agency’s duties encompass: (1) acting as servicing agent in connection with dividend and distribution functions; (2) performing shareholder account and administrative agent functions in connection with the issuance, transfer and redemption, or repurchase of shares; (3) maintaining such records as are necessary to document transactions in the funds’ shares; (4) acting as servicing agent in connection with mailing of shareholder communications, including reports to shareholders, dividend and distribution notices, and proxy materials for shareholder meetings; and (5) investigating and answering all shareholder account inquiries.

The transfer agency agreements provide that USSI will receive, as compensation for services rendered as transfer agent, an annual fee per account, and will be reimbursed for out-of-pocket expenses. In connection with obtaining/providing administrative services to the beneficial owners of fund shares through institutions that provide such services and maintain an omnibus account with USSI, each fund pays a monthly fee based on the number of accounts or the value of the shares of the fund held in accounts at the institution, which payment shall not exceed the per account charge on an annual basis.

The transfer agency agreements with USGIF and USGAF are subject to renewal on an annual basis and are terminable upon 60-day notice. The agreements will be considered for renewal by the boards of trustees of USGIF and of USGAF in February and May ~~2005,~~2006, respectively, and management anticipates that the agreements will be renewed.

Other Advisory Services.In addition to providing mutual fund management and transfer agent services to USGIF and USGAF funds, the Company provides management and advisory services to two offshore funds: the Meridian Global Gold and Resources Fund Ltd., established in the first quarter of fiscal 2005, and the U.S. Global Investors Balanced Natural Resources Fund, Ltd., established on July 1, 2005, subsequent to the Company’s fiscal year end.

Brokerage Services.The Company has registered its wholly owned subsidiary, U.S. Global Brokerage, Inc. (USGB), with the National Association of Securities Dealers (NASD), the Securities and Exchange Commission (SEC), and appropriate state regulatory authorities as a limited-purpose broker/dealer for the purpose of distributing USGIF and USGAF fund shares. Effective September 3, 1998, USGB became the distributor for USGIF and USGAF fund shares. For the fiscal year ended

June 30, ~~2004,~~2005, the Company ~~has~~ capitalized USGB with approximately ~~$2,376,000~~$4,151,000 to cover the costs associated with continuing operations.

Mailing Services.A&B Mailers, Inc., a wholly owned subsidiary of the Company, provides mail-handling services to various entities. A&B Mailers’ primary customers include the Company in connection with its efforts to promote the funds and the Company’s investment company clients in connection with required mailings.

Corporate Investments

Investment Activities.In addition to mutual fund activity, the Company attempts to maximize its cash position by using a diversified venture capital approach to investing. Management invests in early-stage or start-up businesses seeking initial financing and more mature businesses in need of capital for expansion, acquisitions, management buyouts, or recapitalization.

~~Employees~~

Employees

As of June 30, ~~2004,~~2005, U.S. Global and its subsidiaries employed 6164 full-time employees and 43 part-time employees; as of June 30, ~~2003,~~2004, it employed 5661 full-time employees and 54 part-time employees. The Company considers its relationship with its employees to be good.

Competition

The mutual fund industry is highly competitive. Recent reports show there are approximately 8,000 domestically registered open-end investment companies of varying sizes and investment policies whose shares are being offered to the public worldwide. Generally, there are two types of mutual funds: “load” and “no-load.” In addition, there are both load and no-load funds that have adopted 12b-1 plans authorizing the payment of distribution costs of the funds out of fund assets, such as USGAF. Load funds are typically sold through or sponsored by brokerage firms, and a sales commission is charged on the amount of the investment. No-load funds, such as the USGIF and USGAF funds, however, may be purchased directly from the particular mutual fund organization or through a distributor, and no sales commissions are charged.

In addition to competition from other mutual fund managers and investment advisers, the Company and the mutual fund industry are in competition with various investment alternatives offered by insurance companies, banks, securities dealers, and other financial institutions. Many of these institutions are able to engage in more liberal advertising than mutual funds and may offer accounts at competitive interest rates, which are insured by federally chartered corporations such as the Federal Deposit Insurance Corporation. Amendments to, and regulatory pronouncements related to, the Glass-Stegall Act, the statute that has prohibited banks from engaging in various activities, are enabling banks to compete with the Company in a variety of areas.

A number of mutual fund groups are significantly larger than the funds managed by U.S. Global, offer a greater variety of investment objectives, and have more experience and greater resources to promote the sale of investments therein. However, the Company believes it has the resources, products, and personnel to compete with these other mutual funds. In particular, the company is known for its expertise in the gold mining and exploration and natural resources industries. Competition for sales of fund shares is influenced by various factors, including investment objectives and performance, advertising and sales promotional efforts, distribution channels, and the types and quality of services offered to fund shareholders.

Success in the investment advisory and mutual fund share distribution businesses is substantially dependent on each fund’s investment performance, the quality of services provided to shareholders, and the Company’s efforts to market the funds effectively. Sales of fund shares generate management fees (which are based on assets of the funds) and transfer agent fees (which are based on the number of fund accounts). Costs of distribution and compliance ~~have~~continue to put pressure on profit margins for the mutual fund industry.

Supervision and Regulation

The Company, USSI, USGB, and the investment companies it manages and administers operate under certain laws, including federal and state securities laws, governing their organization, registration, operation, legal, financial, and tax status. Among the penalties for violation of the laws and regulations applicable to the Company and its subsidiaries are fines, imprisonment, injunctions, revocation of registration, and certain additional administrative sanctions. Any determination that the Company or its management has violated applicable laws and regulations could have a material adverse effect on the business of the Company. Moreover, there is no assurance that changes to existing laws, regulations, or rulings promulgated by governmental entities having jurisdiction over the Company and the funds will not have a material adverse effect on its business. The Company has no control over regulatory rulemaking or the consequences it may have on the mutual fund industry.

Recent and accelerating regulatory pronouncements and oversight have significantly increased the burden of compliance infrastructure with respect to the mutual fund industry and the capital markets.

This momentum of new regulations has contributed significantly to the costs of managing and administering mutual funds.

U.S. Global is a registered investment adviser subject to regulation by the SEC pursuant to the Investment Advisers Act of 1940, the Investment Company Act of 1940, and the Securities Exchange Act of 1934 (1934 Act). USSI is also subject to regulation by the SEC under the 1934 Act. USGB is subject to regulation by the SEC under the 1934 Act and regulation by the NASD, a self-regulatory organization composed of other registered broker/dealers. U.S. Global, USSI, and USGB are required to keep and maintain certain reports and records, which must be made available to the SEC and the NASD upon request. Moreover, the funds managed by the Company are subject to regulation and periodic reporting under the Investment Company Act of 1940 and, with respect to their continuous public offering of shares, the registration provisions of the Securities Act of 1933.

Relationships with the Funds

The businesses of the Company are, to a very significant degree, dependent on their associations and contractual relationships with the Funds. In the event the advisory or transfer agent services agreements with USGIF or USGAF are canceled or not renewed pursuant to the terms thereof, the Company would be substantially adversely affected. U.S. Global, USSI, and USGB consider their relationships with the Funds to be good, and they have no reason to believe that their management and service contracts will not be renewed in the future; however, there is no assurance that USGIF and USGAF will choose to continue their relationships with the Company, USSI, or USGB.

Item 2. Properties

The Company presently owns and occupies an office building as its headquarters in San Antonio, Texas. The office building is approximately 46,000 square feet on approximately 2.5 acres of land. The note payable related to the building was paid in full in fiscal 2004.

Item 3. Legal Proceedings

There are no material legal proceedings in which the Company is involved. There are no material legal proceedings to which any director, officer or affiliate of the Company or any associate of any such director or officer is a party or has a material interest, adverse to the Company or any of its subsidiaries.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during fiscal year ~~2004.~~

2005.

Part II of Annual Report on Form 10-K

Item 5. Market for Company’s Common Equity and Related Shareholder Matters

Market Information

The Company has three classes of common equity: class A, class B and class C common stock, par value $0.05 per share.

There is no established public trading market for the Company’s class B and class C common stock.

The Company’s class A and class B common stock have no voting privileges.

The Company’s class A common stock is traded over-the-counter and is quoted daily under ~~Nasdaq’s~~NASDAQ’s Small Cap Issues. Trades are reported under the symbol “GROW.”

The following table sets forth the range of high and low sales prices from ~~Nasdaq~~NASDAQ for the fiscal years ended June 30, ~~2004~~2005 and ~~2003.~~2004. The quotations represent prices between dealers and do not include any retail markup, markdown, or commission.

Sales Price


	2004				2003				2005				2004
	High ($)		Low ($)		High ($)		Low ($)		High ($)		Low ($)		High ($)		Low ($)
First quarter (9/30)		2.73		1.85		2.250		1.280		3.56		2.80		2.73		1.85
Second quarter (12/31)		5.00		2.00		2.449		0.970		4.47		2.90		5.00		2.00
Third quarter (3/31)		4.55		3.60		2.580		1.860		6.49		3.42		4.55		3.60
Fourth quarter (6/30)		5.20		2.39		2.079		1.520		6.50		4.39		5.20		2.39

Holders

On September 9, ~~2004,~~2005, there were ~~196~~200 holders of record of class A common stock, no holders of record of class B common stock, and 71 holders of record of class C common stock.

Many of the class A common shares are held of record by nominees, and management believes that as of September 9, ~~2004,~~2005, there were approximately 1,000 beneficial owners of the Company’s class A common stock.

Dividends

The Company has not paid cash dividends on its class C common stock during the last ~~twenty~~twenty-one fiscal years and has never paid cash dividends on its class A common stock. Payment of cash dividends is within the discretion of the Company’s board of directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions.

Holders of the outstanding shares of the Company’s class A common stock are entitled to receive, when and as declared by the Company’s board of directors, a noncumulative cash dividend equal in the aggregate to 5% of the Company’s net after-tax earnings for its prior fiscal year. After such dividend has been paid, the holders of the outstanding shares of class B common stock are entitled to receive, when and as declared by the Company’s board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A common stock. Holders of the outstanding shares of class C common stock are entitled to receive when and as declared by the Company’s board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A and class B common stock. Thereafter, if the board of directors determines to pay additional cash dividends, such dividends will be paid simultaneously on a prorated basis to holders of class A, B, and C common stock. The holders of the class A common stock are protected in certain instances against dilution of the dividend amount payable to such holders.

Purchases of equity securities by the issuer

The following table provides information regarding the Company’s repurchases of shares of its class A common stock during the fiscal year ended June 30, 2005. There were no repurchases of class B or class C common stock during the fiscal year.

Issuer Purchases of Equity Securities
Fiscal Year Ended 6/30/05


									Maximum
									Number of
	Total						Total Number of		Shares that May
	Number of		Total		Average		Shares Purchased		Yet Be
	Shares		Amount		Price Paid		as Part of Publicly		Purchased Under
Period	Purchased		Purchased		Per Share		Announced Plan		the Plan
07-01-04 to 07-31-04		—		—	$	—		N/A		N/A
08-01-04 to 08-31-04		—		—		—		N/A		N/A
09-01-04 to 09-30-04		—		—		—		N/A		N/A
10-01-04 to 10-31-04		—		—		—		N/A		N/A
11-01-04 to 11-30-04		987	$	3,510		3.56		N/A		N/A
12-01-04 to 12-31-04		300		1,023		3.41		N/A		N/A
01-01-05 to 01-31-05		—		—		—		N/A		N/A
02-01-05 to 02-28-05		—		—		—		N/A		N/A
03-01-05 to 03-31-05		400		2,370		5.92		N/A		N/A
04-01-05 to 04-30-05		—		—		—		N/A		N/A
05-01-05 to 05-31-05		177		1,012		5.72		N/A		N/A
06-01-05 to 06-30-05		1,116		6,053		5.42		N/A		N/A
Total		2,980	$	13,968	$	4.69		N/A		N/A

Item 6. Selected Financial Data

The following selected financial data is qualified by reference to, and should be read in conjunction with, the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in this Form 10-K. The selected financial data as of June 30, 2004, through June 30, 2005, and the ~~year~~years then ended, is derived from the Company’s Consolidated Financial Statements, which were audited by BDO Seidman, LLP, independent registered public accountants. The selected financial data as of June 30, ~~2000,~~2001, through June 30, 2003, and the years then ended is derived from the Company’s Consolidated Financial Statements, which were audited by Ernst & Young LLP, independent registered public accountants.

Selected Year ended June 30,
Financial Data
2004
2003
2002
2001
2000
Revenues $ 12,983,500 $ 7,478,936 $ 7,767,514 $ 8,893,884 $ 10,912,764
Expenses 10,141,019 7,817,883 8,104,299 9,652,382 10,495,271

Income (loss) before equity interest, gain on litigation settlement and income taxes 2,842,481 (338,947 ) (336,785 ) (758,498 ) 417,493
Equity in income (loss) of affiliate — — — — 51,739
Gain on litigation settlement — 371,057 — — —
Income tax (benefit) expense 675,839 (10,502 ) (95,351 ) 36,181 (26,526 )

Net income (loss) $ 2,166,642 $ 42,612 $ (241,434 ) $ (794,679 ) $ 495,758
Basic income (loss) per share 0.29 0.01 (0.03 ) (0.11 ) 0.07
Working capital 5,267,573 3,562,885 2,930,974 3,246,792 3,138,009
Total assets 9,356,596 7,439,687 7,905,021 7,912,184 9,118,624
Long-term obligations — 988,536 1,067,967 1,135,903 1,197,961
Shareholders’ equity 8,485,346 5,673,689 5,580,059 5,715,520 6,484,486
Net cash provided by operations 2,669,928 128,916 6,239 132,855 1,255,844
Net cash (used in) provided by investing activities (30,328 ) 147,470 (274,750 ) (71,534 ) (859,504 )
Net cash used in financing activities (970,167 ) (103,079 ) (76,475 ) (84,302 ) (64,684 )


Selected	Year ended June 30,
Financial Data	2005			2004			2003			2002			2001
Revenues	$	16,981,339		$	12,983,500		$	7,478,936		$	7,767,514		$	8,893,884
Expenses		14,744,897			10,141,019			7,817,883			8,104,299			9,652,382

Income (loss) before gain on litigation settlement and income taxes		2,236,442			2,842,481			(338,947	)		(336,785	)		(758,498	)
Gain on litigation settlement		—			—			371,057			—			—
Income tax expense (benefit)		789,971			675,839			(10,502	)		(95,351	)		36,181

Net income (loss)		1,446,471		$	2,166,642		$	42,612		$	(241,434	)	$	(794,679	)
Basic income (loss) per share		0.19			0.29			0.01			(0.03	)		(0.11	)
Working capital		7,078,544			5,267,573			3,562,885			2,930,974			3,246,792
Total assets		12,102,515			9,356,596			7,439,687			7,905,021			7,912,184
Long-term obligations		—			—			988,536			1,067,967			1,135,903
Shareholders’ equity		9,903,088			8,485,346			5,673,689			5,580,059			5,715,520
Net cash provided by operations		986,120			2,669,928			128,916			6,239			132,855
Net cash (used in) provided by investing activities		(67,634	)		(30,328	)		147,470			(274,750	)		(71,534	)
Net cash provided by (used in) financing activities		64,016			(970,167	)		(103,079	)		(76,475	)		(84,302	)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Segments

U.S. Global Investors, Inc. (Company or U.S. Global), with principal operations located in San Antonio, Texas, manages two business segments: (1) the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors, and (2) the Company invests for its own account in an effort to add growth and value to its cash position. For more details on the results of our core operations, see Note ~~15 –~~14 — Financial Information by Business Segment.

The Company generates substantially all its operating revenues from the investment management of products and services for the U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF). Although the Company generates the majority of its revenues from this segment, the Company holds a significant amount of its total assets in ~~proprietary~~ investments. As of June 30, ~~2004,~~2005, the Company held approximately ~~$2.9~~$3.5 million in investments, comprising ~~30.3%~~28.9% of its total assets. The following is a brief discussion of the Company’s two business segments.

Investment Management Products and Services

~~The Company generates substantially all of its operating revenues from managing and servicing USGIF and USGAF. These~~

Investment management revenues are largely dependent on the total value and composition of assets under ~~its~~ management. Fluctuations in the markets and investor sentiment directly impact the funds’ asset levels, thereby affecting income and results of operations. During fiscal year ~~2004,~~2005, total average assets under management increased ~~25.5%~~31.9% to ~~$1.34~~$1.77 billion, primarily due to significant increases in the ~~Company’s gold,~~ natural resource and foreign equity ~~funds. The Company realized~~funds under management, through both net inflows ~~into these funds as well as~~and market appreciation. This favorable trend has been partially offset by a reduction in assets in the money market funds as investors seek alternative short-term investments with higher yields.

Average Assets under Management
(Dollars in Millions)

2004
2003
% Change
2003
2002
% Change
USGIF – Money Market $ 609 $ 746 (18.4 )% $ 746 $ 872 (14.4 )%
USGIF – Other 549 224 145.1 % 224 167 34.1 %

USGIF – Total 1,158 970 19.4 % 970 1,039 (6.6 )%
USGAF 186 101 84.2 % 101 126 (19.8 )%

Total $ 1,344 $ 1,071 25.5 % $ 1,071 $ 1,165 (8.1 )%


	2005		2004		% Change			2004		2003		% Change
USGIF — Money Market	$	547	$	609		(10.2	%)	$	609	$	746		(18.4	)%
USGIF — Other		721		549		31.3	%		549		224		145.1	%

USGIF — Total		1,268		1,158		9.5	%		1,158		970		19.4	%
USGAF		505		186		171.5	%		186		101		84.2	%

Total	$	1,773	$	1,344		31.9	%	$	1,344	$	1,071		25.5	%

Investment Activities

Management believes it can more effectively manage the Company’s cash position by ~~broadening the~~maintaining certain types of investments ~~used~~utilized in cash ~~management. Management attempts~~management and continues to ~~maximize~~believe that such activities are in the ~~Company’s return~~best interest of the Company.

The following summarizes the market value, cost and unrealized gain or loss on ~~its cash position by using a diversified venture capital approach to investing. Strategically, management invests in early-stage or start-up businesses seeking initial financing~~investments as of June 30, 2005, and ~~more mature businesses in need of capital for expansion, acquisitions, management buyouts, or recapitalization. Management has reduced these activities in recent years due to poor market conditions.~~

June 30, 2004.


								Unrealized
								holding gains on
								available-for-sale
					Unrealized Gain			securities, net of
Securities	Market Value		Cost		(Loss)			34% tax
Trading¹	$	2,612,529	$	3,040,700	$	(428,171	)		—
Available for sale²		890,461		299,055		591,406		$	390,328

Total at June 30, 2005		3,502,990		3,339,755		163,235


Trading¹		1,672,354		1,857,171		(184,817	)		—
Available for sale²		1,212,742		405,055		807,687		$	533,074

Total at June 30, 2004	$	2,885,096	$	2,262,226	$	622,870


¹		Unrealized and realized gains and losses on trading securities are included in earnings in the statement of operations.

²		Unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other comprehensive income as a separate component of shareholders’ equity until realized.

As of June 30, ~~2004,~~2005, and ~~2003,~~2004, the Company held approximately ~~$2.9~~$2.0 and ~~$1.1~~$2.6 million, respectively, in investments other than USGIF, ~~money~~USGAF and its subadvised offshore funds.

Investments in securities classified as trading are reflected as current assets on the consolidated balance sheet at their fair market ~~mutual fund shares.~~

value. Unrealized holding gains and losses on trading securities are included in earnings in the consolidated statements of operations and comprehensive income. Investments in securities classified as available for sale, which may not be readily marketable, are reflected as non-current assets on the consolidated balance sheet at their fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income as a separate component of shareholders’ equity until realized.

Investment income (loss) from the Company’s investments includes:

	•		realized gains and losses on sales of securities;

	•		unrealized gains and losses on trading securities;

	•		realized foreign currency gains and losses;

	•		other-than-temporary impairments on available-for-sale securities; and

	•		dividend and interest income.

Investment income (loss) ~~does not remain at a consistent level~~can be volatile and ~~is dependent~~varies depending on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions. A significant portion of the unrealized gains and losses is concentrated in a small number of issuers. For fiscal years 2005, 2004, ~~2003,~~ and ~~2002,~~2003, the Company had net realized gains (losses) of approximately ($184,000), $291,000, ~~$(97,000)~~ and ~~$(49,000)~~($97,000), respectively. The Company expects that gains or losses will continue to fluctuate in the ~~future, as fluctuations in the market value of the Company’s investments will affect the amounts of such gains or losses.~~future.

Consolidated Results of Operations

The following is a discussion of the consolidated results of operations of the Company and a ~~more~~ detailed discussion of the Company’s revenues and expenses.


	2004		2003		% Change			2003		2002			% Change			2005		2004		% Change			2004		2003		% Change
Net income (loss) (in thousands)	$	2,167	$	43		4,939.5	%	$	43	$	(241	)		117.8	%	$	1,446	$	2,167		(33.3	%)	$	2,167	$	43		4,939.5	%
Net income (loss) per share – basic and diluted	$	0.29	$	0.01		2,800.0	%	$	0.01	$	(0.03	)		133.3	%
Net income (loss) per share — basic and diluted																$	0.19	$	0.29		(34.5	%)	$	0.29	$	0.01		2,800.0	%
Weighted average shares outstanding (in thousands)
Basic		7,469		7,460					7,460		7,456						7,480		7,469					7,469		7,460
Diluted		7,533		7,469					7,469		7,456						7,564		7,533					7,533		7,469

Year Ended June 30, 2005, Compared with Year Ended June 30, 2004

The Company posted net after-tax income of $1,446,471 ($0.19 per share) for the year ended June 30, 2005, compared with net after-tax income of $2,166,642 ($0.29 per share) for the year ended June 30, 2004. The decrease in profitability is primarily attributable to the following factors:

	•		Consistent with continued growth in the Eastern European Fund, subadvisory fees increased by $1.7 million;

	•		Investment income decreased by $1.4 million, primarily due to unrealized losses on corporate investments classified as trading securities;

	•		General and administrative expenses increased $1.2 million due to additional consulting, communication, and marketing-related travel and entertainment costs;

	•		Driven by strong mutual fund performance, employee compensation expense increased by $0.9 million primarily due to higher incentive bonuses; and

	•		Omnibus fees increased by $0.9 million due to increased asset inflows through broker/dealer platforms.

These factors were somewhat offset by an overall increase in revenues of 30.8% in fiscal year 2005 to $16,981,339 primarily driven by the following:

	•		The Company’s advisory fees, boosted primarily by the positive impact of market gains and shareholder investments in natural resource and foreign equity funds, increased by 52.6%, or $4.8 million.

	•		Transfer agent fees increased by 24.1%, or $0.6 million, primarily as a result of growth in the number of shareholder accounts.

Year Ended June 30, 2004, Compared with Year Ended June 30, 2003

The Company posted a net after-tax ~~profit~~income of ~~$2,167,000~~$2,166,642 million ($0.29 per share) for the year ended June 30, 2004, compared with a net after-tax ~~profit~~income of ~~$43,000~~$42,612 ($.01 per share) for the year ended June 30, 2003. The profitability in fiscal year 2004 was primarily a result of improved markets for gold-related assets, natural resource commodities, and foreign ~~equities. The Company’s~~equities resulting in an increase in advisory fees ~~boosted by the positive impact~~ of ~~market gains and shareholder investments in higher-margin gold, natural resource, and foreign equity funds, increased by $3,889,000.~~$3.9 million. Additionally, the Company’s ~~proprietary~~ investment portfolio benefited from the rising gold markets, resulting in ~~unrealized gains on trading securities~~an increase in investment income of ~~$748,000 in fiscal 2004, compared to unrealized losses of $(34,000) for fiscal 2003.~~$1.4 million. These favorable items were partially offset by increases in general and administrative expenses of ~~$999,000,~~$1 million, due primarily to increased omnibus fees, and increases in subadvisory fees of ~~$496,000 due to market gains and increased shareholder investments.~~

$0.5 million.

~~Year Ended June 30, 2003, Compared with Year Ended June 30, 2002~~

The Company posted a net after-tax profit of $43,000 ($0.01 per share) for the year ended June 30, 2003, compared with a net after-tax loss of $241,000 ($0.03 loss per share) for the year ended June 30, 2002. The profitability in 2003 was principally due to revenue of $386,000 associated with other client advisory fees and a one-time gain of $371,000 related to the favorable settlement of a lawsuit. These items were offset by recognition of an other-than-temporary impairment on available-for-sale securities of $247,000.

811

Revenues


(Dollars in Thousands)	2004		2003			% Change			2003			2002			% Change			2005			2004		% Change			2004		2003			% Change
Investment advisory fees:
USGIF – Money market	$	1,744	$	2,297			(24.1	)%	$	2,297		$	2,710			(15.2	)%
USGIF – Other		4,668		1,562			198.8	%		1,562			1,110			40.7	%
USGIF — Money market																		$	1,638		$	1,744		(6.1	)%	$	1,744	$	2,297			(24.1	)%
USGIF — Other																			6,010			4,668		28.7	%		4,668		1,562			198.8	%

USGIF – Total		6,412		3,859			66.2	%		3,859			3,820			1.0	%
USGIF — Total																			7,648			6,412		19.3	%		6,412		3,859			66.2	%
USGAF		2,097		1,045			100.7	%		1,045			1,275			(18.0	)%		6,059			2,097		188.9	%		2,097		1,045			100.7	%
Other advisory fees		670		386			73.6	%		386			27			1,329.6	%		299			670		(55.4	)%		670		386			73.6	%

Total investment advisory fees		9,179		5,290			73.5	%		5,290			5,122			3.3	%		14,006			9,179		52.6	%		9,179		5,290			73.5	%
Transfer agent fees		2,610		2,327			12.2	%		2,327			2,574			(9.6	)%		3,187			2,610		22.1	%		2,610		2,327			12.2	%
Investment income (loss)		1,023		(345	)		396.5	%		(345	)		(168	)		105.4	%		(351	)		1,023		(134.3	)%		1,023		(345	)		396.5	%
Other revenues		171		207			(17.4	)%		207			240			13.8	%		139			171		(18.7	)%		171		207			(17.4	)%

Total	$	12,983	$	7,479			73.6	%	$	7,479		$	7,768			(3.7	)%	$	16,981		$	12,983		30.8	%	$	12,983	$	7,479			73.6	%

Investment Advisory Fees.Investment advisory fees, the largest component of the Company’s revenues, are derived from two sources: mutual fund advisory fees, which in fiscal ~~2004~~2005 accounted for ~~over 92%~~98% of the Company’s investment advisory fees, and other advisory fees, which accounted for the remainder.

Mutual fund investment advisory fees are calculated as a percentage of average net assets, ranging from 0.375% to ~~1.25%~~1.375%, and are paid monthly. Mutual fund investment advisory fees increased by approximately $5.2 million, or 61.1%, in fiscal 2005 over fiscal 2004. Advisory fees benefited from an increase in assets of the higher-margin foreign equity and natural resource funds, particularly in the USGAF Eastern European Fund, USGIF Global Resources Fund and USGIF World Precious Minerals Fund, due to market gains and net shareholder inflows. These funds have higher margins resulting from higher management fee rates.

The Company has agreed to waive or reduce its ~~fee revenues~~fees and/or pay expenses for ~~certain~~several USGIF funds and one USGAF fund through ~~June 30, 2005,~~November 1, 2006, and February 28, 2006, respectively, or such later date as the Company determines for purposes of enhancing the funds’ competitive market positions, in particular the money market and fixed income funds. The aggregate amount of fees waived and expenses borne by the Company totaled ~~$1,471,151, $1,509,060,~~approximately $1,332,000, $1,471,000, and ~~$1,530,046,~~$1,509,000, in 2005, 2004, ~~2003,~~ and ~~2002,~~2003, respectively. The Company expects to continue to waive fees and/or pay for fund expenses if 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.

Mutual fund investment advisory fees are also affected by changes in assets under management, which include:

	•		market appreciation or depreciation;

	•		the addition of new client accounts;

	•		client contributions of additional assets to existing accounts;

	•		withdrawals of assets from and termination of client accounts;

	•		exchanges of assets between accounts or products with different fee structures; and

	•		the amount of fees voluntarily reimbursed.

~~Mutual~~

The Company began providing management and advisory services for the Meridian Global Gold and Resources Fund Ltd., an offshore fund, ~~investment advisory fees increased by $3,605,000, or 73.5%,~~ in the first quarter of fiscal ~~2004 over fiscal 2003. Advisory fees benefited from~~year 2005. The Company initially had a fee arrangement for these services whereby it received a monthly subadvisory fee and an annual performance fee, if any, based on the overall increase in ~~assets~~value of the ~~higher-margin gold, natural resource,~~net assets in the fund for the calendar year. During the quarter ended March 31, 2005, the arrangement was changed to provide payment of performance fees on a quarterly rather than annual basis. The Company has recorded subadvisory and ~~foreign equity funds due~~performance fees totaling $299,000 for the fiscal year ended June 30, 2005.

Subsequent to ~~market gains~~fiscal year end, the Company began providing management and ~~net shareholder inflows. These funds have higher margins due~~advisory services to ~~higher~~the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund. For these services, the Company will be paid a monthly management fee ~~rates.~~ and a quarterly performance fee, if any.

The ~~increases were partially offset by continued net outflows~~Company also provided investment management services for a separate client through March 2004. The Company had a fee arrangement whereby it received an annual administrative fee plus a percentage of any gains from the sale of the securities in the ~~lower-margin money market funds as yields continued to decline.~~

~~Other advisory fees~~client account, payable at the settlement of the sales. The Company recorded $670,000 in ~~fiscal year~~revenue from this fee arrangement through March 2004, ~~consisted of a contractual advisory~~at which time the agreement with a client, for which the Company received advisory fees based on its unique expertise in global resource-based companies. These fees increased by $284,000, or 73.6%, due to the portfolio realizing a significant increase in market value.

~~The decrease in net advisory fees in fiscal year 2003 of approximately $168,000, or 3.3%, over fiscal year 2002~~ was ~~largely due to continued shareholder redemptions in the U.S. Government Securities Savings Fund.~~

terminated.

Transfer Agent Fees.United Shareholder Services, Inc., a wholly owned subsidiary of the Company, provides transfer agency, lockbox, and printing services for Company clients. The Company receives an annual fee per account as compensation for services rendered as transfer agent, and is reimbursed for out-of-pocket expenses associated with processing shareholder information. In addition, the

Company collects custodial fees on IRAs and other types of retirement plans invested in USGIF and USGAF. Transfer agent fees are therefore affected by the number of client accounts.

The increase in transfer agent fees in fiscal ~~year~~years 2005 and 2004 ~~of approximately $283,000, or 12.2% over fiscal year 2003,~~ was primarily a result of an increase in the number of mutual fund ~~shareholders from 79,856 to 85,751~~shareholder accounts due to improved performance of the ~~gold,~~ natural resource and foreign equity funds.

The decrease in transfer agent fees in fiscal year 2003 of approximately $247,000, or 9.6%, over fiscal year 2002, is primarily a result of a decrease in mutual fund shareholder accounts from 92,210 to 79,856. The decline in number of accounts serviced resulted from many smaller accounts in the funds closing due to the small account fee instituted in January 2002 for shareholders with low account balances.

Investment Income.Investment income (loss) from the Company’s investments includes realized gains and losses on sales of securities, realized foreign currency gains and losses, unrealized gains and losses on trading securities, other-than-temporary impairments on available-for-sale securities, and dividend and interest income. includes:

	•		realized gains and losses on sales of securities;

	•		unrealized gains and losses on trading securities;

	•		realized foreign currency gains and losses;

	•		other-than-temporary impairments on available-for-sale securities; and

	•		dividend and interest income.

This source of revenue is dependent on market fluctuations and does not remain at a consistent level. Timing of transactions and the Company’s ability to participate in investment opportunities largely affect this source of revenue.

Investment income decreased by $1.4 million, or 134.3%, in fiscal 2005 compared to fiscal 2004. This decrease can be attributed primarily to a $991,000 increase in unrealized losses on corporate investments classified as trading securities. In addition, realized losses on sales of securities increased by $369,000, and other-than-temporary impairments on available-for-sale securities increased by $65,000. These were slightly offset by an increase in dividend and interest income of $50,000.

The increase in investment income of ~~$1,368,000, or 396.5%,~~$1.4 million in fiscal 2004 compared to fiscal 2003 ~~can be attributed~~was primarily attributable to improved markets for gold-related assets and natural resource ~~commodities, both of which make up a significant portion of the Company’s proprietary investments.~~

commodities.

Expenses


(Dollars in Thousands)	2004		2003		% Change			2003		2002		% Change			2005		2004		% Change			2004		2003		% Change
Employee compensation and benefits	$	4,986	$	4,266		16.9	%	$	4,266	$	4,479		(4.8	)%	$	5,891	$	4,986		18.2	%	$	4,986	$	4,266		16.9	%
General and administrative		3,582		2,583		38.7	%		2,583		2,660		(2.9	%)		3,821		2,623		45.7	%		2,623		2,379		10.3	%
Subadvisory fees		1,019		523		94.8	%		523		472		10.8	%		2,720		1,019		166.9	%		1,019		523		94.8	%
Omnibus fees																1,833		959		91.1	%		959		204		370.1	%
Advertising		373		242		54.1	%		242		243		(0.4	)%		370		373		(0.8	)%		373		242		54.1	%
Depreciation		108		121		(10.7	)%		121		165		(26.7	)%		110		108		1.9	%		108		121		(10.7	)%
Interest		73		83		(12.0	)%		83		85		(2.4	)%		—		73		(100.0	)%		73		83		(12.0	)%

Total	$	10,141	$	7,818		29.7	%	$	7,818	$	8,104		(3.5	)%	$	14,745	$	10,141		45.4	%	$	10,141	$	7,818		29.7	%

Employee Compensation and Benefits.Employee compensation and benefits increased by $900,000, or 18.2%, in ~~fiscal 2004 by~~2005 and $720,000, or 16.9%, in fiscal 2004, primarily due to incentive bonuses associated with strong mutual fund performance, mutual fund asset growth, and increased accounts. Employee compensation and benefits decreased in fiscal year 2003 over fiscal year 2002 by $213,000, or 4.8%, due to staff reductions and a decrease in bonuses. The staff reductions were primarily made in the marketing area in an effort to streamline marketing efforts to reduce overhead. The decrease in bonuses in fiscal 2003 was attributable to a decline in mutual fund performance, decreased mutual fund asset growth and a reduction in the number of accounts.

General and Administrative.The increase in general and administrative expenses of ~~$999,000,~~$1.2 million, or ~~38.7%~~45.7%, in fiscal year 2005 is primarily attributable to increased consulting, communication, and

marketing-related travel and entertainment costs. The increase in general and administrative expenses of $244,000, or 10.3%, in fiscal year 2004 iswas primarily attributable to increased insurance, sales and marketing costs.

Subadvisory Fees.The increases in ~~omnibus fees.~~ subadvisory fees of $1,700,000 and $496,000 in fiscal years 2005 and 2004, respectively, resulted from the sizeable growth in assets in the Eastern European Fund.

Omnibus Fees.Much of the mutual fund asset growth across all funds has been realized through broker/dealer platforms. These broker/dealers typically charge an asset-based fee for assets held in their platforms. Accordingly, net omnibus fee expenses have increased by ~~$756,000~~$874,000 and $755,000 during fiscal ~~year 2004.~~years 2005 and 2004, respectively. The incremental assets received through the broker/dealer platforms are not as profitable as those received from direct shareholder accounts due to margin compression from paying omnibus fees on those assets.

In June 2004, the Company began providing advisory services to one of the USGAF funds that had previously been sub-advised. Bonnel, Inc., the former subadviser of the Bonnel Growth Fund, notified the Company that its portfolio manager, Art Bonnel, would be taking an extended sabbatical beginning June 1, 2004,

Advertising.Advertising expense remained flat at approximately $370,000 and ~~therefore Bonnel, Inc. would no longer provide subadvisory services to the fund. The~~

Board of Trustees of the fund approved the Company to provide investment advisory services to the fund and changed the fund name to the Holmes Growth Fund effective June 1, 2004. As advisor of the fund, the Company expects to realize reduced expenses, as it will no longer pay subadvisory fees to Bonnel, Inc. However, the Company expects to incur additional costs associated with set-up and re-branding efforts.

General and administrative expenses decreased by $77,000, or 2.9%, in fiscal year 2003 over fiscal year 2002. This was primarily a result of a write-off of $157,000 associated with a receivable from an insurance carrier$373,000 during fiscal ~~year 2002. Additionally, the cost of defending a lawsuit reached reimbursable levels on the Company’s insurance policy during late fiscal 2002.~~

~~Subadvisory Fees.~~~~The increases in subadvisory fees of $496,000~~2005 and ~~$51,000~~2004, respectively.

Depreciation.Depreciation expense has remained stable at $110,000 and $108,000 in fiscal years 2005 and 2004, ~~and 2003,~~ respectively, ~~resulted from the sizeable growth in assets in the Eastern European Fund.~~

~~Advertising.~~Advertising expense increased by $131,000, or 54.1%, during fiscal 2004. This increase was primarily due to increased marketing efforts promoting the funds with mail inserts, fund guides, and investor conference calls. Fiscal year 2003 advertising expenses were flat as compared to fiscal year 2002.

~~Depreciation.~~~~The decreases in depreciation expense for fiscal years 2004, 2003, and 2002 are~~ primarily due to assets becoming fully depreciated without being replaced with additional capital purchases.

Interest.The decrease in interest expense during fiscal 2005 and 2004 of $73,000 and $10,000, ~~or 12.0%,~~respectively, is attributable to the payment in full of the note related to the Company’s building in fiscal 2004. ~~The decrease in interest expense from fiscal year 2002 to 2003 of approximately $2,000, or 2.4%, was attributable to continued amortization of the note payable.~~

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return. 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 June 30, ~~2004,~~2005, the Company ~~had charitable contribution carryovers of approximately $23,000 expiring between fiscal 2008 and 2009, and alternative minimum tax credits of approximately $134,000 with indefinite expirations.~~

has no remaining carryovers.

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 $35,000~~$34,472 at June 30, 2004 providing for the utilization of investment tax ~~credits against future taxable income. At June 30, 2003, the valuation allowance was approximately $315,000.~~credits. The valuation allowance was reduced to zero in fiscal ~~2004~~2005 as ~~net operating loss carryovers were fully utilized against taxable income.~~

the credits expired.

Contractual Obligations

A summary of contractual obligations of the Company as of June 30, ~~2004,~~2005, is as follows:


	Payments due by period												Payments due by period
			Less than		1 – 3		4 –5		More than				Less than		1 – 3		4 –5		More than
Contractual Obligations	Total		1 year		years		years		5 years		Total		1 year		Years		years		5 years
Operating Lease Obligations	$	316,549	$	83,580	$	156,542	$	76,427		—	$	217,656	$	79,813	$	129,170	$	8,673		—
Contractual Obligation		326,500		126,500		192,000		8,000		—		191,750		83,400		108,350		—		—

Operating leases consist of telephone equipment, printers, and copiers leased from several vendors. Contractual ~~obligations consist~~obligation consists of ~~an agreement with a vendor to provide marketing and public relations services, and~~ an agreement with a vendor to provide an e-mail server and a web ~~server via T-1 lines.~~

server.

Liquidity and Capital Resources

At fiscal year end, the Company had net working capital (current assets minus current liabilities) of approximately ~~$5.3~~$7.1 million and a current ratio of ~~6.0~~4.2 to 1. With approximately ~~$2.8~~$3.8 million in cash and cash equivalents and ~~almost $2.9~~$3.5 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately ~~$8.5~~$9.9 million, with cash, cash equivalents, and marketable securities comprising ~~59.9%~~60.5% of total assets. The Company paid the mortgage on its corporate headquarters in full in fiscal 2004. Thus, the Company’s only material commitment ~~going into~~from fiscal 2005 forward is for operating expenses. The Company also has access to a $1

million credit facility, which can be utilized for working capital purposes. The Company’s available working capital and potential cash flow are expected to be sufficient to cover current expenses.

The investment advisory and related contracts between the Company and USGIF and USGAF will expire on February 28, ~~2005,~~2006, and May 31, ~~2005,~~2006, respectively. Management anticipates that the trustees of both USGIF and USGAF will renew the contracts.

Management believes current cash reserves, financing obtained and/or available, and potential 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.

Critical Accounting Policies

In accordance with SFAS 115, the Company classifies its investments in equity and debt securities based on intent. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each reporting period date.

Securities that are purchased and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value. Unrealized gains and losses on these securities are included in earnings.

Investments in debt securities that are purchased with the intent and ability to hold until maturity are classified as held-to-maturity and measured at amortized cost. The Company currently has no investments in debt securities.

Investments classified as neither trading securities nor held-to-maturity securities are classified as available-for-sale securities and reported at fair value. Unrealized gains and losses on these available-for-sale securities are excluded from earnings, reported net of tax as a separate component of shareholders’ equity, and recorded in earnings on the date of sale.

The Company evaluates its investments for other-than-temporary declines in value on a periodic basis. This may exist when the fair value of an investment security has been below the current value for an extended period of time. For available-for-sale securities with declines in value deemed other than temporary, the ~~cost basis~~unrealized loss recorded net of ~~the securities is reduced accordingly, and the resulting loss~~tax in accumulated other comprehensive income is realized ~~in earnings.~~

as a charge to net income.

The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.

Taxes.The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.

Valuation of Investments.Securities traded on a securities exchange are valued at the last sale price. Securities for which over-the-counter market quotations are available, but for which there was no trade on or near the balance sheet date, are valued at the mean price between the last price bid and last price asked. Securities for which quotations are not readily available are valued at cost.

~~Related Party Transactions.~~

Revenue Recognition.The Company began providing investment subadvisory services for a client in the first quarter of fiscal year 2005. The Company had ~~$3,045,000~~a fee arrangement for these services whereby it received a monthly subadvisory fee and ~~$1,125,000~~an annual performance fee based on the overall increase in

value of the net assets in the fund for the calendar year. During the quarter ended March 31, 2005, the agreement was amended such that performance fees would be earned and paid quarterly based on the overall increase in value of the net assets over the quarter. The Company has recorded $299,000 in revenues from this fee arrangement for the year ended June 30, 2005. Since the performance fee is earned and paid quarterly, the fees will fluctuate on a quarterly basis based on the net asset value of the fund and a decrease in the net assets in subsequent quarters will not be refunded. The calculation of the performance fees will be made as of the last day of each quarter while the agreement is in place, at which time the fees will be recognized. The Company will not be required to offset any previously earned performance fees if losses are recorded by the fund in future quarters.

Stock Options.In December, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in exchange for share-based payment transactions. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. On April 14, 2005, the SEC announced that SFAS 123R is effective for fiscal years beginning after June 15, 2005. The Company currently accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), which has been superseded by FAS 123R. The Company is currently evaluating the impact that the implementation of FAS 123R will have on the Company’s consolidated financial statements and the Company does not expect the effect to be material.

Related Party Transactions.

The Company had $4,823,000 and $3,045,000 invested in USGIF ~~money market~~ and ~~municipal bond~~USGAF mutual funds included in the balance sheet in cash and cash equivalents and trading securities at June 30, ~~2004,~~2005, and ~~2003,~~2004, respectively. Receivables from mutual funds shown on the Consolidated Balance Sheets represent amounts due the Company and its wholly owned subsidiaries for investment advisory fees, transfer agent fees, and out-of-pocket expenses, net of amounts payable to the mutual funds.

The Company invested $500,000 in an offshore fund (U.S. Global Investors Balanced Natural Resources Fund, Ltd.) that the Company will subadvise starting in July 2005.

Frank Holmes, a director and CEO of the Company, served as an independent director of Franc-Or Resources from June 2000 to November 2003. The Company owns a position in Franc-Or Resources at June 30, ~~2004,~~2005, with an estimated fair value of ~~$357,521,~~approximately $229,000, recorded as a trading security on the balance sheet.

Holmes served as chairman of Fortress IT Corp. from November 2000 to November 2003. The Company held a position in Fortress IT Corp., which was sold during fiscal 2004 for $7,500. The Company recognized a loss on this transaction of $17,630.

Mr. Holmes also served as an independent director for BCS Global Networks (formerly Broadband Collaborative Solutions), a private company, from May 2000 to June 30, 2002, when the entity became a public company. Mr. Holmes personally owned shares of BCS Global Networks at June 30, ~~2004.~~2005. The Company owned a position in BCS Global Networks at June 30, ~~2004,~~2005, with an estimated fair value of ~~$16,882~~approximately $42,000 recorded as available for sale on the balance sheet.

~~Holmes had an outstanding payable~~ Subsequent to fiscal year end, both the Company ~~of $0~~ and ~~$1,613 at June 30, 2004, and 2003, respectively.~~

~~During fiscal year 2002, J. Stephen Penner,~~Mr. Holmes sold their holdings in BCS Global Networks in response to a ~~former director of~~tender offer, with the Company ~~who resigned during~~realizing a loss of $31,560 recorded in the first quarter of fiscal ~~year 2002, exercised options for 10,000 shares of Class A stock at $2.00 per share.~~2006.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Disclosures

The Company’s balance sheet includes assets whose fair value is subject to market risks. 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, 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. The Company has in place a code of ethics that requires pre-clearance of any trading activity by the Company. Written procedures are also in place to manage compliance with the code of ethics.

The table below summarizes the Company’s equity price risks as of June 30, ~~2004,~~2005, and shows the effects of a hypothetical 25% increase and a 25% decrease in market prices.

Increase
Estimated Fair (Decrease) in
Hypothetical Value After Shareholders’
Fair Value at Percentage Hypothetical Equity, Net
June 30, 2004 ($)
Change
Price Change ($)
of Tax ($)
Trading securities 1,672,354 25% increase 2,090,443 275,938
25% decrease 1,254,266 (275,938 )
Available-for-sale 1,212,742 25% increase 1,515,928 200,103
25% decrease 909,557 (200,103 )


						Increase
				Estimated Fair		(Decrease) in
			Hypothetical	Value After		Shareholders’
	Fair Value at June 30,		Percentage	Hypothetical		Equity, Net
	2005 ($)		Change	Price Change ($)		of Tax ($)
Trading securities¹		2,612,529	25% increase		3,265,661		431,067
			25% decrease		1,959,397		(431,067	)
Available-for-sale²		890,461	25% increase		1,113,076		146,926
			25% decrease		667,846		(146,926	)


¹		Unrealized and realized gains and losses on trading securities are included in earnings in the statement of operations.

²		Unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other comprehensive income as a separate component of shareholders’ equity until realized.

The selected hypothetical changes do not reflect what could be considered best- or worst-case scenarios. Results could be ~~much worse~~significantly different due to both the nature of equity markets and the concentration of the Company’s investment portfolio.

1317

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
~~U.S.~~U.S Global Investors, Inc.
San Antonio, Texas

We have audited the accompanying consolidated balance ~~sheet~~sheets of U.S. Global Investors, Inc. as of June 30, 2005 and 2004 and the related consolidated statements of operations and comprehensive income, ~~(loss), shareholders’~~stockholders’ equity, and cash flows for each of the ~~year~~two years in the period ended June 30, ~~2004.~~2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our ~~audit.~~audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Global Investors, Inc. at June 30, 2005 and 2004, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2005,in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO Seidman, LLP
Dallas, Texas
August 26, 2005

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of U. S. Global Investors, Inc.

We have audited the accompanying consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows of U. S. Global Investors, Inc. (the Company) for the year ended June 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial ~~statements. An audit also includes~~statements, assessing the accounting principles used and significant estimates made by management, ~~as well as~~and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Global Investors, Inc. at June 30, 2004, and the results of its operations and its cash flows for the year ended June 30, 2004, in conformity with accounting principles generally accepted in the United States of America.

~~/s/ BDO Seidman, LLP~~

~~BDO Seidman, LLP~~
~~Dallas, Texas~~
~~August 27, 2004~~

~~Report of Independent Registered Public Accounting Firm~~

~~The Board of Directors and~~
~~Shareholders of U.S. Global Investors, Inc.~~

We have audited the accompanying consolidated balance sheet of U.S. Global Investors, Inc. as of June 30, 2003, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the two years in the period ended June 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated ~~financial position~~results of operations and cash flows of U.S. Global Investors, Inc. ~~at June 30, 2003, and~~for the ~~consolidated results of its operations and its cash flows for each of the two years in the period~~year ended June 30, 2003, in conformity with U.S. generally accepted accounting principles.


		/s/ Ernst & Young LLP

Dallas, Texas
September 24, 2003

1519

U.S. Global Investors, Inc.
Consolidated Balance Sheets


	June 30,						June 30,
	2004			2003			2005			2004
Assets
Current Assets
Cash and cash equivalents	$	2,831,676		$	1,162,243		$	3,814,178		$	2,831,676
Due from brokers		21			3,889			—			21
Trading securities, at fair value		1,672,354			723,428			2,612,529			1,672,354
Receivables
Mutual funds		1,454,872			966,260			2,221,148			1,454,872
Other advisory clients		—			378,832			54,140			—
Litigation settlement		—			371,057
Employees		—			3,998			750			—
Other		23,227			20,536			43,274			23,227
Prepaid expenses		307,390			338,020			450,963			307,390
Deferred tax asset		29,283			372,084			80,989			29,283

Total Current Assets		6,318,823			4,340,347			9,277,971			6,318,823

Net Property and Equipment		1,811,488			1,778,832			1,768,334			1,811,488

Other Assets
Restricted investments		—			195,000
Long-term deferred tax asset		193,543			735,257			165,749			193,543
Investment securities available-for-sale, at fair value		1,212,742			390,251			890,461			1,212,742

Total Other Assets		1,406,285			1,320,508			1,056,210			1,406,285

Total Assets	$	9,536,596		$	7,439,687		$	12,102,515		$	9,536,596

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	99,526		$	70,437			193,249		$	99,526
Accrued compensation and related costs		408,681			264,697			525,140			408,681
Current portion of notes payable		—			70,033
Current portion of annuity and contractual obligation		—			10,464
Other accrued expenses		543,043			361,831			1,481,038			543,043

Total Current Liabilities		1,051,250			777,462			2,199,427			1,051,250

Noncurrent Liabilities
Notes payable — net of current portion		—			886,527
Annuity and contractual obligations		—			102,009

Total Noncurrent Liabilities		—			988,536

Total Liabilities		1,051,250			1,765,998			2,199,427			1,051,250

Shareholders’ Equity
Common stock (class A) — $0.05 par value; nonvoting; authorized 7,000,000 shares; issued, 6,311,974 and 6,311,474 shares at June 30, 2004, and 2003, respectively		315,599			315,574
Common stock (class A) $0.05 par value; nonvoting; authorized 7,000,000 shares; issued, 6,316,474 and 6,311,974 shares at June 30, 2005, and 2004, respectively								315,824			315,599
Common stock (class B) — $0.05 par value; nonvoting; authorized 2,250,000 shares; no shares issued		—			—			—			—
Common stock (class C) — $0.05 par value; voting; authorized 1,750,000 shares; issued, 1,496,800 shares		74,840			74,840			74,840			74,840
Additional paid-in capital		11,110,053			11,056,655			11,158,535			11,110,053
Deferred compensation		(200,000	)		(250,000	)		(150,000	)		(200,000	)
Treasury stock, class A shares at cost; 339,498 and 361,948 shares at June 30, 2004, and 2003, respectively		(665,901	)		(663,536	)
Accumulated other comprehensive gain (loss), net of tax		533,074			(10,883	)
Treasury stock, class A shares at cost; 326,988 and 339,498 shares at June 30, 2005, and 2004, respectively								(650,592	)		(665,901	)
Accumulated other comprehensive income, net of tax								390,329			533,074
Accumulated deficit		(2,682,319	)		(4,848,961	)		(1,235,848	)		(2,682,319	)

Total Shareholders’ Equity		8,485,346			5,673,689			9,903,088			8,485,346

Total Liabilities and Shareholders’ Equity	$	9,536,596		$	7,439,687		$	12,102,515		$	9,536,596

The accompanying notes are an integral part of these financial statements.

1620

U.S. Global Investors, Inc.
Consolidated Statements of Operations and Comprehensive Income ~~(Loss)~~


	Year Ended June 30,								Year Ended June 30,
	2004		2003			2002			2005			2004		2003
Revenue
Investment advisory fees	$	9,179,200	$	5,289,856		$	5,122,663		$	14,006,508		$	9,179,200	$	5,289,856
Transfer agent fees		2,610,029		2,327,127			2,573,891			3,187,487			2,610,029		2,327,127
Investment income (loss)		1,023,441		(344,525	)		(168,326	)		(351,248	)		1,023,441		(344,525	)
Other		170,830		206,478			239,286			138,592			170,830		206,478

		12,983,500		7,478,936			7,767,514			16,981,339			12,983,500		7,478,936

Expenses
Employee compensation and benefits		4,985,449		4,265,983			4,479,422			5,891,162			4,985,449		4,265,983
General and administrative		3,955,788		2,824,789			2,902,572			3,821,129			2,622,773		2,379,552
Subadvisory fees		1,018,572		522,673			472,247			2,719,603			1,018,572		522,673
Omnibus Fees										1,833,096			959,523		203,620
Advertising										369,927			373,492		241,617
Depreciation		108,065		121,493			164,674			109,899			108,065		121,493
Interest		73,145		82,945			85,384			81			73,145		82,945

		10,141,019		7,817,883			8,104,299			14,744,897			10,141,019		7,817,883

Gain on Litigation Settlement		—		371,057			—			—			—		371,057

Income (Loss) Before Income Taxes		2,842,481		32,110			(336,785	)
Income Before Income Taxes										2,236,442			2,842,481		32,110
Provision for Federal Income Taxes
Tax (Benefit) Expense		675,839		(10,502	)		(95,351	)
Tax Expense (Benefit)										789,971			675,839		(10,502	)

Net Income (Loss)		2,166,642		42,612			(241,434	)
Net Income										1,446,471			2,166,642		42,612
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale securities		543,957		29,768			61,713
Unrealized gains (losses) on available-for-sale securities										(142,745	)		543,957		29,768

Comprehensive Income (Loss)	$	2,710,599	$	72,380		$	(179,721	)
Comprehensive Income									$	1,303,726		$	2,710,599	$	72,380

Basic and Diluted Net Income (Loss) per Share	$	0.29	$	0.01		$	(0.03	)
Basic and Diluted Net Income per Share									$	0.19		$	0.29	$	0.01

Basic weighted average number of common shares outstanding		7,469,164		7,460,260			7,456,181			7,479,998			7,469,164		7,460,260
Diluted weighted average number of common shares outstanding		7,533,134		7,469,120			7,456,181			7,564,269			7,533,134		7,469,120

The accompanying notes are an integral part of these financial statements.

1721

U.S. Global Investors, Inc.
Consolidated Statements of Shareholders’ Equity


																	Accumulated																						Accumulated
	Common		Common		Additional												Other						Common		Common		Additional												Other
	Stock		Stock		Paid-in			Deferred			Accumulated			Treasury			Comprehensive						Stock		Stock		Paid-in			Deferred			Accumulated			Treasury			Comprehensive
	(Class A)		(Class C)		Capital			Compensation			Deficit			Stock			Income (Loss)			Total			(Class A)		(Class C)		Capital			Compensation			Deficit			Stock			Income (Loss)			Total
Balance at June 30, 2001 (6,299,474 shares of Class A; 1,496,800 shares of Class C)	$	314,974	$	74,840	$	11,028,419			(350,000	)	$	(4,618,088	)	$	(632,261	)	$	(102,364	)	$	5,715,520
Purchase of 86,275 shares of Common Stock (Class A)		—		—		—			—			—			(106,482	)		—			(106,482	)
Reissuance of 54,370 shares of Common Stock (Class A)		—		—		6,679			—			(32,051	)		99,336			—			73,964
Exercise of 12,000 options for Common Stock (Class A)		600		—		26,178			—			—			—			—			26,778
Recognition of current year portion of deferred compensation		—		—		—			50,000			—			—			—			50,000
Unrealized gain (loss) on securities available-for-sale (net of tax)		—		—		—			—			—			—			61,713			61,713
Net Loss		—		—		—			—			(241,434	)		—			—			(241,434	)

Balance at June 30, 2002 (6,311,474 shares of Class A; 1,496,800 shares of Class C)		315,574		74,840		11,061,276			(300,000	)		(4,891,573	)		(639,407	)		(40,651	)		5,580,059			315,574		74,840		11,061,276			(300,000	)		(4,891,573	)		(639,407	)		(40,651	)		5,580,059
Purchase of 40,127 shares of Common Stock (Class A)		—		—		—			—			—			(65,649	)		—			(65,649	)		—		—		—			—			—			(65,649	)		—			(65,649	)
Reissuance of 23,510 shares of Common Stock (Class A)		—		—		(4,621	)		—			—			41,520			—			36,899			—		—		(4,621	)		—			—			41,520			—			36,899
Recognition of current year portion of deferred compensation				—		—			50,000			—			—			—			50,000			—		—					50,000			—			—			—			50,000
Unrealized gain (loss) on securities available-for-sale (net of tax)		—		—		—			—			—			—			29,768			29,768
Unrealized gain on securities available-for-sale (net of tax)																								—		—		—			—			—			—			29,768			29,768
Net Income		—		—		—			—			42,612			—			—			42,612			—		—		—			—			42,612			—			—			42,612


Balance at June 30, 2003 (6,311,474 shares of Class A; 1,496,800 shares of Class C)		315,574		74,840		11,056,655			(250,000	)		(4,848,961	)		(663,536	)		(10,883	)		5,673,689			315,574		74,840		11,056,655			(250,000	)		(4,848,961	)		(663,536	)		(10,883	)		5,673,689

Purchase of 16,741 shares of Common Stock (Class A)		—		—		—			—			—			(72,246	)		—			(72,246	)		—		—		—			—			—			(72,246	)		—			(72,246	)
Reissuance of 39,191 shares of Common Stock (Class A)		—		—		34,398			—			—			69,881			—			104,279			—		—		34,398			—			—			69,881			—			104,279
Exercise of 500 options for Common Stock (Class A)		25		—		1,400			—			—			—			—			1,425			25		—		1,400			—			—			—			—			1,425
Issuance of option for 20,000 shares of Common Stock (Class A)		—		—		17,600			—			—			—			—			17,600			—		—		17,600			—			—			—			—			17,600
Recognition of current year portion of deferred compensation		—		—		—			50,000			—			—			—			50,000			—		—		—			50,000			—			—			—			50,000
Unrealized gain on securities available-for-sale (net of tax)																								—		—		—			—			—			—			543,957			543,957
Net Income																								—		—		—			—			2,166,642			—			—			2,166,642


Balance at June 30, 2004 (6,311,974 shares of Class A; 1,496,800 shares of Class C)																								315,599		74,840		11,110,053			(200,000	)		(2,682,319	)		(665,901	)		533,074			8,485,346
Purchase of 2,980 shares of Common Stock (Class A)																								—		—		—			—			—			(13,968	)		—			(13,968	)
Reissuance of 15,490 shares of Common Stock (Class A)																								—		—		33,958			—			—			29,277			—			63,235
Exercise of 4,500 options for Common Stock (Class A)																								225		—		14,524			—			—			—			—			14,749
Recognition of current year portion of deferred compensation																								—		—		—			50,000			—			—			—			50,000
Unrealized gain (loss) on securities available-for-sale (net of tax)		—		—		—			—			—			—			543,957			543,957			—		—		—						—						(142,745	)		(142,745	)
Net Income		—		—		—			—			2,166,642			—			—			2,166,642			—		—		—			—			1,446,471			—			—			1,446,471

Balance at June 30, 2004 (6,311,974 shares of Class A; 1,496,800 shares of Class C)	$	315,599	$	74,840	$	11,110,053			(200,000	)	$	(2,682,319	)	$	(665,901	)	$	533,074		$	8,485,346

Balance at June 30, 2005 (6,316,474 shares of Class A; 1,496,800 shares of Class C)																								315,824		74,840		11,158,535			(150,000	)		(1,235,848	)		(650,592	)		390,329			9,903,088

The accompanying notes are an integral part of these financial statements.

1822

		~~U.S. Global Investors, Inc.~~
		~~Consolidated Statements of Cash Flows~~

Year Ended June 30,
2004
2003
2002
Cash Flow from Operating Activities
Net income (loss) $ 2,166,642 $ 42,612 $ (241,434 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 108,065 121,493 164,674
Net recognized (gain) loss on securities (861,552 ) 344,505 100,862
Provision for deferred taxes 604,296 (10,502 ) (95,351 )
Deferred compensation 50,000 50,000 50,000
Class A option issued to non-employee 17,600 — —
Provision for losses on accounts receivable (64,488 ) 64,488 —
Gain on litigation settlement — (371,057 ) —
Loss on disposal of equipment 4,827 — —
Termination of annuity liability (102,909 ) — —
Changes in assets and liabilities, impacting cash from operations:
Accounts receivable 327,072 (360,120 ) 96,430
Prepaid expenses and other 229,498 59,930 (126,079 )
Trading securities (200,908 ) 672,202 (141,896 )
Accounts payable and accrued expenses 391,785 (484,635 ) 199,033

Total adjustments 503,286 86,304 247,673

Net cash provided by operations 2,669,928 128,916 6,239

Cash Flow from Investing Activities
Purchase of property and equipment (145,548 ) (30,335 ) (4,765 )
Purchase of available-for-sale securities (200,520 ) (139,866 ) (269,985 )
Proceeds on sale of available-for-sale securities 315,740 317,671 —

Net cash (used in) provided by investing activities (30,328 ) 147,470 (274,750 )

Cash Flow from Financing Activities
Payments on annuity (9,564 ) (9,683 ) (9,100 )
Payments on note payable (956,560 ) (64,646 ) (61,635 )
Proceeds from issuance or exercise of stock, warrants, and options 68,203 36,899 100,742
Purchase of treasury stock (72,246 ) (65,649 ) (106,482 )

Net cash used in financing activities (970,167 ) (103,079 ) (76,475 )

Net Increase (Decrease) in Cash and Cash Equivalents 1,669,433 173,307 (344,986 )
Beginning Cash and Cash Equivalents 1,162,243 988,936 1,333,922

Ending Cash and Cash Equivalents $ 2,831,676 $ 1,162,243 $ 988,936

Supplemental Disclosures of Cash Flow Information
Cash paid for interest $ 73,145 $ 82,945 $ 85,384
Cash paid for income taxes $ 29,095 — —
Non-cash Transaction
Re-registration of private client investment — $ 581,000 —
U.S. Global Investors, Inc.
Consolidated Statements of Cash Flows


	Year Ended June 30,
	2005			2004			2003
Cash Flow from Operating Activities
Net income	$	1,446,471		$	2,166,642		$	42,612
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		109,899			108,065			121,493
Net recognized loss (gain) on securities		184,253			(861,552	)		344,505
Provision for deferred taxes		49,624			604,296			(10,502	)
Deferred compensation		50,000			50,000			50,000
Class A option issued to non-employee		—			17,600			—
Provision for losses on accounts receivable		26,488			(64,488	)		64,488
Gain on litigation settlement		—			—			(371,057	)
Loss on disposal of equipment		889			4,827			—
Termination of annuity liability		—			(102,909	)		—
Changes in assets and liabilities, impacting cash from operations:
Accounts receivable		(867,701	)		327,072			(360,120	)
Prepaid expenses and other		(143,552	)		229,498			59,930
Trading securities		(1,018,428	)		(200,908	)		672,202
Accounts payable and accrued expenses		1,148,177			391,785			(484,635	)

Total adjustments		(460,351	)		503,286			86,304

Net cash provided by operations		986,120			2,669,928			128,916

Cash Flow from Investing Activities
Purchase of property and equipment		(67,634	)		(145,548	)		(30,335	)
Purchase of available-for-sale securities		—			(200,520	)		(139,866	)
Proceeds on sale of available-for-sale securities		—			315,740			317,671

Net cash (used in) provided by investing activities		(67,634	)		(30,328	)		147,470

Cash Flow from Financing Activities
Payments on annuity		—			(9,564	)		(9,683	)
Payments on note payable		—			(956,560	)		(64,646	)
Proceeds from issuance or exercise of stock, warrants, and options		77,984			68,203			36,899
Purchase of treasury stock		(13,968	)		(72,246	)		(65,649	)

Net cash provided by (used in) financing activities		64,016			(970,167	)		(103,079	)

Net Increase in Cash and Cash Equivalents		982,502			1,669,433			173,307
Beginning Cash and Cash Equivalents		2,831,676			1,162,243			988,936

Ending Cash and Cash Equivalents	$	3,814,178		$	2,831,676		$	1,162,243


Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	81		$	73,145		$	82,945
Cash paid for income taxes	$	645,251		$	29,095			—
Non-cash Transaction
Re-registration of private client investment		—			—		$	581,000

The accompanying notes are an integral part of these financial statements.

1923

Notes to Consolidated Financial Statements

Note 1. Organization

U.S. Global Investors, Inc. (Company or U.S. Global) serves as investment adviser and transfer agent to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts that are no-load, open-end investment companies offering shares in numerous mutual funds to the investing public. The Company has served as investment adviser and manager since the inception of USGIF and USGAF and assumed the transfer agency function of USGIF in November 1984, and of USGAF in October 1994, its commencement of operations. For these services, the Company receives fees from USGIF and USGAF.

U.S. Global formed the following companies to provide supplementary services to USGIF and USGAF: United Shareholder Services, Inc. (USSI), A&B Mailers, Inc. (A&B), and U.S. Global Brokerage, Inc. (USGB).

The Company formed two limited liability companies utilized primarily for corporate investment purposes: U.S. Global Investors (Guernsey) Limited (USGG), which was incorporated in Guernsey on August 20, 1993 and U.S. Global Investors (Bermuda) Limited (USBERM) which was incorporated in Bermuda on June 15, 2005.

Note 2. Significant Accounting Policies

Principles of Consolidation.The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: USSI, A&B, USGG, USBERM, and USGB.

All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes.

Cash and Cash Equivalents.Cash and cash equivalents include highly liquid investments with original maturities of three months or less.

Due from Brokers.The Company conducts business with various brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with the brokers. The due from brokers balance represents cash balances with these brokers. The Company is subject to credit risk to the extent any broker with whom the Company conducts business is unable to deliver cash balances owed the Company. Management monitors the financial condition of the brokers with which the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.

Security Investments.The Company accounts for its investments in securities in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS 115). In accordance with SFAS 115, the Company classifies its investments in equity and debt securities based on intent. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each reporting period date.

~~Notes to Consolidated Financial Statements~~
~~Note~~1.~~Organization~~
U.S. Global Investors, Inc. (Company or U.S. Global) serves as investment adviser and transfer agent to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts that are no-load, open-end investment companies offering shares in numerous mutual funds to the investing public. The Company has served as investment adviser and manager since the inception of USGIF and USGAF and assumed the transfer agency function of USGIF in November 1984, and of USGAF in October 1994, its commencement of operations. For these services, the Company receives fees from USGIF and USGAF.
U.S. Global formed the following companies to provide supplementary services to USGIF and USGAF: United Shareholder Services, Inc. (USSI), A&B Mailers, Inc. (A&B), and U.S. Global Brokerage, Inc. (USGB).
The Company formed a limited liability company, which was incorporated in Guernsey on August 20, 1993. This company, U.S. Global Investors (Guernsey) Limited (USGG), is utilized in conducting the Company’s cash management activities.
~~Note~~2.~~Significant Accounting Policies~~
~~Principles of Consolidation.~~~~The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: USSI, A&B, USGG, and USGB.~~
~~All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes.~~
~~Cash and Cash Equivalents.~~~~Cash and cash equivalents include highly liquid investments with original maturities of three months or less.~~
~~Due from Brokers.~~The Company conducts business with various brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with the brokers. The due from brokers balance represents cash balances with these brokers. The Company is subject to credit risk to the extent any broker with whom the Company conducts business is unable to deliver cash balances owed the Company. Management monitors the financial condition of the brokers with which the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.
~~Security Investments.~~The Company accounts for its investments in securities in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS 115).
In accordance with SFAS 115, the Company classifies its investments in equity and debt securities based on intent. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each reporting period date. Securities that are purchased and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value. Unrealized gains and losses on these securities are included in earnings as investment income. Investments classified neither as trading securities nor as held-to-maturity securities are classified as available-for-sale securities and reported at fair value. Unrealized gains and losses on these available-for-sale securities are excluded from earnings, reported net of tax as a separate component of shareholders’ equity, and recorded in earnings on the date of sale. For available-for-sale securities with declines in value deemed other than temporary, the cost basis of the securities is reduced accordingly, and the resulting loss is realized in earnings.
Securities traded on a securities exchange are valued at the last sale price. Securities for which over-the-counter market quotations are available, but for which there was no trade on the balance sheet date,

2024

for-sale securities are excluded from earnings, reported net of tax as a separate component of shareholders’ equity, and recorded in earnings on the date of sale.

The Company evaluates its investments for other-than-temporary decline in value on a periodic basis. This may exist when the fair value of an investment security has been below the current value for an extended period of time. For available-for-sale securities with declines in value deemed other than temporary, the unrealized loss recorded net of tax in accumulated other comprehensive income is realized as a charge to net income.

Mutual Fund Receivables.Mutual fund receivables consist primarily of monthly investment advisory and transfer agent fees owed to the Company by USGIF and USGAF. In addition, mutual fund receivables include amounts reimbursed to the Company for certain advertising and distribution expenses incurred on behalf of USGAF in accordance with Rule 12b-1of the Investment Company Act of 1940. The Company evaluates the collectibility of these receivables on an ongoing basis, and, as a result, placed an allowance of $26,488 and $0 against the receivable balance as of June 30, 2005, and June 30, 2004, respectively.

Property and Equipment.Fixed assets are recorded at cost. Depreciation for fixed assets is recorded using the straight-line method over the estimated useful life of each asset as follows: furniture and equipment are depreciated over 3 to 10 years, and the building and related improvements are depreciated over 32 to 40 years.

Treasury Stock.Treasury stock purchases are accounted for under the cost method. The subsequent issuances of these shares are accounted for based on their weighted-average cost basis.

Stock-Based Compensation.The Company accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations, as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). In accordance with APB 25, no compensation expense is recognized for stock options where the exercise price equals or exceeds the underlying stock price on the date of grant.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123:


	Year Ended June 30,
	2005			2004			2003
Net income, as reported	$	1,446,471		$	2,166,642		$	42,612

Add: Stock-based employee compensation expense included in reported net income, net of tax		33,000			33,000			36,168

Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax		(36,217	)		(36,753	)		(40,554	)


Pro forma net income (loss)	$	1,443,254		$	2,162,889		$	38,226


Earnings per share:
Basic and Diluted — as reported	$	0.19		$	0.29		$	0.01

Basic and Diluted — pro forma	$	0.19		$	0.29		$	0.01

~~are valued at the mean price between the last price bid and last price asked. Securities for which quotations are not readily available are valued at cost.~~
The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.
~~Mutual Fund Receivables.~~Mutual fund receivables consist primarily of monthly investment advisory and transfer agent fees owed to the Company by USGIF and USGAF. In addition, mutual fund receivables include amounts reimbursed to the Company for certain advertising and distribution expenses incurred on behalf of USGAF in accordance with Rule 12b-1 of the Investment Company Act of 1940. The Company evaluates the collectibility of these receivables on an ongoing basis, and, as a result, placed an allowance of $0 and $64,488 against the receivable balance as of June 30, 2004, and June 30, 2003, respectively. Growth in mutual fund assets, in particular growth in assets that are invested directly with the funds and not through broker/dealer distribution platforms, have served to reduce this allowance currently and may do so in future periods. Conversely, a reduction in assets may create the necessity to set up an allowance again in future years.
~~Property and Equipment.~~Fixed assets are recorded at cost. Depreciation for fixed assets is recorded using the straight-line method over the estimated useful life of each asset as follows: furniture and equipment are depreciated over 3 to 10 years, and the building and related improvements are depreciated over 31.5 to 40 years.
~~Treasury Stock.~~~~Treasury stock purchases are accounted for under the cost method. The subsequent issuances of these shares are accounted for based on their weighted-average cost basis.~~
~~Stock-Based Compensation.~~~~The Company accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No.~~ 25 “Accounting for Stock Issued to Employees” (APB 25), and related interpretations, as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). In accordance with APB 25, no compensation expense is recognized for stock options where the exercise price equals or exceeds the underlying stock price on the date of grant.
~~The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123:~~

Year Ended June 30,
2004
2003
2002
Net income (loss), as reported $ 2,166,642 $ 42,612 $ (241,434 )
Add: Stock-based employee compensation expense included in reported net income, net of tax 33,000 36,168 55,397
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax (36,753 ) (40,554 ) (61,723 )

Pro forma net income (loss) $ 2,162,889 $ 38,226 $ (247,760 )

Earnings per share:
Basic and Diluted - as reported $ 0.29 $ 0.01 $ (0.03 )
Basic and Diluted - pro forma $ 0.29 $ 0.01 $ (0.03 )

For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options’ vesting period. The fair value of these options was estimated at the date of the grant using a Black-Scholes option-pricing model. During fiscal 2005, 20,000 options were granted to employees with a fair value, net of tax, of $30,756. No options were granted during fiscal years 2004 or 2003. Subsequent to fiscal year end, a director exercised an option for 10,000 shares.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award.

The adoption of SFAS 123R will be effective for the Company for fiscal years beginning after June 15, 2005. As discussed above, the Company currently accounts for stock-based compensation using the intrinsic value method in accordance APB 25, which has been superseded by SFAS 123R. The Company is currently evaluating the impact that SFAS 123R will have on the Company’s consolidated financial statements and does not expect the effect to be material.

Income Taxes.The Company and its subsidiaries file a consolidated federal income tax return. 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. The liability method requires that deferred tax assets be reduced by a valuation allowance in cases where it is more likely than not that the deferred tax assets will not be realized.

Revenue Recognition.The Company earns substantially all of its revenues from mutual fund investment advisory and transfer agency services. Mutual fund investment advisory fees, calculated as a percentage of assets under management, are recorded as revenue as services are performed. Transfer agency fees are calculated using a charge based upon the number of shareholder accounts serviced. A subadvisory client contract provides for a monthly management fee, in addition to a quarterly performance fee based on the overall increase in value of the net assets in the fund. Revenue shown on the Consolidated Statements of Operations and Comprehensive Income are net of any fee waivers.

Dividends and Interest.Dividends are recorded on the ex-dividend date, and interest income is recorded on an accrual basis. Both dividends and interest income are included in investment income.

Advertising Costs.The Company expenses advertising costs as they are incurred. Certain sales materials, which are considered tangible assets, are capitalized and then expensed during the period in which they are distributed. At June 30, 2005, 2004, and 2003, the Company had capitalized sales materials of approximately $48,000, $16,000, and $11,000, respectively. Net advertising expenditures were approximately $370,000, $373,000, and $242,000 during fiscal 2005, 2004, and 2003, respectively.

Foreign Currency Transactions.Transactions between the Company and foreign entities are converted to U.S. dollars using the exchange rate on the date of the transactions. Security investments valued in foreign currencies are translated to U.S. dollars using the applicable exchange rate as of the reporting date. Realized foreign currency gains and losses are included as a component of investment income.

Use of Estimates.The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Earnings Per Share.Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised.

For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options’ vesting period. The fair value of these options was estimated at the date of the grant using a Black-Scholes option-pricing model. No options were granted during fiscal years 2004, 2003, or 2002.
Transactions with other parties in which goods or services are exchanged for the issuance of equity instruments are accounted for at fair value in accordance with FAS 123. On March 15, 2004, a fully vested option to purchase 20,000 shares of class A stock was granted as payment for services to an outside vendor. These options carry an exercise price of $4.35 and expire on May 15, 2005. The effect of this issuance was recorded in general and administrative expenses on the Statement of Operations and Comprehensive Income based on the fair value at grant date. The fair value was determined using a Black-Scholes option-pricing model with the exercise price and expiration dates listed above as well as an expected volatility of 0.56, a risk-free interest rate of 1.25% and an expected dividend yield of $0.
~~Income Taxes.~~The Company and its subsidiaries file a consolidated federal income tax return. 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. The liability method requires that deferred tax assets be reduced by a valuation allowance in cases where it is more likely than not that the deferred tax assets will not be realized.
~~Revenue Recognition.~~The Company earns substantially all of its revenues from mutual fund investment advisory and transfer agency services. Mutual fund investment advisory fees, calculated as a percentage of assets under management, are recorded as revenue as services are performed. Transfer agency fees are account based and calculated using a charge based upon the number of shareholder accounts serviced. A separate advisory client contract provided for a performance fee, in addition to the base fee, which was calculated as a percentage of absolute investment results. The separate advisory client contract ended in March 2004. Revenue shown on the Consolidated Statements of Operations and Comprehensive Income are net of any fee waivers.
~~Dividends and Interest.~~~~Dividends are recorded on the ex-dividend date, and interest income is recorded on an accrual basis. Both dividends and interest income are included in investment income.~~
~~Advertising Costs.~~The Company expenses advertising costs as they are incurred. Certain sales materials, which are considered tangible assets, are capitalized and then expensed during the period in which they are distributed. At June 30, 2004, 2003, and 2002, the Company had capitalized sales materials of approximately $16,000, $11,000, and $4,000, respectively. Net advertising expenditures were approximately $373,000, $242,000 and $243,000 during fiscal 2004, 2003, and 2002, respectively.
~~Foreign Currency Transactions.~~Transactions between the Company and foreign entities are converted to U.S. dollars using the exchange rate on the date of the transactions. Security investments valued in foreign currencies are translated to U.S. dollars using the applicable exchange rate as of the reporting date. Realized foreign currency gains and losses are included as a component of investment income.
~~Use of Estimates.~~The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
~~Earnings Per Share.~~Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised.

2226

Note 3. Investments

As of June 30, 2005, the Company held investments with a market value of $3.5 million and a cost basis of $3.3 million. The market value of these investments is approximately 28.9 percent of the Company’s total assets.

The following table summarizes investment activity over the last three fiscal years:


	Year Ended June 30,
	2005			2004			2003
Realized gains (losses) on sale of trading securities	$	(78,253	)	$	135,789		$	(7,583	)
Trading securities, at cost		3,040,700			1,857,171			1,658,058
Trading securities, at fair value⁽¹⁾		2,612,529			1,672,354			723,428
Net change in unrealized gains (losses) on trading securities (included in earnings)		(243,355	)		748,018			(34,308	)
Available-for-sale securities, at cost		299,055			405,055			406,739
Available-for-sale securities, at fair value⁽¹⁾		890,461			1,212,742			390,251
Gross realized gains on sale of available-for-sale securities		—			158,387			178,326
Gross realized losses on sale of available-for-sale securities		—			(3,406	)		(267,836	)
Gross unrealized losses recorded in shareholders’ equity		(76,746	)		(180,727	)		(44,481	)
Gross unrealized gains recorded in shareholders’ equity⁽²⁾		668,152			988,414			27,992
Losses on available-for-sale securities deemed to have other-than-temporary declines in value		(106,000	)		(41,448	)		(247,412	)

		~~Note~~3.~~Investments~~

		~~The following table summarizes investment activity over the last three fiscal years:~~

Year Ended June 30,
2004
2003
2002
Realized gains (losses) on sale of trading securities $ 135,789 $ (7,583 ) $ (48,975 )
Trading securities, at cost 1,857,171 1,658,058 2,178,041
Trading securities, at fair value⁽¹⁾
1,672,354 723,428 1,409,474
Net change in unrealized gains (losses) on trading securities (included in earnings) 748,018 (34,308 ) (112,092 )
Available-for-sale securities, at cost 405,055 406,739 915,204
Available-for-sale securities, at fair value⁽¹⁾
1,212,742 390,251 853,612
Gross realized gains on sale of available-for-sale securities 158,387 178,326 —
Gross realized losses on sale of available-for-sale securities (3,406 ) (267,836 ) —
Gross unrealized losses recorded in shareholders’ equity (180,727 ) (44,481 ) (272,118 )
Gross unrealized gains recorded in shareholders’ equity⁽²⁾
988,414 27,992 210,525
Losses on available-for-sale securities deemed to have other-than-temporary declines in value (41,448 ) (247,412 ) (51,887 )

⁽¹⁾		These categories of securities are comprised primarily of equity investments, including those investments discussed in Note 1615 regarding related party transactions.

⁽²⁾		Total gross unrealized gains recorded in shareholders’ equity in fiscal ~~2004~~2005 are comprised primarily of the unrealized gain on a single security, which makes up ~~$976,172~~$611,133 of the ~~$988,414,~~$668,152, or ~~98.8%~~91%, of the gross unrealized gains recorded.

During fiscal 2002, a security was purchased on behalf of an advisory client of the Company for which $581,000 was included in trading securities on the Company’s balance sheet at June 30, 2002. This security had a contingent payable that was required to be paid by the Company to the advisory client upon liquidation of the securities, net of any fees earned. This payable was included in accounts payable on the balance sheet at June 30, 2002. To better reflect the terms of the relationship, during December 2002 these securities were re-registered, and, as a result, were no longer recorded as an asset of the Company and there were no longer any associated contingent payables. Beneficial ownership of the securities was maintained by the advisory client.

The following table summarizes equity investments that are in an unrealized loss position at each balance sheet date, categorized by how long they have been in a continuous loss position. These investments do not include trading securities or those available-for-sale securities with declines in value deemed other than temporary as their unrealized losses are recognized in earnings.

Less Than 12 Months
12 Months or Greater
Total
Fiscal Year
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
Fair Value
Unrealized Losses
2004 $ 150,134 $ 76,829 $ 11,860 $ 103,898 $ 161,994 $ 180,727
2003 195,522 34,384 15,037 10,097 210,559 44,481
The following table summarizes equity investments that are in an unrealized loss position at each balance sheet date, categorized by how long they have been in a continuous loss position. These investments do not include trading securities or those available-for-sale securities with declines in value deemed other than temporary as their unrealized losses are recognized in earnings.

The aggregate gross unrealized loss of $180,727 and $44,181 at June 30, 2004 and 2003, respectively, was primarily related to two and three securities, respectively. Many of the investments included above are early-stage or start-up businesses whose fair values fluctuate.


	Less Than 12 Months				12 Months or Greater				Total
			Unrealized				Unrealized				Unrealized
Fiscal Year	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
2005	$	112,702	$	35,953	$	51,039	$	40,793	$	163,741	$	76,746
2004	$	150,134	$	76,829	$	11,860	$	103,898	$	161,994	$	180,727

~~Note~~4.~~Investment Management, Transfer Agent, and Other Fees~~
~~Fees for providing services to USGIF and USGAF continue to be the Company’s primary continuing revenue source.~~
The Company serves as investment adviser to USGIF and USGAF and receives a fee based on a specified percentage of net assets under management. The investment advisory contract and related contracts between the Company and USGIF expire in February 2005, and the contracts between the Company and USGAF expire in May 2005. Management anticipates the trustees of both USGIF and USGAF will renew the contracts.
The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses on several funds within USGIF through June 30, 2005, or such later date as the Company determines. The aggregate amount of fees waived and expenses borne by the Company was $1,471,151, $1,509,061, and $1,530,046 in 2004, 2003, and 2002, respectively.
As of June 30, 2004, two of the three funds within USGAF are sub-advised by outside third-party managers, who are in turn paid out of the investment advisory fees received by the Company. In March 2002, an agreement was reached with one of these subadvisers whereby $165,000 of subadvisory fees payable was waived.
Prior to June 1, 2004, the Holmes Growth Fund (formerly the Bonnel Growth Fund) was also sub-advised. Bonnel, Inc., the former subadviser of the fund, notified the Company that its portfolio manager, Art Bonnel, would be taking an extended sabbatical beginning June 1, 2004, and therefore Bonnel, Inc. would no longer provide subadvisory services to the fund. The Board of Trustees of USGAF approved the Company to provide investment advisory services to the fund effective June 1, 2004.
The Company also serves as transfer agent to USGIF and USGAF and receives a fee based on the number of shareholder accounts serviced, as well as revenues from miscellaneous transfer agency activities including lockbox functions. The Company also receives exchange, service, and custodian fees directly from USGIF and USGAF shareholders.
The Company also receives revenue from its mailroom operations. During fiscal 2002, an adjustment was made to these billing practices, and a resulting reduction of $104,000 was applied to mail service revenues and related receivables in order to reflect billing volumes.
~~The Company provides in-house legal services to USGIF and USGAF for which it is reimbursed.~~
The Company provided investment management services for an advisory client from May 2002 through March 2004. The Company had a fee arrangement for these services whereby it received an administrative fee annually plus a percentage of any gains from the sale of the securities in the client account. The Company recorded $670,387 and $385,820 in revenue from these fee arrangements for fiscal year 2004 and 2003, respectively.

The aggregate gross unrealized loss of $76,746 and $180,727 at June 30, 2005 and 2004, respectively, was primarily related to three securities. Many of the investments included above are early-stage or start-up businesses whose fair values fluctuate.

~~Note~~5.~~Property and Equipment~~
~~Property and equipment are composed of the following:~~
Note 4. Investment Management, Transfer Agent, and Other Fees

June 30,
2004
2003
Building and land $ 2,275,123 $ 2,271,613
Furniture, equipment, and other 1,734,770 2,144,770

4,009,893 4,416,383
Accumulated depreciation (2,198,405 ) (2,637,551 )

Net property and equipment $ 1,811,488 $ 1,778,832

The Company serves as investment adviser to USGIF and USGAF and receives a fee based on a specified percentage of net assets under management. Three of the four funds within USGAF are sub-advised by third-party managers, who are in turn compensated out of the investment advisory fees received by the Company. The Company also serves as transfer agent to USGIF and USGAF and

~~Note~~6.~~Other Accrued Expenses~~
~~Other accrued expenses consist of the following:~~

June 30,
2004
2003
Omnibus fees $ 137,958 $ 33,380
Subadviser fees 86,322 43,116
Audit and tax fees 67,997 82,000
Other 250,766 203,335

Total other accrued expenses $ 543,043 $ 361,831

~~Note~~7.~~Borrowings~~
The Company had a note payable to a bank, which was secured by land, an office building, and related improvements. The Company paid the note in full in fiscal 2004. The loan was being amortized over a twelve-year period with payments of both principal and interest due monthly based on a fixed rate of 6.50%. The monthly payment was $10,840, and the note was to mature on January 31, 2006. Under this agreement, the Company maintained certain financial covenants. One of the covenants required that the Company maintain cash and cash equivalents and eligible marketable securities to meet or exceed $1 million at the end of each quarter. Through the date the note was paid in full, the Company was in full compliance with all financial covenants.
The Company has access to a $1 million credit facility with a one-year maturity for working capital purposes. Any use of this credit facility will be secured by the Company’s eligible accounts receivable.
~~As of June 30, 2004, this credit facility remained unutilized by the Company.~~
~~Note~~8.~~Lease Commitments~~
The Company has operating leases for computers and equipment that expire between fiscal years 2005 and 2009. Total lease expenses were $245,776, $188,558 and $222,983 in fiscal years 2004, 2003, and 2002, respectively. Future minimum lease payments required under these leases are as follows:

Fiscal Year
Amount
2005 $ 83,580
2006 79,777
2007 76,765
2008 52,334
2009 24,093

Total $ 316,549

~~Note~~9.~~Annuity and Contractual Obligations~~
On February 6, 1989, the Company entered into an agreement with Clark Aylsworth (Aylsworth), the founder of the Company, related to his retirement on December 31, 1988. This agreement provided for the payment to Aylsworth of a monthly annuity of $1,500 for the remainder of his life or his wife’s life, if he predeceased her. Aylsworth passed away in June 2004, and his wife predeceased him. Accordingly, the Company eliminated the obligation related to this agreement.
On December 30, 1990, the Company entered into a noncompete/noninterference agreement, an executory contract, pursuant to which it paid the Aylsworths $4,500 monthly, such amount to have continued for the longer of Aylsworth’s or his wife’s life. The Company determined that the executory contract should be expensed as payments were made. Because Aylsworth died in June 2004, and his wife predeceased him, no further expenses shall be recorded related to this agreement.
The Company had placed cash in escrow to cover the Company’s obligation to the Aylsworths if the Company defaulted. The escrowed amount decreased $15,000 annually and the balance was $195,000 at June 30, 2003, which was disclosed on the balance sheet as restricted investments. As of June 30, 2004, the escrowed balance of $180,000 was transferred to an unrestricted account and is now included in cash and cash equivalents.
~~Note~~~~10.~~~~Benefit Plans~~
The Company offers a savings and investment plan qualified under Section 401(k) of the Internal Revenue Code covering substantially all employees. In connection with this 401(k) plan, participants can voluntarily contribute a portion of their compensation, up to certain limitations, to this plan, and the Company will match 50% of their contribution up to 2% of compensation. The Company has recorded expenses related to the 401(k) plan for contributions of $51,523, $46,918, and $48,760 for fiscal years 2004, 2003, and 2002, respectively.
The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company has neither accrued nor paid a contribution for fiscal years 2004, 2003, and 2002. Prior to January 1, 2002, there was a separate profit sharing plan. Effective January 1, 2002, the separate profit sharing plan was merged into the 401(k) plan for more efficient administration.
The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using mutual funds managed by the Company, which essentially all such employees accepted. Limited employee contributions to an Individual Retirement Account are matched by the Company. Similarly, certain employees may contribute monthly to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children’s education. The Company match, reflected in base salary expense, aggregated in all programs to $50,903, $52,983, and $52,692 in fiscal years 2004, 2003, and 2002, respectively.
The Company has a program whereby eligible employees can purchase treasury shares, at market price, and the Company will match their contribution up to 3% of gross salary. During fiscal years 2004, 2003, and 2002, employees purchased 28,180, 20,510, and 37,770 shares of treasury stock from the Company, respectively.
Additionally, the Company self-funds its employee health care plan. The Company has obtained reinsurance with both a specific and an aggregate stop-loss in the event of catastrophic claims. The Company has accrued an amount representing the Company’s estimate of claims incurred but not paid at June 30, 2004.
~~Note~~~~11.~~~~Shareholders’ Equity~~
On a per share basis, the holders of the class C common stock and the nonvoting class A common stock participate equally in dividends as declared by the Company’s board of directors, with the exception that any dividends declared must first be paid to the holders of the class A stock to the extent of 5% of

~~the Company’s after-tax prior year net earnings. The holders of the class A stock have a liquidation preference equal to the par value of $.05 per share.~~
During fiscal year 1999, the Board of Directors of the Company approved the issuance of 1,000,000 shares of class C common stock to Frank Holmes (Holmes) in exchange for services and cancellation of the option to purchase 400,000 shares of class C common stock held by Holmes and the cancellation of warrants to purchase 586,122 shares of class C common stock held by Holmes and F.E. Holmes Organization, Inc. The 1,000,000 shares vest over a ten-year period beginning July 1, 1998, and will vest fully on June 30, 2008, or in the event of Holmes’ death, and were valued at $.50 per share for compensation purposes. The agreement was executed on August 10, 1999. At June 30, 2004, the unvested balance of this deferred compensation arrangement is $200,000 and is included in additional paid-in capital as a contra account.
During the fiscal years ended June 30, 2004, 2003, and 2002 the Company purchased 16,741, 40,127, and 86,275 shares, respectively, of its class A common stock at an average price of $4.32, $1.64, and $1.23, per share, respectively.
During the years ended June 30, 2004, 2003, and 2002, the Company granted 15,000, 3,000, and 16,600 shares, respectively, of class A common stock to certain employees at a weighted average fair value on grant date of $1.77, $1.60, and $2.04, respectively.
In March 1985, the board of directors adopted an Incentive Stock Option Plan (1985 Plan), amended in November 1989 and December 1991, which provides for the granting of options to purchase 200,000 shares of the Company’s class A common stock, at or above fair market value, to certain executives and key salaried employees of the Company and its subsidiaries. Options under the 1985 Plan were granted for a term of up to five years in the case of employees who own in excess of 10% of the total combined voting power of all classes of the Company’s stock and up to ten years for other employees. Options issued under the 1985 Plan vest six months from the grant date or 20% on the first, second, third, fourth, and fifth anniversaries of the grant date. Options were granted at prices ranging from $1.50 to $4.50 per share, which equaled or exceeded the fair market value at date of grant. The 1985 Plan expired December 31, 1994; consequently, there will be no further options granted under the 1985 Plan. As of June 30, 2004, 1,500 options remain outstanding.
In November 1989, the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan), amended in December 1991, which provides for the granting of options to purchase 800,000 shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. Since adoption of the 1989 Plan, options have been granted at prices ranging from $1.50 to $5.69 per share, which equaled or exceeded the fair market value at date of grant. Options issued under the 1989 Plan vest six months from the grant date or 20% on the first, second, third, fourth, and fifth anniversaries of the grant date.
In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which provides for the granting of stock appreciation rights (SARs) and/or options to purchase 200,000 shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries.

~~Stock option transactions under the various employee stock option plans for the past three fiscal years are summarized below:~~

Weighted
Average
Exercise
Shares
Price ($)
Outstanding June 30, 2001
341,800 2.23
Granted — —
Canceled 150,300 2.62
Exercised 12,000 1.92

Outstanding June 30, 2002
179,500 1.92
Granted — —
Canceled 18,000 1.68
Exercised — —

Outstanding June 30, 2003
161,500 1.94
Granted — —
Canceled 10,000 1.58
Exercised 500 1.82

Outstanding June 30, 2004
151,000 1.26

receives a fee based on the number of shareholder accounts. Additionally, the Company provides in-house legal services to USGIF and USGAF for which it is reimbursed and receives certain miscellaneous fees directly from USGAF and USGIF shareholders. Fees for providing investment and transfer agent services to USGIF and USGAF continue to be the Company’s primary revenue source.

As of June 30, 2004, 2003, and 2002, exercisable employee stock options totaled 144,000, 144,700, and 144,100 shares and had weighted average exercise prices of $1.96, $2.00, and $2.02 per share, respectively.

~~Class A common stock options outstanding and exercisable under the employee stock option plans at June 30, 2004, were as follows:~~

Options Outstanding
Options Exercisable
Weighted Weighted
Date of Remaining Average Average
Option Number Life in Exercise Number Option
Grant
Outstanding
Years
Price ($)
Exercisable
Price ($)
1985
12/15/94 1,500 0.45 2.63 1,500 2.63
Plan Class A

1989
09/05/95 3,500 1.18 2.63 3,500 2.63
Plan
05/24/96 10,000 1.89 3.06 10,000 3.06
Class A

06/04/97 20,000 2.92 2.00 20,000 2.00
12/03/99 15,000 5.42 1.50 12,000 1.50

48,500 3.36 2.11 45,500 2.15
06/04/97 31,000 2.92 1.82 31,000 1.82
1997
06/04/97 50,000 2.92 2.00 50,000 2.00
Plan Class A
12/03/99 20,000 5.42 1.50 16,000 1.50

101,000 3.42 1.85 97,000 1.86
All
12/94
Plans
through
12/99 151,000 3.37 1.26 144,000 1.96

The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses on several funds within USGIF funds and one USGAF fund through November 1, 2006, and February 28, 2006, respectively, or such later date as the Company determines. The aggregate fees waived and expenses borne by the Company were $1,332,000, $1,471,000, and $1,509,000, in 2005, 2004, and 2003, respectively.

The investment advisory and related contracts between the Company and USGIF and USGAF will expire in February 2006 and May 2006, respectively. Management anticipates the trustees of both USGIF and USGAF will renew the contracts.

The Company began providing management and advisory services for the Meridian Global Gold and Resources Fund Ltd., an offshore fund, in the first quarter of fiscal year 2005. The Company initially had a fee arrangement for these services whereby it received a monthly subadvisory fee and an annual performance fee, if any, based on the overall increase in value of the net assets in the fund for the calendar year. During the quarter ended March 31, 2005, the arrangement was changed to provide payment and earnings of performance fees on a quarterly rather than annual basis. The Company has recorded subadvisory and performance fees totaling $299,000 for the fiscal year ended June 30, 2005.

Subsequent to fiscal year end, the Company began providing management and advisory services to the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund. For these services, the Company will be paid a monthly management fee and a quarterly performance fee, if any.

The Company also provided investment management services for a separate client through March 2004. The Company had a fee arrangement whereby it received an annual administrative fee plus a percentage of any gains from the sale of the securities in the client account, payable at the settlement of the sales. The Company recorded $670,000 in revenue from this fee arrangement through March 2004, at which time the agreement was terminated.

The Company receives additional revenue from several sources including custodial fee revenues, revenues from miscellaneous transfer agency activities including lockbox functions, mailroom operations from A&B, as well as investment income.

Note 5. Property and Equipment

Property and equipment are composed of the following:


	June 30,
	2005			2004
Building and land	$	2,303,014		$	2,275,123
Furniture, equipment, and other		1,773,327			1,734,770

		4,076,341			4,009,893
Accumulated depreciation		(2,308,007	)		(2,198,405	)

Net property and equipment	$	1,768,334		$	1,811,488

~~Note~~~~12.~~~~Income Taxes~~
~~The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is:~~

Year Ended June 30,
2004
2003
2002
Tax expense (benefit) at statutory rate $ 966,443 $ 10,917 $ (114,507 )
Nondeductible membership dues 8,722 8,690 14,754
Nondeductible meals and entertainment 16,807 15,091 14,242
Change in valuation allowance (280,921 ) (369,068 ) 137,928
Other (35,212 ) 323,868 (147,768 )

$ 675,839 $ (10,502 ) $ (95,351 )

Note 6. Other Accrued Expenses

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 Company’s deferred total assets and liabilities using a 34% tax rate are as follows:

Year Ended June 30,
2004
2003
Book/tax differences in the balance sheet

Trading securities $ 63,448 $ 317,774
Prepaid expenses (97,210 ) —
Accumulated depreciation 8,012 22,636
Accrued expenses 63,044 54,310
Available-for-sale securities 38,104 120,267
Losses of USGG — 229,307
Annuity obligations — 38,241
Option issued to vendor 5,984 —

81,382 782,535

Tax carryovers

Net operating loss (NOL) carryover — 442,909
Charitable contributions carryover 7,696 23,089
Investment tax credit 34,472 34,472
Alternative minimum tax credits 133,748 139,729

175,916 640,199

Total gross deferred tax asset
257,298 1,422,734
Valuation allowance
(34,472 ) (315,393 )

Net deferred tax asset
$ 222,826 $ 1,107,341

Other accrued expenses consist of the following:

For federal income tax purposes at June 30, 2004, the Company has charitable contribution carryovers of approximately $23,000 expiring between 2008 and 2009, and alternative minimum tax credits of $133,748 with indefinite expirations.
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 $34,472 at June 30, 2004, providing for the utilization of investment tax credits against future taxable income. At June 30, 2003, the valuation allowance was $315,393. The valuation allowance was reduced in fiscal 2004 as net operating loss carryovers were fully utilized against taxable income.


	June 30,
	2005		2004
Omnibus fees	$	509,185	$	137,958
Subadviser fees		295,500		86,322
Vendors payable		286,880		88,986
Taxes payable		181,099		85,859
Legal, professional, and consulting fees		127,713		102,497
Other		80,661		41,421

Total other accrued expenses	$	1,481,038	$	543,043

Note 7. Borrowings

The Company had a note payable to a bank until the latter part of fiscal 2004 when the note was paid in full. The note had been secured by land, an office building, and related improvements and was to mature in January 2006. The monthly payment of $10,840 consisted of principal and interest based on a fixed rate of 6.5%. As of June 30, 2005, the Company has no long-term liabilities.

The Company has access to a $1 million credit facility with a one-year maturity for working capital purposes. The Company must maintain certain quarterly financial covenants to access the line of credit. Any use of this credit facility will be secured by the Company’s eligible accounts receivable. As of June 30, 2005, this credit facility remained unutilized by the Company.

Note 8. Lease Commitments

The Company has operating leases for computers and equipment that expire from fiscal years 2006 through 2009. Total lease expenses were $360,778, $245,776, and $188,558 in fiscal years 2005, 2004, and 2003, respectively. Future minimum lease payments required under these leases are as follows:


Fiscal Year	Amount
2006	$	79,813
2007		76,800
2008		52,370
2009		8,673

Total	$	217,656

Note 9. Benefit Plans

The Company offers a savings and investment plan qualified under Section 401(k) of the Internal Revenue Code covering substantially all employees. In connection with this 401(k) plan, participants can voluntarily contribute a portion of their compensation, up to certain limitations, to this plan, and the Company will match 50% of participants’ contributions up to 4% of compensation. The Company has recorded expenses related to the 401(k) plan for contributions of $55,018, $51,523, and $46,918 for fiscal years 2005, 2004, and 2003, respectively.

The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company has neither accrued nor paid a contribution for fiscal years 2005, 2004, and 2003.

The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using mutual funds managed by the Company, which essentially all such employees accepted. Employees may contribute to an IRA, and the Company matches these contributions on a limited basis. Similarly, certain employees may contribute to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children’s education. The Company match, reflected in base salary expense, aggregated in all programs to $54,616, $50,903, and $52,983 in fiscal years 2005, 2004, and 2003, respectively.

~~Note~~13~~Earnings Per Share~~
~~The following table sets forth the computation for basic and diluted earnings per share (EPS):~~

Year Ended June 30,
2004
2003
2002
Basic and diluted net income (loss)
$ 2,166,642 $ 42,612 $ (241,434 )
Weighted average number of outstanding shares

Basic 7,469,164 7,460,260 7,456,181
Effect of dilutive securities

Employee stock options 63,970 8,860 —

Diluted 7,533,134 7,469,120 7,456,181

Earnings (loss) per share

Basic $ 0.29 $ 0.01 $ (0.03 )

Diluted $ 0.29 $ 0.01 $ (0.03 )

The Company has a program whereby eligible employees can purchase treasury shares, at market price, and the Company will match their contribution up to 3% of gross salary. During fiscal years 2005, 2004, and 2003, employees purchased 15,127; 28,180; and 20,510 shares of treasury stock from the Company, respectively.

The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed the average market price for the period. For the years ended June 30, 2004, 2003, and 2002, employee stock options for 0, 88,000, and 179,500 shares, respectively, were excluded from diluted EPS. Additionally, an option issued to a vendor for 20,000 shares was excluded for the year ended June 30, 2004, because it was anti-dilutive as the exercise price was greater than the year-end share price.
~~Note~~~~14.~~~~Comprehensive Income~~
~~The Company has disclosed the components of comprehensive income in the consolidated statements of operations and comprehensive income.~~

Before-Tax Tax Net-of-Tax
Amount
Expense
Amount
June 30, 2004

Unrealized gains on available-for-sale securities $ 824,177 $ (280,220 ) $ 543,957

Other comprehensive income $ 824,177 $ (280,220 ) $ 543,957

June 30, 2003

Unrealized gains on available-for-sale securities $ 45,103 $ (15,335 ) $ 29,768

Other comprehensive income $ 45,103 $ (15,335 ) $ 29,768

June 30, 2002

Unrealized gains on available-for-sale securities $ 93,504 $ (31,791 ) $ 61,713

Other comprehensive income $ 93,504 $ (31,791 ) $ 61,713

Additionally, the Company self-funds its employee health care plan. The Company has obtained reinsurance with both a specific and an aggregate stop-loss in the event of catastrophic claims. The Company has accrued an amount representing the Company’s estimate of claims incurred but not paid at June 30, 2005.

Note 10. Shareholders’ Equity

On a per share basis, the holders of the class C common stock and the nonvoting class A common stock participate equally in dividends as declared by the Company’s board of directors, with the exception that any dividends declared must first be paid to the holders of the class A stock to the extent of 5 percent of the Company’s after-tax prior year net earnings. The holders of the class A stock have a liquidation preference equal to the par value of $.05 per share. In the event of a full liquidation, the total liquidation preference of the holders of the class A stock would be $315,824, based on shares outstanding at June 30, 2005.

During fiscal year 1999, the Board of Directors of the Company approved the issuance of 1,000,000 shares of class C common stock to Frank Holmes (Holmes) in exchange for services and cancellation of the option to purchase 400,000 shares of class C common stock held by Holmes and the cancellation of warrants to purchase 586,122 shares of class C common stock held by Holmes and F.E. Holmes Organization, Inc. The 1,000,000 shares vest over a ten-year period beginning July 1, 1998, and will vest fully on June 30, 2008, or in the event of Holmes’ death, and were valued at $.50 per share for compensation purposes. The agreement was executed on August 10, 1999. At June 30, 2005, the unvested balance of this deferred compensation arrangement is $150,000 and is included in additional paid-in capital as a contra account.

During the fiscal years ended June 30, 2005, 2004, and 2003 the Company purchased 2,980, 16,741, and 40,127 shares, respectively, of its class A common stock at an average price of $4.69, $4.32, and $1.64, per share, respectively.

During the year ended June 30, 2005, the Company granted no shares of class A common stock to employees. During the years ended June 30, 2004, and 2003, the Company granted 15,000 and 3,000 shares, respectively, of class A common stock to certain employees at a weighted average fair value on grant date of $1.77 and $1.60, respectively.

In March 1985, the board of directors adopted an Incentive Stock Option Plan (1985 Plan), amended in November 1989 and December 1991, which provides for the granting of options to purchase 200,000 shares of the Company’s class A common stock, at or above fair market value, to certain executives and key salaried employees of the Company and its subsidiaries. Options under the 1985 Plan were granted for a term of up to five years in the case of employees who own in excess of 10 percent of the total combined voting power of all classes of the Company’s stock and up to ten years for other employees. Options issued under the 1985 Plan vest six months from the grant date or 20 percent on the first, second, third, fourth, and fifth anniversaries of the grant date. Options were granted at prices ranging from $1.50 to $4.50 per share, which equaled or exceeded the fair market value at date of grant. The 1985 Plan expired December 31, 1994; consequently, there will be no further options granted under the 1985 Plan. As of June 30, 2005, no options remain outstanding.

In November 1989, the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan), amended in December 1991, which provides for the granting of options to purchase 800,000 shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. Since adoption of the 1989 Plan, options have been granted at prices ranging from $1.50 to $5.69 per share, which equaled or exceeded the fair market value at date of grant. Options issued under the 1989 Plan vest six months from the grant date or 20 percent on the first, second, third, fourth, and fifth anniversaries of the grant date. Subsequent to fiscal year end, a director exercised an option for 10,000 shares issued under the 1989 plan.

~~Note~~~~15.~~~~Financial Information by Business Segment~~

The Company operates principally in two business segments: providing 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 details total revenues and income (loss) by business segment:

Investment Corporate
Management Investment Consolidated
Services ($)
($)
($)
Year ended June 30, 2004

Net revenues 11,979,314 1,004,186 12,983,500

Net income (loss) before income taxes 1,839,764 1,002,717 2,842,481

Depreciation 108,065 — 108,065

Interest expense 72,962 183 73,145

Capital expenditures 145,548 — 145,548

Gross identifiable assets at June 30, 2004 6,428,674 2,885,096 9,313,770
Deferred tax asset 222,826

Consolidated total assets at June 30, 2004 9,536,596

Year ended June 30, 2003

Net revenues 7,842,828 (363,892 ) 7,478,936

Net income (loss) before income taxes 427,341 (395,231 ) 32,110

Depreciation 121,493 — 121,493

Interest expense 82,216 729 82,945

Gain on litigation settlement 371,057 — 371,057

Capital expenditures 30,335 — 30,335

Gross identifiable assets at June 30, 2003 5,218,667 1,113,679 6,332,346
Deferred tax asset 1,107,341

Consolidated total assets at June 30, 2003 7,439,687

Year ended June 30, 2002

Net revenues 7,975,056 (207,542 ) 7,767,514

Net income (loss) before income taxes (128,643 ) (208,142 ) (336,785 )

Depreciation 164,674 — 164,674

Interest expense 84,810 574 85,384

Capital expenditures 4,765 — 4,765

Gross identifiable assets at June 30, 2002 4,537,360 2,263,086 6,800,446
Deferred tax asset 1,104,575

Consolidated total assets at June 30, 2002 7,905,021

In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which provides for the granting of stock appreciation rights (SARs) and/or options to purchase 200,000 shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. On October 1, 2004, options for 20,000 shares were granted at an exercise price of $3.29 per share and vesting of 50 percent on the first and second anniversary dates.

		~~Note~~~~16.~~~~Related Party Transactions~~

		The Company had $3,045,000 and $1,125,000 invested in USGIF money market and municipal bond mutual funds at June 30, 2004, and 2003, respectively. Receivables from mutual funds represent amounts due the Company and its wholly owned subsidiaries for investment advisory fees, transfer agent fees, and out-of-pocket expenses, net of amounts payable to the mutual funds.

		Frank Holmes, a director and CEO of the Company, served as an independent director of Franc-Or Resources from June 2000 to November 2003. The Company owns a position in Franc-Or Resources at June 30, 2004, with an estimated fair value of $357,521, recorded as a trading security on the balance sheet.

		Holmes served as chairman of Fortress IT Corp. from November 2000 to November 2003. The Company held a position in Fortress IT Corp., which was sold during fiscal 2004 for $7,500. The Company recognized a loss on this transaction of $17,630.

Stock option transactions under the various employee stock option plans for the past three fiscal years are summarized below:


			Weighted
			Average
			Exercise
	Shares		Price ($)
Outstanding June 30, 2002		179,500		1.92
Granted		—		—
Canceled		18,000		1.68
Exercised		—		—
Outstanding June 30, 2003		161,500		1.94
Granted		—		—

Canceled		10,000		1.58
Exercised		500		1.82

Outstanding June 30, 2004		151,000		1.94
Granted		20,000		3.29
Canceled		2,000		2.07
Exercised		4,500		1.63

Outstanding June 30, 2005		164,500		2.11

As of June 30, 2005, 2004, and 2003, exercisable employee stock options totaled 144,500, 144,000, and 144,700 shares and had weighted average exercise prices of $1.95, $1.96, and $2.00 per share, respectively.

Holmes also served as an independent director for BCS Global Networks (formerly Broadband Collaborative Solutions), a private company, from May 2000 to June 30, 2002, when the entity became a public company. Holmes personally owned shares of BCS Global Networks at June 30, 2004. The Company owned a position in BCS Global Networks at June 30, 2004, with an estimated fair value of $16,882 recorded as available for sale on the balance sheet.
~~Holmes had an outstanding payable to the Company of $0 and $1,613 at June 30, 2004, and 2003, respectively.~~
~~During fiscal year 2002, J. Stephen Penner, a former director of the Company who resigned during fiscal year 2002, exercised options for 10,000 shares of Class A stock at $2.00 per share.~~
~~Note~~~~17.~~~~Receivable Adjustments~~
In fiscal year 2001, the Company paid $182,115 for losses from shareholder activity incurred by USGIF in previous years. Management consulted with its insurance carrier and determined that it was probable that this sum could be claimed against the Company’s insurance policy. The deductible on this policy was $25,000, which amount was expensed in fiscal 2000. The balance of approximately $157,000 was booked as a receivable at June 30, 2001. In fiscal year 2002, discussions with the insurance carrier indicated that the possibility of recovery was not likely, and as such, the entire receivable balance was expensed. Any subsequent collections on this claim will result in a reversal of this expense to the extent of collection. During fiscal year 2003, the Company collected $20,000 on this claim. During fiscal year 2004, no additional amounts were collected on the claim.
~~Note~~~~18.~~~~Contingencies and Commitments~~
During fiscal year 2001, the Company was named as one of several defendants in a civil lawsuit filed in New York. In June 2003, this lawsuit was dismissed. However, in July 2003, the plaintiff filed an appeal. In November 2003, the Company’s insurance carrier authorized a settlement offer, which was accepted in August 2004. This settlement was paid by the carrier; therefore, it had no impact on the Company’s earnings.
The Company was the plaintiff in a lawsuit filed in Ontario, Canada. As a result of mediation in June 2003, the Company and the defendant agreed to a settlement in the amount of $371,057, which was recorded as a receivable on the balance sheet and a gain on the statement of operations, respectively. The Company received payment on the settlement in fiscal 2004, and the case was formally dismissed.
~~In addition, in fiscal 2004, the Company was named as one of two defendants in a lawsuit, which the Company settled for $7,500 prior to June 30, 2004.~~
Beginning in July 2003, the Company agreed to maintain a minimum yield on its U.S. Treasury Securities Cash Fund. In order to comply with this arrangement, it may be necessary for the Company to waive a portion of its management fees. These fee waivers are recorded as incurred. If in future periods the yield exceeds the minimum, the Company may be eligible to recover previously waived amounts. The amount of fees waived during fiscal 2004 was $45,136. Due to the unpredictability of future yields, the Company has not recorded a receivable for this amount in its financial statements.
The Company entered into an agreement in March 2004 with a financial consulting company to render advice, disseminate information about the Company, and assist in public relations. The Company is obligated to pay the consulting company $5,000 per month until the agreement terminates in March 2005.
~~The Company entered into an agreement with a telecommunications company, which commenced in August 2004, to provide an e-mail server and a web server. The agreement terminates in July 2007.~~

Class A common stock options outstanding and exercisable under the employee stock option plans at June 30, 2005, were as follows:


	Options Outstanding							Options Exercisable
						Weighted				Weighted
	Date of			Remaining		Average				Average
	Option	Number		Life in		Exercise		Number		Option
	Grant	Outstanding		Years		Price ($)		Exercisable		Price ($)
1989	09/05/95		3,500		.18		2.63		3,500		2.63
Plan	05/24/96		10,000		.89		3.06		10,000		3.06
Class A	06/04/97		20,000		1.92		2.00		20,000		2.00
	12/03/99		15,000		4.42		1.50		15,000		1.50

			48,500		2.36		2.11		48,500		2.11

1997	06/04/97		31,000		1.92		1.82		31,000		1.82
Plan	06/04/97		50,000		1.92		2.00		50,000		2.00
Class A	12/03/99		15,000		4.42		1.50		15,000		1.50
	10/01/04		20,000		9.25		3.29		—		—

			116,000		3.51		2.11		96,000		1.86

All Plans	12/94 through 12/99		164,500		3.17		2.11		144,500		1.95

Note 11. Income Taxes

The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is:


	Year Ended June 30,
				% of						% of						% of
	2005			Pretax			2004			Pretax			2003			Pretax
Tax expense (benefit) at statutory rate	$	760,390			34.0	%	$	966,443			34.0	%	$	10,917			34.0	%
Nondeductible membership dues		8,602			0.4	%		8,722			0.3	%		8,690			27.1	%
Nondeductible meals and entertainment		25,291			1.1	%		16,807			0.6	%		15,091			47.0	%
Change in valuation allowance		(34,472	)		(1.5	%)		(280,921	)		(9.9	%)		(369,068	)		(1149.4	%)
Other		30,160			1.3	%		(35,212	)		(1.2	%)		323,868			1008.6	%

	$	789,971			35.3	%	$	675,839			23.8	%	$	(10,502	)		(32.7	%)

Components of total tax expense are as follows:


	Year Ended June 30,
	2005		2004		2003
Current tax expense	$	749,347	$	71,543	$	7,601
Deferred tax expense (benefit)		49,624		604,296		(18,103	)

Total tax expense (benefit)	$	789,971	$	675,839	$	(10,502	)

~~Note~~~~19.~~~~Selected Quarterly Financial Data (Unaudited)~~

Fiscal 2004
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
(in thousands except per share figures)
Revenues $ 2,629 $ 4,337 $ 3,217 $ 2,800
Expenses $ 1,946 $ 2,514 $ 2,870 $ 2,811
Gain on Litigation Settlement $ — $ — $ — $ —
Income (Loss) Before Income Taxes $ 683 $ 1,823 $ 347 $ (11 )
Net Income $ 688 $ 1,248 $ 240 $ (10 )
Earnings per Share:
Basic $ 0.09 $ 0.17 $ 0.03 ($ 0.00 )
Diluted $ 0.09 $ 0.17 $ 0.03 ($ 0.00 )
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 Company’s deferred total assets and liabilities using a 34% tax rate are as follows:

Fiscal 2003
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
(in thousands except per share figures)
Revenues $ 1,971 $ 2,041 $ 1,874 $ 1,593
Expenses $ 1,857 $ 1,904 $ 1,948 $ 2,109
Gain on Litigation Settlement $ — $ — $ — $ 371
Income (Loss) Before Income Taxes $ 114 $ 137 $ (74 ) $ (145 )
Net Income $ 111 $ 142 $ (70 ) $ (140 )
Earnings per Share:
Basic $ 0.01 $ 0.02 ($ 0.01 ) ($ 0.02 )
Diluted $ 0.01 $ 0.02 ($ 0.01 ) ($ 0.02 )


	Year Ended June 30,
	2005			2004
Book/tax differences in the balance sheet
Trading securities	$	145,578		$	63,448
Prepaid expenses		(145,089	)		(97,210	)
Accumulated depreciation		12,086			8,012
Accrued expenses		80,499			63,044
Available for sale securities		147,680			38,104
Option issued to vendor		5,984			5,984

		246,738			81,382

Tax carryovers
Charitable contributions carryover		—			7,696
Investment tax credit		—			34,472
Alternative minimum tax credits		—			133,748

		246,738			175,916

Total gross deferred tax asset		246,738			257,298
Valuation allowance		—			(34,472	)

Net deferred tax asset	$	246,738		$	222,826

For federal income tax purposes at June 30, 2005, the Company has no remaining carryovers.

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 included a valuation allowance of $34,472 at June 30, 2004, providing for the utilization of investment tax credits. The valuation allowance was reduced to zero in fiscal 2005 as the credits expired.

Note 12. Earnings Per Share

The following table sets forth the computation for basic and diluted earnings per share (EPS):


	Year Ended June 30,
	2005		2004		2003
Basic and diluted net income	$	1,446,471	$	2,166,642	$	42,612

Weighted average number of outstanding shares
Basic		7,479,998		7,469,164		7,460,260

Effect of dilutive securities
Employee stock options		84,271		63,970		8,860

Diluted		7,564,269		7,533,134		7,469,120


Earnings per share
Basic	$	0.19	$	0.29	$	0.01

Diluted	$	0.19	$	0.29	$	0.01

The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed the average market price for the period. For the years ended June 30, 2005, 2004, and 2003, employee stock options for 0, 0, and 88,000 shares, respectively, were excluded from diluted EPS. Additionally, an option issued to a vendor for 20,000 shares was excluded for the years ended June 30, 2005, and June 30, 2004, because it was anti-dilutive as the exercise price was greater than the average share price during the year. The option for 20,000 shares issued to a vendor expired on May 15, 2005.

Note 13. Comprehensive Income

The Company has disclosed the components of comprehensive income in the consolidated statements of operations and comprehensive income.


	Before-Tax			Tax			Net-of-Tax
	Amount			Effect			Amount
June 30, 2005
Unrealized losses on available-for-sale securities	$	(216,280	)	$	73,535		$	(142,745	)

Other comprehensive income	$	(216,280	)	$	73,535		$	(142,745	)

June 30, 2004
Unrealized gains on available-for-sale securities	$	824,177		$	(280,220	)	$	543,957

Other comprehensive income	$	824,177		$	(280,220	)	$	543,957

June 30, 2003
Unrealized gains on available-for-sale securities	$	45,103		$	(15,335	)	$	29,768

Other comprehensive income	$	45,103		$	(15,335	)	$	29,768

Note 14. Financial Information by Business Segment


	Investment
	Management		Corporate
	Services		Investment			Consolidated
Year ended June 30, 2005
Net revenues (loss)	$	17,408,377	$	(427,038	)	$	16,981,339

Net income (loss) before income taxes		2,691,479		(455,037	)		2,236,442

Depreciation		109,899		—			109,899

Interest expense		81		—			81

Capital expenditures		67,634		—			67,634

Gross identifiable assets at June 30, 2005		8,331,233		3,524,544			11,855,777
Deferred tax asset							246,738

Consolidated total assets at June 30, 2005							12,102,515

Year ended June 30, 2004
Net revenues		11,979,314		1,004,186			12,983,500

Net income (loss) before income taxes		1,839,764		1,002,717			2,842,481

Depreciation		108,065		—			108,065

Interest expense		72,962		183			73,145

Capital expenditures		145,548		—			145,548

Gross identifiable assets at June 30, 2004		6,428,674		2,885,096			9,313,770
Deferred tax asset							222,826

Consolidated total assets at June 30, 2004							9,536,596

Year ended June 30, 2003
Net revenues (loss)		7,842,828		(363,892	)		7,478,936

Net income (loss) before income taxes		427,341		(395,231	)		32,110

Depreciation		121,493		—			121,493

Interest expense		82,216		729			82,945

Gain on litigation settlement		371,057		—			371,057

Capital expenditures		30,335		—			30,335

Gross identifiable assets at June 30, 2003		5,218,667		1,113,679			6,332,346
Deferred tax asset							1,107,341

Consolidated total assets at June 30, 2003							7,439,687

Note 15. Related Party Transactions

The Company had $4,823,000 and $3,045,000 invested in USGIF and USGAF mutual funds at June 30, 2005, and 2004, respectively. Receivables from mutual funds shown on the Consolidated Balance Sheets represent amounts due the Company and its wholly owned subsidiaries for investment advisory fees, transfer agent fees, and out-of-pocket expenses, net of amounts payable to the mutual funds.

The Company invested $500,000 in an offshore fund (U.S. Global Investors Balanced Natural Resources Fund, Ltd.) that the Company will subadvise starting in July 2005.

Frank Holmes, a director and CEO of the Company, served as an independent director of Franc-Or Resources from June 2000 to November 2003. The Company owns a position in Franc-Or Resources at June 30, 2005, with an estimated fair value of approximately $229,000, recorded as a trading security on the balance sheet.

Mr. Holmes also served as an independent director for BCS Global Networks (formerly Broadband Collaborative Solutions), a private company, from May 2000 to June 30, 2002, when the entity became

a public company. Mr. Holmes personally owned shares of BCS Global Networks at June 30, 2005. The Company owned a position in BCS Global Networks at June 30, 2005, with an estimated fair value of approximately $42,000 recorded as available for sale on the balance sheet. Subsequent to fiscal year end, both the Company and Mr. Holmes sold their holdings in BCS Global Networks in response to a tender offer.

Note 16. Contingencies and Commitments

Beginning in July 2003, the Company agreed to maintain a minimum yield on its U.S. Treasury Securities Cash Fund. In order to comply with this arrangement, it may be necessary for the Company to waive a portion of its management fees. These fee waivers are recorded as incurred. If in future periods the yield exceeds the minimum, the Company may be eligible to recover previously waived amounts. The amount of fees waived during fiscal years 2005 and 2004 was $0 and $45,136, respectively. Due to the unpredictability of future yields, the Company has not recorded a receivable for this amount in its financial statements.

The Company entered into an agreement in March 2004 with a financial consulting company to render advice, disseminate information about the Company, and assist in public relations. The Company paid the consulting company $5,000 per month until the agreement terminated in March 2005.

The Company entered into an agreement with a telecommunications company, which commenced in August 2004, to provide an e-mail server and a web server. The agreement terminates in July 2007.

Note 17. Selected Quarterly Financial Data (Unaudited)


Fiscal 2005	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
(in thousands except per share figures)
Revenues	$	2,962	$	4,106	$	4,884	$	5,029
Expenses	$	2,631	$	3,495	$	4,154	$	4,465
Income Before Income Taxes	$	331	$	611	$	730	$	564
Net Income	$	240	$	407	$	449	$	350
Earnings per Share:
Basic	$	0.03	$	0.05	$	0.06	$	0.05
Diluted	$	0.03	$	0.05	$	0.06	$	0.05


Fiscal 2004	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
(in thousands except per share figures)
Revenues	$	2,629	$	4,337	$	3,217	$	2,800
Expenses	$	1,946	$	2,514	$	2,870	$	2,811
Income (Loss) Before Income Taxes	$	683	$	1,823	$	347	$	(11	)
Net Income	$	688	$	1,248	$	240	$	(10	)
Earnings per Share:
Basic	$	0.09	$	0.17	$	0.03		($0.00	)
Diluted	$	0.09	$	0.17	$	0.03		($0.00	)

~~Item 9.~~ ~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There are no changes in and disagreements with accountants on accounting and financial disclosure during the two most recent fiscal years.

Disclosure in response to this item is furnished in the Company’s Annual Report on Form 10-K for fiscal year ended June 30, 2003, (filed September 29, 2003). The matter is not further disclosed in this report (per Instruction 1 to Item 304 of Regulation S-K).

Item 9A. Controls and Procedures

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2005, was conducted under the supervision and with the participation of management, including our chief executive officer and chief financial officer. Based on that evaluation the chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2005.

There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2005, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2004, was conducted under the supervision and with the participation of management, including our chief executive officer and chief financial officer. Based on that evaluation the chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2004.
There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2004, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

3337

~~Part III of Annual Report on Form 10-K~~

Part III of Annual Report on Form 10-K

Item 10. Directors and Executive Officers of the Company

~~The directors and executive officers of the Company are as follows:~~

The directors and executive officers of the Company are as follows:


Name	Age		Position
Frank E. Holmes		4950	Chairman of the Board of Directors and Chief Executive Officer of the Company since October 1989, and Chief Investment Officer since June 1999. Since October 1989, Mr. Holmes has served and continues to serve in various positions with the Company, its subsidiaries, and the investment companies it sponsors. Mr. Holmes has also served as Director of 71316 Ontario, Inc. since April 1987. Director, President, and Secretary of F.E. Holmes Organization, Inc. since July 1978. Mr. Holmes served as Director of Franc-Or Resources Corporation from June 2000 to November 2003, Chairman and Director of Fortress IT Corp (formerly Consolidated Fortress) from November 2000 to November 2003, and Director of Broadband Collaborative Solutions from May 2000 to June 2002.

Jerold H. Rubinstein		6667	Director of the Company since October 1989. Chief Executive Officer and founder of Music Imaging & Media, Inc. from July 2002 to present. Chairman of Musicplex, Inc. from September 1999 to June 2002. Chairman ~~and Chief Executive Officer~~ of Xtra Music Services from July 1997 to May 2000. Chairman of the Board of Directors and Chief Executive Officer of DMX Inc. from May 1986 to July 1997.

Roy D. Terracina		5859	Director of the Company since December 1994 and Vice Chairman of the Board of Directors since May 1997. Owner of Sunshine Ventures, Inc., an investment company, since January 1994.

Thomas F. Lydon, Jr.		4445	Director of the Company since June 1997. Chairman of the Board and President of Global Trends Investments since April 1996. President, Vice President and Account Manager with Fabian Financial Services, Inc. from April 1984 to March 1996. Member of the Advisory Board for Schwab Institutional from 1989 to 1991 and from 1995 to 1996. Member of the Advisory Board of Rydex Series Trust since January 1999. Fund Relations Chair for SAAFTI since 1994.

Susan B. McGee		4546	President of the Company since February 1998, General Counsel since March 1997. Since September 1992, Ms. McGee has served and continues to serve in various positions with the Company, its subsidiaries, and the investment companies it sponsors.

Catherine A. Rademacher		4445	Chief Financial Officer of the Company since August 2004. Controller of the Company from April 2004 until August 2004. Associate with Resources Connection from July 2003 to February 2004. Recruiting Manager with Robert Half International from November 2002 to June 2003. Controller of Luby’s Inc. from June 2000 to October 2002. Assistant Controller of Hunt Building Corp. from April 1995 to October 1998. Senior auditor with KPMG Peat Marwick from October 1993 to March 1995.

None of the directors or executive officers of the Company has a family relationship with any of the other directors or executive officers.

~~None of the directors or executive officers of the Company has a family relationship with any of the other directors or executive officers.~~

3438

The members of the board of directors are elected for one-year terms or until their successors are elected and qualified. The board of directors appoints the executive officers of the Company. The Company’s Compensation Committee assists the board of directors in carrying out its responsibilities with respect to (a) employee qualified benefit plans and employee programs, (b) executive compensation programs, (c) stock option plans, and (d) director compensation programs, and consists of Messrs. Lydon, Rubinstein, and Terracina. The Company’s Audit Committee consists of Messrs. Lydon, Rubinstein, and Terracina. The board of directors has determined that a member of the Audit Committee, namely Roy D. Terracina, is an “audit committee financial expert” (as defined by the SEC). The Company does not have a Nominating Committee.

Code of Ethics for Senior Financial Officers

The Company has adopted a Code of Ethics for Senior Financial Officers that applies to the Company’s principal executive officer and principal financial officer. This code charges these individuals with responsibilities regarding honest and ethical conduct, the preparation and quality of the disclosures in documents and reports the Company files with the Securities and Exchange Commission, and compliance with applicable laws, rules and regulations.

Compliance with Section 16(a) of the 1934 Act

Section 16(a) of the 1934 Act requires directors and officers of the Company, and persons who own more than 10% of the Company’s class A common stock, to file with the Securities and Exchange Commission (SEC) initial reports of ownership and reports of changes in ownership of the stock. Directors, officers and more than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended June 30, 2005, all Section 16(a) filing requirements applicable to its directors, officers and more than 10% beneficial owners were met.

The members of the board of directors are elected for one-year terms or until their successors are elected and qualified. The board of directors appoints the executive officers of the Company. The Company’s Compensation Committee consists of Messrs. Lydon, Rubinstein, and Terracina. The Company’s Audit Committee consists of Messrs. Lydon, Rubinstein, and Terracina. The board of directors has determined that a member of the Audit Committee, namely Roy D. Terracina, is an “audit committee financial expert” (as defined by the SEC). The Stock Option Committee consists of Mr. Rubinstein and Mr. Terracina. The Company does not have a Nominating Committee.
~~Code of Ethics for Senior Financial Officers~~
The Company has adopted a Code of Ethics for Senior Financial Officers that applies to the Company’s principal executive officer and principal financial officer. This code charges these individuals with responsibilities regarding honest and ethical conduct, the preparation and quality of the disclosures in documents and reports the Company files with the Securities and Exchange Commission, and compliance with applicable laws, rules and regulations.
~~Compliance with~~~~Section 16(a)~~ ~~of the 1934 Act~~
Section 16(a) of the 1934 Act requires directors and officers of the Company, and persons who own more than 10% of the Company’s class A common stock, to file with the Securities and Exchange Commission (SEC) initial reports of ownership and reports of changes in ownership of the stock. Directors, officers and more than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended June 30, 2004, all Section 16(a) filing requirements applicable to its directors, officers and more than 10% beneficial owners were met.

3539

Item 11. Executive Compensation

The Company has intentionally omitted columns (g), (h), and (i) as they are not applicable.

Executive compensation includes amounts identified for 401(k) contributions and amounts for Company savings plans (calculable through the end of the June 30, 2005, fiscal year).


											Long-Term
											Compensation
Annual Compensation											Awards
(a)	(b)		(c)			(d)		(e)			(f)
								Other
Name and								Annual			Restricted
Principal Position								Compen-			Stock
During FY 2005	Year		Salary ($)			Bonus ($)		sation ($)			Awards ($)
Frank Holmes		2005		492,040	⁽¹⁾		273,805		—	⁽³⁾		50,000	⁽²⁾
Chairman, Chief		2004		485,190	⁽¹⁾		206,640		—	⁽³⁾		50,000	⁽²⁾
Executive Officer		2003		486,025	⁽¹⁾		110,195		—	⁽³⁾		50,000	⁽²⁾

Susan B. McGee		2005		188,714			213,186		—	⁽³⁾		—
President, General		2004		188,714			168,210		—	⁽³⁾		—
Counsel		2003		175,206			64,390		—	⁽³⁾		6,500

Catherine A. Rademacher		2005		96,116			23,630		—	⁽³⁾		—
Chief Financial Officer

		~~The Company has intentionally omitted columns (g), (h), and (i) as they are not applicable.~~

		~~Executive compensation includes amounts identified for 401(k) contributions and amounts for Company savings plans (calculable through the end of the June 30, 2004, fiscal year).~~

Long-Term
Annual Compensation Compensation Awards
(a)
(b)
(c)
(d)
(e)
(f)
Other
Name and Annual Restricted
Principal Position Compen- Stock
During FY 2004
Year
Salary ($)
Bonus ($)
sation ($)
Awards ($)
Frank Holmes 2004 485,190 ⁽¹⁾ 206,640 — ⁽³⁾ 50,000 ⁽²⁾
Chairman, Chief Executive 2003 486,025 ⁽¹⁾ 110,195 — ⁽³⁾ 50,000 ⁽²⁾
Officer 2002 356,480 ⁽¹⁾ 103,715 — ⁽³⁾ 50,000 ⁽²⁾
Susan B. McGee 2004 188,714 168,210 — ⁽³⁾ —
President, General 2003 175,206 64,390 — ⁽³⁾ 6,500
Counsel 2002 151,610 50,536 — ⁽³⁾ 4,300
Tracy C. Peterson⁽⁴⁾
2004 91,286 21,037 — ⁽³⁾ —
Chief Financial Officer 2003 91,284 14,333 — ⁽³⁾ 4,050
2002 82,443 19,130 — ⁽³⁾ 2,150

⁽¹⁾		Includes trustee fees of $47,250, $40,400, ~~$40,350,~~ and ~~$38,200~~$40,350 paid by the Company during fiscal year 2005, 2004, ~~2003,~~ and ~~2002,~~2003, respectively.

⁽²⁾		In June 1999, the board of directors granted Holmes 1,000,000 shares of class C common stock to be vested, in equal parts, over a ten-year period beginning with fiscal year 1999, with an annual compensation value of $50,000. Holmes will be fully vested on June 30, 2008. Issuance was in part to compensate him for his efforts and upon cancellation of Holmes’ warrants and option to acquire 986,122 shares of class C common stock.

⁽³⁾		The Company believes that the aggregate amounts of such omitted personal benefits do not exceed the lesser of $50,000 or 10% of the total of annual salary and bonus reported in columns (c) and (d) for the named executive officers.

⁽⁴⁾		~~Mr. Peterson terminated his employment effective July 14, 2004.~~

Incentive Compensation

Executive officers, except Mr. Holmes, participate in a team performance pay program based on each employee’s annual salary to recognize monthly completion of departmental goals. Additionally, key executive officers are compensated based on individual performance pay arrangements.

401(k) Plan

The Company offers a 401(k) plan covering substantially all employees. The Company will match a certain percentage of a participating employee’s pay deferment. The Company contributes to participants’ accounts at the same time that the employee’s pay deferral is made. Employees are immediately vested in both their 401(k) salary deferral contribution and the Company’s matching contribution.

The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company did not make a profit sharing contribution for the 2005, 2004 or 2003 fiscal years.

~~Incentive Compensation~~
Executive officers, except Mr. Holmes, participate in a team performance pay program based on each employee’s annual salary to recognize monthly completion of departmental goals. Additionally, key executive officers are compensated based on individual performance pay arrangements.
4~~01(k)~~ ~~Plan~~
The Company offers a 401(k) plan covering substantially all employees. The Company will match a certain percentage of a participating employee’s pay deferment. The Company contributes to participants’ accounts at the same time that the employee’s pay deferral is made. Employees are immediately vested in both their 401(k) salary deferral contribution and the Company’s matching contribution.
The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company did not make a profit sharing contribution for the 2004, 2003 or 2002 fiscal years. Prior to January 1, 2002, there was a separate profit sharing plan. Effective

Savings Plans

The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using managed investment companies. Limited employee contributions to an Individual Retirement Account are matched by the Company. Similarly, certain employees may contribute monthly to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children’s education.

Stock Purchase Plan

The Company has a program whereby eligible employees can purchase treasury shares, at market price, and the Company will match their contribution up to 3% of gross salary. During fiscal years 2005, 2004, and 2003, employees purchased 15,127; 28,180; and 20,510 shares of treasury stock from the Company, respectively.

Stock Option Plans

In March 1985, the board of directors of the Company adopted an Incentive Stock Option Plan (1985 Plan), giving certain executives and key salaried employees of the Company and its subsidiaries options to purchase shares of the Company’s class A common stock. The 1985 Plan was amended on November 7, 1989 and December 6, 1991. In December 1991, it was amended to provide provisions to cause the plan and future grants under the plan to qualify under the Securities Exchange Act of 1934 (1934 Act) Rule 16b-3. As of June 30, 2005, under this plan, 202,500 options were granted, 88,500 options had been exercised, 114,000 options had expired, and zero options remained outstanding. The 1985 Plan, as amended, terminated on December 31, 1994.

In November 1989 the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan) which provides for the granting of options to purchase shares of the Company’s class A common stock to directors, officers and employees of the Company and its subsidiaries. On December 6, 1991, shareholders approved and amended the 1989 Plan to provide provisions to cause the plan and future grants under the plan to qualify under 1934 Act Rule 16b-3. The 1989 Plan is administered by the Compensation Committee consisting of three outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1989 Plan is 800,000 shares. During the fiscal year ended June 30, 2005, there were no grants. As of June 30, 2005, under this amended plan, 876,700 options had been granted, 403,000 options had been exercised, 425,200 options had expired, and 48,500 options remained outstanding, and 348,500 options are available for grant.

In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which shareholders approved on April 25, 1997. It provides for the granting of stock appreciation rights (SARs) and/or options to purchase shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. The 1997 Plan expressly requires that all grants under the plan qualify under 1934 Act Rule 16b-3. The 1997 Plan is administered by the Compensation Committee consisting of three outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1997 Plan is 200,000 shares. During the fiscal year ended June 30, 2005, there were two options for 10,000 shares each granted. As of June 30, 2005, 260,500 options had been granted, 12,500 shares had been exercised, 132,000 options had expired, 116,000 options remained outstanding, and 71,500 options are available for grant.

~~January 1, 2002, the separate profit sharing plan was merged into the 401(k) plan to provide a more efficient manner of administration.~~
~~Savings Plans~~
The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using managed investment companies. Limited employee contributions to an Individual Retirement Account are matched by the Company. Similarly, certain employees may contribute monthly to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children’s education.
~~Stock Purchase Plan~~
The Company has a program whereby employees can purchase treasury shares, at market price, and the Company will match their contribution up to 3% of gross salary. During fiscal years 2004, 2003 and 2002, employees purchased 28,180, 20,510 and 37,770 shares of treasury stock from the Company respectively.
~~Stock Option Plans~~
In March 1985, the board of directors of the Company adopted an Incentive Stock Option Plan (1985 Plan), giving certain executives and key salaried employees of the Company and its subsidiaries options to purchase shares of the Company’s class A common stock. The 1985 Plan was amended on November 7, 1989 and December 6, 1991. In December 1991, it was amended to provide provisions to cause the plan and future grants under the plan to qualify under the Securities Exchange Act of 1934 (1934 Act) Rule 16b-3. As of June 30, 2004, under this plan, 202,500 options were granted, 88,000 options had been exercised, 113,000 options had expired, and 1,500 options remained outstanding. The 1985 Plan, as amended, terminated on December 31, 1994.
In November 1989 the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan) which provides for the granting of options to purchase shares of the Company’s class A common stock to directors, officers and employees of the Company and its subsidiaries. On December 6, 1991, shareholders approved and amended the 1989 Plan to provide provisions to cause the plan and future grants under the plan to qualify under 1934 Act Rule 16b-3. The 1989 Plan is administered by a committee consisting of two outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1989 Plan is 800,000 shares. During the fiscal year ended June 30, 2004, there were no grants. As of June 30, 2004, under this amended plan, 876,700 options had been granted, 403,000 options had been exercised, 425,200 options had expired, and 48,500 options remained outstanding, and 348,500 options are available for grant.
In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which shareholders approved on April 25, 1997. It provides for the granting of stock appreciation rights (SARs) and/or options to purchase shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. The 1997 Plan expressly requires that all grants under the plan qualify under 1934 Act Rule 16b-3. The 1997 Plan is administered by a committee consisting of two outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1997 Plan is 200,000 shares. During the fiscal year ended June 30, 2004, there were no options granted. As of June 30, 2004, 240,500 options had been granted, 8,500 shares had been exercised, 131,000 options had expired, 101,000 options remained outstanding, and 90,500 options are available for grant.

3741

The following table lists information concerning individual grants of stock options made during the last fiscal year to each of the named executive officers. The Company has intentionally omitted columns (f) and (g) as they are not applicable.

Option/SAR Grants in Last Fiscal Year

Number of

Percent of total

securities

options/SARs

underlying

granted to

Exercise of

options/SARS

employees in

base price

Expiration

Grant date

Name

granted (#)

fiscal year

$/Sh

date

present value $

Catherine A. Rademacher

10,000

3.29

10/1/2014

30,756

The following table shows, as to each of the officers of the Company listed in the cash compensation table, aggregated option exercises during the last fiscal year and fiscal year-end option values. During fiscal year 2005, one option for 10,000 shares was granted to an officer of the Company.

(a)

(b)

(c)

(d)

(e)

Number of

Securities

Value of

Underlying

Unexercised

In-The-Money

Options/SARs

at FY End (#)

at FY End ($)

Number of

Dollar

Acquired on

Value

Exercisable/

Name

Exercise

Realized

Unexercisable

Frank E. Holmes

1,000/0

2,215/$0

Susan B. McGee

500

433

51,000/0

145,615/$0

Catherine A. Rademacher

0/10,000

0/$15,500

Compensation of Directors

The Company may grant nonemployee directors options under the Company’s 1989 and 1997 Stock Option Plans. Their compensation is subject to a minimum of $6,000 in any quarter paid in arrears. For the fiscal year ended June 30, 2005, two nonemployee directors each received compensation of $27,000 and one nonemployee director received compensation of $24,000. Directors are reimbursed for reasonable travel expenses incurred in attending the meetings held by the board of directors.

Report on Executive Compensation

The board appointed Messrs. Lydon, Terracina, and Rubinstein as members of the Compensation Committee. There are no compensation committee interlocks to report. The Compensation Committee reviews, and recommends to the board, Mr. Holmes’ compensation annually to determine an acceptable base compensation, reflecting an amount competitive with industry peers and taking into account the relative cost of living in San Antonio, Texas. The Compensation Committee also reviews Mr. Holmes’ performance in managing the Company’s securities portfolio and in overseeing the management of the Company’s client portfolios and determines periodically whether to recommend to the full board to pay Mr. Holmes a cash bonus with respect to such performance. During fiscal year 1999, Mr. Holmes, in addition to his other duties, became the Company’s Chief Investment Officer responsible for supervising management of clients’ portfolios. In August 1999, in part to compensate him for these efforts and upon cancellation of Mr. Holmes’ warrants and option to acquire 986,122 shares of class C common stock, the board approved the issuance of 1,000,000 shares of class C

The following table shows, as to each of the officers of the Company listed in the cash compensation table, aggregated option exercises during the last fiscal year and fiscal year-end option values. There were no options or SARs awarded during the period.

(d)
Number of (e)
Securities Value of
Underlying Unexercised
(b) Unexercised In-The-Money
Number of (c) Options/SARs Options/SARs
Shares Dollar at FY End (#) at FY End ($)
(a) Acquired on Value Exercisable/ Exercisable/
Name
Exercise
Realized
Unexercisable
Unexercisable
Frank E. Holmes 0 0 1,000/0 $925/$0
Susan B. McGee 0 0 48,500/3,000 $74,138/$6,150
Tracy C. Peterson(1) 0 0 4,000/1,000 $8,200/$2,050

⁽¹⁾

~~Mr. Peterson terminated his employment effective July 14, 2004.~~

~~Compensation of Directors~~
The Company may grant nonemployee directors options under the Company’s 1989 and 1997 Stock Option Plans. Their compensation is subject to a minimum of $6,000 in any quarter paid in arrears. For the fiscal year ended June 30, 2004, two nonemployee directors each received compensation of $24,000 and one nonemployee director received compensation of $21,000. Directors are reimbursed for reasonable travel expenses incurred in attending the meetings held by the board of directors
~~Report on Executive Compensation~~
The board appointed Messrs. Lydon, Terracina, and Rubinstein as members of the Compensation Committee. There are no compensation committee interlocks to report. The Compensation Committee reviews, and recommends to the board, Mr. Holmes’ compensation annually to determine an acceptable base compensation, reflecting an amount competitive with industry peers and taking into account the relative cost of living in San Antonio, Texas. The Compensation Committee also reviews Mr. Holmes’ performance in managing the Company’s securities portfolio and in overseeing the management of the Company’s client portfolios and determines periodically whether to recommend to the full board to pay Mr. Holmes a cash bonus with respect to such performance. During fiscal year 1999, Mr. Holmes, in addition to his other duties, became the Company’s Chief Investment Officer responsible for supervising management of clients’ portfolios. In August 1999, in part to compensate him for these efforts and upon cancellation of Mr. Holmes’ warrants and option to acquire 986,122 shares of class C common stock, the board approved the issuance of 1,000,000 shares of class C common stock to Mr. Holmes to be vested over a ten-year period beginning with fiscal year 1998, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008.
The base pay of the executives is relatively fixed, but the executive has the opportunity to increase his/her compensation through bonuses or by participating directly in retirement and savings programs whereby the Company will contribute amounts relative to the executive’s contribution.
The Company has utilized option grants under the 1985 Plan, the 1989 Plan, and the 1997 Plan to induce qualified individuals to join the Company with a base pay consistent with the foregoing, thereby providing the individual with an opportunity to benefit if there is significant Company growth. Similarly, options have been utilized to reward existing employees for long and faithful service and to encourage them to stay with the Company. Mr. Rubinstein and Mr. Terracina are the members of the

3842

common stock to Mr. Holmes to be vested over a ten-year period beginning with fiscal year 1998, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008.

The base pay of the executives is relatively fixed, but the executive has the opportunity to increase his/her compensation through bonuses or by participating directly in retirement and savings programs whereby the Company will contribute amounts relative to the executive’s contribution.

The Company has utilized option grants under the 1985 Plan, the 1989 Plan, and the 1997 Plan to induce qualified individuals to join the Company with a base pay consistent with the foregoing, thereby providing the individual with an opportunity to benefit if there is significant Company growth. Similarly, options have been utilized to reward existing employees for long and faithful service and to encourage them to stay with the Company. The Compensation Committee administers the stock option plans and acts upon recommendations of the board of directors.

Company Performance Presentation

~~Stock Option Committee of the board of directors. This committee acts upon recommendations of the Chief Executive Officer.~~
~~Company Performance Presentation~~

The graph above compares the cumulative total return for the Company’s class A common stock (GROW) to the cumulative total return for both the S&P 500 Index and the American Stock Exchange Gold BUGS Index (HUI) for the Company’s last five fiscal years. The graph assumes an investment of $10,000 in the class A common stock and in each index as of June 30, 1999, and that all dividends are reinvested.
GROW Equity SPTR Index Date Px Last Date Px Last 6/30/1999 1.25 6/30/1999 1876.783 7/30/1999 1.375 10.00% 7/30/1999 1818.181 -3.12% 8/31/1999 1.4375 4.55% 8/31/1999 1809.186 -0.49% 9/30/1999 1.5 4.35% 9/30/1999 1759.589 -2.74% 10/29/1999 1.625 8.33% 10/29/1999 1870.937 6.33% 11/30/1999 1.5 -7.69% 11/30/1999 1908.97 2.03% 12/31/1999 1.5 0.00% 12/31/1999 2021.401 5.89% 1/31/2000 1.625 8.33% 1/31/2000 1919.841 -5.02% 2/29/2000 2.1875 34.62% 2/29/2000 1883.499 -1.89% 3/31/2000 1.625 -25.71% 3/31/2000 2067.75 9.78% 4/28/2000 1.5 -7.69% 4/28/2000 2005.549 -3.01% 5/31/2000 1.6875 12.50% 5/31/2000 1964.401 -2.05% 6/30/2000 1.75 3.70% 6/30/2000 2012.83 2.47% 7/31/2000 1.6875 -3.57% 7/31/2000 1981.361 -1.56% 8/31/2000 1.5625 -7.41% 8/31/2000 2104.432 6.21% 9/29/2000 1.5 -4.00% 9/29/2000 1993.332 -5.28% 10/31/2000 1.4063 -6.25% 10/31/2000 1984.905 -0.42% 11/30/2000 1.125 -20.00% 11/30/2000 1828.416 -7.88% 12/29/2000 1.0625 -5.56% 12/29/2000 1837.365 0.49% 1/31/2001 1.125 5.88% 1/31/2001 1902.553 3.55% 2/28/2001 1.2188 8.34% 2/28/2001 1729.075 -9.12% 3/30/2001 1.1875 -2.57% 3/30/2001 1619.537 -6.34% 4/30/2001 1.15 -3.16% 4/30/2001 1745.392 7.77% 5/31/2001 1.05 -8.70% 5/31/2001 1757.086 0.67% 6/29/2001 1.07 1.90% 6/29/2001 1714.321 -2.43% 7/31/2001 1.05 -1.87% 7/31/2001 1697.445 -0.98% 8/31/2001 1 -4.76% 8/31/2001 1591.182 -6.26% 9/28/2001 0.9 -10.00% 9/28/2001 1462.69 -8.08% 10/31/2001 0.95 5.56% 10/31/2001 1490.582 1.91% 11/30/2001 0.97 2.11% 11/30/2001 1604.919 7.67% 12/31/2001 1.05 8.25% 12/31/2001 1618.979 0.88% 1/31/2002 1.07 1.90% 1/31/2002 1595.353 -1.46% 2/28/2002 1.18 10.28% 2/28/2002 1564.586 -1.93% 3/29/2002 1.8 52.54% 3/29/2002 1623.429 3.76% 4/30/2002 2.15 19.44% 4/30/2002 1525.004 -6.06% 5/31/2002 2.389 11.12% 5/31/2002 1513.769 -0.74% 6/28/2002 2 -16.28% 6/28/2002 1405.929 -7.12% 7/31/2002 1.551 -22.45% 7/31/2002 1296.344 -7.79% 8/30/2002 1.75 12.83% 8/30/2002 1304.855 0.66% 9/30/2002 1.3 -25.71% 9/30/2002 1163.044 -10.87% 10/31/2002 1.16 -10.77% 10/31/2002 1265.411 8.80% 11/29/2002 1.25 7.76% 11/29/2002 1339.892 5.89% 12/31/2002 2.449 95.92% 12/31/2002 1261.176 -5.87% 1/31/2003 2.298 -6.17% 1/31/2003 1228.138 -2.62% 2/28/2003 2.58 12.27% 2/28/2003 1209.711 -1.50% 3/31/2003 2 -22.48% 3/31/2003 1221.456 0.97% 4/30/2003 1.9 -5.00% 4/30/2003 1322.068 8.24% 5/30/2003 1.97 3.68% 5/30/2003 1391.724 5.27% 6/30/2003 1.85 -6.09% 6/30/2003 1409.478 1.28% 7/31/2003 2.5 35.14% 7/31/2003 1434.329 1.76% 8/29/2003 2.08 -16.80% 8/29/2003 1462.302 1.95% 9/30/2003 2.66 27.88% 9/30/2003 1446.773 -1.06% 10/31/2003 2.609 -1.92% 10/31/2003 1528.617 5.66% 11/28/2003 4.29 64.43% 11/28/2003 1542.066 0.88% 12/31/2003 4.3 0.23% 12/31/2003 1622.939 5.24% 1/30/2004 3.98 -7.44% 1/30/2004 1652.728 1.84% 2/27/2004 4.02 1.01% 2/27/2004 1675.7 1.39% 3/31/2004 4.1 1.99% 3/31/2004 1650.42 -1.51% 4/30/2004 3.55 -13.41% 4/30/2004 1624.511 -1.57% 5/31/2004 2.75 -22.54% 5/31/2004 1646.804 1.37% 6/30/2004 3.55 29.09% 6/30/2004 1678.826 1.94%

3943

Item 12. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

Class C Common Stock (Voting Stock)

On September 9, 2005, there were 1,496,800 shares of the Company’s class C common stock outstanding. The following table sets forth, as of such date, information regarding the beneficial ownership of the Company’s class C common stock by each person known by the Company to own 5% or more of the outstanding shares of class C common stock.


	Class C Common
	Shares
	Beneficially			Percent of
Name and Address of Beneficial Owner	Owned			Class (%)
Frank E. Holmes 7900 Callaghan Road San Antonio, TX 78229		1,392,211	⁽¹⁾		93.01	%

		~~Security Ownership of Certain Beneficial Owners~~

		~~Class C Common Stock (Voting Stock)~~

		On September 9, 2004, there were 1,496,800 shares of the Company’s class C common stock outstanding. The following table sets forth, as of such date, information regarding the beneficial ownership of the Company’s class C common stock by each person known by the Company to own 5% or more of the outstanding shares of class C common stock.

Class C Common
Shares
Beneficially Percent of
Name and Address of Beneficial Owner
Owned
Class (%)
Frank E. Holmes 1,392,211 ⁽¹⁾ 93.01 %
7900 Callaghan Road
San Antonio, TX 78229

⁽¹⁾

Includes 1,000,000 shares of class C common stock issued to Mr. Holmes that will be vested in equal amounts over a ten-year period and will be fully vested on June 30, 2008; 102,280 shares owned by F. E. Holmes Organization Inc.; 285,000 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA.

Class A Common Stock (Nonvoting Stock)

On September 9, 2005, there were 5,999,714 shares of the Company’s class A common stock issued and outstanding. The following table sets forth, as of such date, information regarding the beneficial ownership of the Company’s class A common stock by each person known by the Company to own 5% or more of the outstanding shares of class A common stock.


	Class A Common
	Shares
	Beneficially			Percent of
Name and Address of Beneficial Owner	Owned			Class (%)
Osmium Partners LLC^{(1) –}San Francisco, California		302,336	⁽¹⁾		5.04	%
Boston Partners Asset Management LLC^{(2) -}Boston, Massachusetts		314,210	⁽²⁾		5.23	%
Royce & Associates, LLC. – New York, New York⁽³⁾		872,505	⁽³⁾		14.54	%

		~~Class A Common Stock (Nonvoting Stock)~~

		On September 9, 2004, there were 5,976,465 shares of the Company’s class A common stock issued and outstanding. The following table sets forth, as of such date, information regarding the beneficial ownership of the Company’s class A common stock by each person known by the Company to own 5% or more of the outstanding shares of class A common stock.

Class A Common
Shares
Beneficially Percent of
Name and Address of Beneficial Owner
Owned
Class (%)
Royce & Associates, LLC. – New York, New York⁽¹⁾
874,255 ⁽¹⁾ 14.63 %

⁽¹⁾		Information is from Schedule 13G for period ending February 8, 2005, filed with the SEC March 18, 2005.

⁽²⁾		Information is from Schedule 13G for period ending December 31, ~~2003,~~2004, filed with the SEC February ~~9, 2004.~~10, 2005.

⁽³⁾		Information is from Schedule 13G for period ending December 31, 2004, filed with the SEC February 3, 2005.

4044

Security Ownership of Management

The following table sets forth, as of September 9, 2005, information regarding the beneficial ownership of the Company’s class A and class C common stock by each director and by all directors and executive officers as a group. Except as otherwise indicated in the notes below, each director owns directly the number of shares indicated in the table and has sole voting power and investment power with respect to all such shares.


	Class C						Class A
	Common Stock						Common Stock
	Number						Number
	of						of
Beneficial Owner	Shares			%			Shares			%
Frank E. Holmes, CEO, Director		1,392,211	⁽¹⁾		93.01	%		289,343	⁽²⁾		4.61	%

Thomas F. Lydon, Jr., Director		—			—			10,000	⁽³⁾		0.16	%

Susan B. McGee, President, General Counsel		—			—			69,604	⁽³⁾		1.11	%

Catherine A. Rademacher, CFO		—			—			369			0.01	%

Roy D. Terracina, Director		—			—			50,100	⁽³⁾		0.80	%

All directors and executive officers as a		1,392,211			93.01	%		419,416			6.68	%
group (five persons)

		~~Security Ownership of Management~~

		The following table sets forth, as of September 9, 2004, information regarding the beneficial ownership of the Company’s class A and class C common stock by each director and by all directors and executive officers as a group. Except as otherwise indicated in the notes below, each director owns directly the number of shares indicated in the table and has sole voting power and investment power with respect to all such shares.

Class C Class A
Common Stock
Common Stock
Number Number
of of
Beneficial Owner
Shares
%
Shares
%
Frank E. Holmes, CEO, Director 1,392,211 ⁽¹⁾ 93.01 % 290,013 ⁽²⁾ 4.85 %
Thomas F. Lydon, Jr., Director — — 10,000 ⁽³⁾ 0.17 %
Susan B. McGee, President, General Counsel — — 65,872 ⁽³⁾ 1.10 %
Tracy C. Peterson, CFO⁽⁴⁾
— — 13,276 ⁽³⁾ 0.22 %
Jerold H. Rubinstein, Director — — 10,000 ⁽³⁾ 0.17 %
Roy D. Terracina, Director — — 50,100 ⁽³⁾ 0.84 %
All directors and executive officers as a group (six persons) 1,392,211 93.01 % 439,261 7.35 %

⁽¹⁾		Includes 1,000,000 shares of class C common stock issued to Mr. Holmes that will be vested in equal amounts over a period of ten years and will be fully vested on June 30, 2008; 102,280 shares owned by F. E. Holmes Organization Inc.; 285,000 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA.

⁽²⁾		Includes ~~options to obtain 1,000 shares of class A common stock;~~ 100,000 shares of class A common stock held by F.E. Holmes Organization, Inc., a corporation wholly owned by Mr. Holmes; ~~106,696~~99,376 shares owned directly by Mr. Holmes, ~~81,017~~88,667 shares owned by Mr. Holmes in retirement accounts, and 1,300 shares of class A common stock owned separately by Mr. Holmes’ wife. Mr. Holmes disclaims beneficial ownership of these 1,300 shares of class A common stock.

⁽³⁾		Includes shares of class A common stock underlying presently exercisable options held directly by each individual as follows: Mr. Lydon – 10,000 shares; Ms. McGee – ~~51,500 shares; Mr. Peterson – 5,000 shares; Mr. Rubinstein – 10,000~~50,000 shares; and Mr. Terracina – 50,000 shares.

⁽⁴⁾		~~Mr. Peterson terminated his employment effective July 14, 2004.~~

4145

Equity Compensation Plan Information

Number of

securities

remaining available

Number of securities

Number of

for future issuance

remaining available

securities to be

under equity

for future issuance

issued upon

Weighted-average

compensation plans

Number of securities

under equity

exercise of

exercise price of

(excluding

to be issued upon

Weighted-average

compensation plans

outstanding

securities

exercise of

exercise price of

(excluding securities

options,

options, warrants

reflected in column

outstanding options,

reflected in column

warrants and rights

and rights

(a))

warrants and rights

(a))

Plan Category

(a)

(b)

(c)

(a)

(b)

(c)

Equity compensation plans approved by security holders

N/A

Equity compensation plans not approved by security holders

1985 Stock Option Plan⁽¹⁾

1,500

2.63

—

1989 Stock Option Plan⁽²⁾

48,500

2.11

348,500

48,500

2.11

348,500

1997 Non-Qualified Stock Option Plan⁽³⁾

101,000

1.85

90,500

116,000

2.11

71,500

Employee Stock Purchase Plan⁽⁴⁾

N/A

46,820

N/A

31,693

Option Agreement⁽⁵⁾

20,000

4.35

N/A

Total

171,000

485,820

164,500

451,693


⁽¹⁾		No options may be granted under this plan after December 31, 1994.

⁽²⁾		Stock options under this plan may be granted to directors, officers, and employees of the Company from authorized but unissued shares or treasury shares.

⁽³⁾		Stock options under this plan may be granted to directors, executives, and key salaried employees of the Company from authorized but unissued shares or treasury shares. The term of the option periods must be less than ten years.

⁽⁴⁾		The Company has adopted a stock purchase plan to provide eligible employees of the Company an opportunity to purchase common stock of the Company. There are 75,000 authorized shares of treasury stock reserved for issuance under the plan. The Company contributes on behalf of each participant an amount equal to lesser of (i) the aggregate amount of the participant’s payroll deductions for the purchase period, or (ii) 3% of the participant’s base compensation during the purchase period.

⁽⁵⁾		An option to purchase 20,000 shares of class A common stock at an exercise price of $4.35 per share was issued to Epoch Financial Group, Inc. in exchange for certain investor relations services. The term of the option period expires on May 15, 2005.

Item 13. Certain Relationships and Related Transactions

U.S. Global is invested in several of the mutual funds it manages. There is incorporated in this Item 13 those items appearing under Note 15 to the Consolidated Financial Statements and filed as a part of this report.

U.S. Global is invested in several of the mutual funds it manages. There is incorporated in this Item 13 those items appearing under Note 16 to the Consolidated Financial Statements and filed as a part of this report.

4246

Item 14. Principal Accounting Fees and Services

The following table represents fees for professional audit services for the audit of the Company’s annual financial statements for the fiscal years ended June 30, 2005 and 2004, respectively, rendered by BDO Seidman, LLP.


	Fiscal year ended June 30,
	2005		2004
Audit fees⁽¹⁾	$	109,000	$	90,000
Audit-related fees⁽²⁾		5,256		6,900
Tax fees⁽³⁾		19,084		14,000
All other fees		—		—

Total fees	$	133,340	$	110,900

~~Item 14. Principal Accounting Fees and Services~~

The following table represents fees for professional audit services for the audit of the Company’s annual financial statements for the fiscal year ended June 30, 2004, rendered by BDO Seidman, LLP and for the fiscal year ended June 30, 2003, rendered by Ernst & Young LLP.

Fiscal year ended June 30,
2004
2003
Audit fees⁽¹⁾
$ 90,000 $ 79,500
Audit-related fees⁽²⁾
6,900 —
Tax fees⁽³⁾
14,000 16,000
All other fees — —

Total fees $ 110,900 $ 95,500

⁽¹⁾		Audit fees consist of fees for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and review of the financial statements included in the Company’s Form 10-Q and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.

⁽²⁾		Audit-related fees consist primarily of fees for assurance and related services by the accountant that are reasonably related to the performance of the audit or review of the Company’s financial statements. These fees also include professional services rendered in assistance with the Company’s compliance with Sarbanes-Oxley requirements. Audit-related fees in fiscal 2005 also include fees for professional services rendered in Guernsey in connection with USGG accounts in the amount of $2,216.

⁽³⁾		Tax fees include the ~~review~~preparation of federal tax returns as well as tax planning and consultation on new tax legislation, regulations, rulings, and developments. These fees in fiscal 2005 also include $7,254 for consultation with Guernsey taxing authorities on operations of USGG.

Audit Committee Pre-Approval Policies

The Audit Committee has established pre-approval policies pursuant to which all audit and auditor- provided non-audit engagement fees and terms must be approved. Pre-approval is generally provided and is detailed as to the particular service or category of services. The Audit Committee is also responsible for considering, to the extent applicable, whether the independent auditors’ provision of other non-audit services to the Company is compatible with maintaining the independence of the independent auditors.

All services provided by BDO Seidman, LLP in the fiscal year ended June 30, 2005, were pre-approved by the Audit Committee.

~~Audit Committee Pre-Approval Policies~~
The Audit Committee has established pre-approval policies pursuant to which all audit and auditor- provided non-audit engagement fees and terms must be approved. Pre-approval is generally provided for up to six months and is detailed as to the particular service or category of services. The Audit Committee is also responsible for considering, to the extent applicable, whether the independent auditors’ provision of other non-audit services to the Company is compatible with maintaining the independence of the independent auditors.
~~All services provided by BDO Seidman, LLP in the fiscal year ended June 30, 2004, were pre-approved by the Audit Committee.~~

4347

Part IV of Annual Report on Form 10-K

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed as part of this report:

1. Financial Statements

The Consolidated Financial Statements including:

	•		Reports of Independent Registered Public Accounting Firms

	•		Consolidated Balance Sheets as of June 30, ~~2004~~2005 and ~~2003~~2004

	•		Consolidated Statements of Operations and Comprehensive Income ~~(Loss)~~ for the three years ended June 30, ~~2004~~2005

	•		Consolidated Statements of Shareholders’ Equity for the three years ended June 30, ~~2004~~2005

	•		Consolidated Statements of Cash Flows for the three years ended June 30, ~~2004~~2005

	•		Notes to Consolidated Financial Statements

2. Financial Statement Schedules

None.

3. Exhibits


			3.1			Third Restated and Amended Articles of Incorporation of Company, incorporated by reference to the Company’s Form 10-K for the fiscal year ended June 30, 1996 (EDGAR Accession Number 0000754811-96-000025).

			3.2			By-Laws of Company, incorporated by reference to Exhibit D of the Company’s Registration Statement No. 33-33012 filed on Form S-8 with the Commission on January 30, 1990, as amended (EDGAR Accession Number 0000754811-00-000017).

			10.1			Advisory Agreement dated October 27, 1989, by and between Company and United Services Funds, incorporated by reference to Exhibit (4)(b) of the Company’s Form 10-K for fiscal year ended June 30, 1990 (EDGAR Accession No. 0000101507-99-000019).

			10.2			Advisory Agreement dated September 21, 1994, by and between Company and Accolade Funds, incorporated by reference to Exhibit 10.2 of Company’s Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002).

			10.3			Sub-Advisory Agreement dated September 21, 1994, by and between Company, Accolade Funds/Bonnel Growth Fund and Bonnel, Inc., incorporated by reference to Exhibit 10.3 of Company’s Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002).

4448


			10.4			Sub-Advisory Agreement dated November 15, 1996, by and between Company, U.S. Global Accolade Funds/MegaTrends Fund, and Money Growth Institute, Inc., incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-1A dated June 21, 1996 (EDGAR Accession No. 0000902042-96-000046).

			10.5			Sub-Advisory Agreement dated January 25, 2002, by and between Company, U.S. Global Accolade Funds/ Eastern European Fund, and Charlemagne Capital Limited, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2002 (EDGAR Accession No. 07777811-02-000019).

			10.6			Transfer Agency Agreement dated December 15, 2000, by and between United Shareholder Services, Inc. and U.S. Global Accolade Funds incorporated by reference to Post-Effective Amendment No. 18 to Registration Statement on Form N-1A dated February 28, 2001 (EDGAR Accession No. 0000902042-01-500005).

			10.7			Transfer Agency Agreement dated February 21, 2001, by and between United Shareholder Services, Inc. and U.S. Global Investors Funds, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.8			Loan Agreement between Company and Bank One NA, dated February 1, 2001, for refinancing building, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.9			Amendment No. 1, dated July 1, 2001, to loan agreement between Company and Bank One NA for refinancing building, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2003 (EDGAR Accession No. 0000754811-03-000018).

			10.10			Amendment No. 2, dated February 1, 2003, to loan agreement between Company and Bank One NA for refinancing building, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2003 (EDGAR Accession No. 0000754811-03-000018).

			10.11			United Services Advisors, Inc. 1985 Incentive Stock Option Plan as amended November 1989 and December 1991, incorporated by reference to Exhibit 4(b) of the Company’s Registration Statement No. 33-3012, Post-Effective Amendment No. 2, filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000004).

			10.12			United Services Advisors, Inc. 1989 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4(a) of the Company’s Registration Statement No. 33-3012, Post-Effective Amendment No. 2, filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000004).

			10.13			U.S. Global Investors, Inc. 1997 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4 of the Company’s Registration Statement No. 333-25699 filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000003).

			10.14			Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 82 to Registration Statement on Form N-1A dated September 2, 1998 (EDGAR Accession No. 0000101507-98-000031).

			10.15			Amendment dated June 30, 2001, to Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

4549


			10.16			Appendix A to Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.17			Amendment dated February 21, 2001, to Appendix B of the Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.18			Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 13 to Registration Statement on Form N-1A dated January 29, 1998 (EDGAR Accession No. 0000902042-98-000006).

			10.19			Amendment dated May 14, 1999, to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 16 to Registration Statement on Form N-1A dated February 29, 1999 (EDGAR Accession No. 0000902042-99-000004).

			10.20			Amendment dated June 30, 2001, to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.21			Appendix A to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.22			Amendment dated February 16, 2001, to Appendix B of the Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 18 to Registration Statement on Form N-1A dated February 28, 2001 (EDGAR Accession No. 0000902042-01-500005).

			10.23			Distribution Agreement by and between U.S. Global Brokerage, Inc. and U.S. Global Accolade Funds dated September 3, 1998, incorporated by reference to Exhibit 10.12 of Company’s Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009).

			10.24			Distribution Agreement by and between U.S. Global Brokerage, Inc. and U.S. Global Investors Funds dated September 3, 1998, incorporated by reference to Exhibit 10.13 of Company’s Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009).

			14.01			Code of Ethics for Principal Executive and Senior Financial Officers, adopted December 15, 2003, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2004 (EDGAR Accession Number 0000950134-04-014177).

			14.02			Code of Ethics, adopted June 28, 1989, and amended March 23, 2005, included herein.

			21			List of Subsidiaries of the Company, included herein.

			24			Power of Attorney, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			31.1			Rule 13a-14(a) Certifications (under Section 302 of the Sarbanes-Oxley Act of 2002)., included herein.



32.1			Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)., included herein.

(b) Reports on Form 8-K

	(i)		On September 27, 2004, the Company filed a Current Report on Form 8-K dated September 27, 2004, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the fiscal year ended June 30, 2004.

	(ii)		On November ~~10, 2003,~~15, 2004, the Company filed a Current Report on Form 8-K dated November ~~10, 2003,~~15, 2004, reporting Item ~~4 (Changes in Registrant’s Certifying Accountant) announcing the approval by the board of directors and the audit committee of BDO Seidman LLP as the Company’s independent accountants.~~

~~(ii)~~		~~On December 3, 2003, the Company filed a Current Report on Form 8-K dated December 3, 2003, reporting Item 12~~2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended September 30, ~~2003.~~2004.

	(iii)		On November 15, 2004, the Company filed a Current Report on Form 8-K/A dated November 15, 2004, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended September 30, 2004 (changes to financial highlights table).

	(iv)		On February ~~13, 2004,~~14, 2005, the Company filed a Current Report on Form 8-K dated February ~~13, 2004,~~14, 2005, reporting Item 122.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended December 31, ~~2003.~~2004.

~~(iv)~~	(v)		On May ~~17, 2004,~~16, 2005, the Company filed a Current Report on Form 8-K dated May ~~17, 2004,~~16, 2005, reporting Item 122.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended March 31, ~~2004.~~2005.

4751

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		U.S. Global Investors, Inc.

~~Date: September 27, 2004~~		By: /s/ Frank Holmes

		Frank E. Holmes
	Date: September 28, 2005	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Capacity in which signed	Date
/s/ Frank Holmes

Frank E. Holmes	Chairman of the Board of Directors	~~September 27, 2004~~
	Chief Executive Officer
	Chief Investment Officer	September 28, 2005

* /s/ Thomas F. Lydon, Jr.

Thomas F. Lydon, Jr.	Director	September ~~27, 2004~~28, 2005

* /s/ Jerold H. Rubinstein

Jerold H. Rubinstein	Director	September ~~27, 2004~~28, 2005

* /s/ Roy D. Terracina

Roy D. Terracina	Director	September ~~27, 2004~~28, 2005

/s/ Catherine A. Rademacher		September ~~27, 2004~~28, 2005

Catherine A. Rademacher	Chief Financial Officer

*BY: /s/ Susan B. McGee

Susan B. McGee		September ~~27, 2004~~28, 2005
Attorney-in-Fact under Power
of Attorney dated
September 26, 2001

4852


Selected	Year ended June 30,
Financial Data	2004			2003			2002			2001			2000
Revenues	$	12,983,500		$	7,478,936		$	7,767,514		$	8,893,884		$	10,912,764
Expenses		10,141,019			7,817,883			8,104,299			9,652,382			10,495,271

Income (loss) before equity interest, gain on litigation settlement and income taxes		2,842,481			(338,947	)		(336,785	)		(758,498	)		417,493
Equity in income (loss) of affiliate		—			—			—			—			51,739
Gain on litigation settlement		—			371,057			—			—			—
Income tax (benefit) expense		675,839			(10,502	)		(95,351	)		36,181			(26,526	)

Net income (loss)	$	2,166,642		$	42,612		$	(241,434	)	$	(794,679	)	$	495,758
Basic income (loss) per share		0.29			0.01			(0.03	)		(0.11	)		0.07
Working capital		5,267,573			3,562,885			2,930,974			3,246,792			3,138,009
Total assets		9,356,596			7,439,687			7,905,021			7,912,184			9,118,624
Long-term obligations		—			988,536			1,067,967			1,135,903			1,197,961
Shareholders’ equity		8,485,346			5,673,689			5,580,059			5,715,520			6,484,486
Net cash provided by operations		2,669,928			128,916			6,239			132,855			1,255,844
Net cash (used in) provided by investing activities		(30,328	)		147,470			(274,750	)		(71,534	)		(859,504	)
Net cash used in financing activities		(970,167	)		(103,079	)		(76,475	)		(84,302	)		(64,684	)

		~~Notes to Consolidated Financial Statements~~

		~~Note~~1.~~Organization~~

		U.S. Global Investors, Inc. (Company or U.S. Global) serves as investment adviser and transfer agent to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts that are no-load, open-end investment companies offering shares in numerous mutual funds to the investing public. The Company has served as investment adviser and manager since the inception of USGIF and USGAF and assumed the transfer agency function of USGIF in November 1984, and of USGAF in October 1994, its commencement of operations. For these services, the Company receives fees from USGIF and USGAF.

		U.S. Global formed the following companies to provide supplementary services to USGIF and USGAF: United Shareholder Services, Inc. (USSI), A&B Mailers, Inc. (A&B), and U.S. Global Brokerage, Inc. (USGB).

		The Company formed a limited liability company, which was incorporated in Guernsey on August 20, 1993. This company, U.S. Global Investors (Guernsey) Limited (USGG), is utilized in conducting the Company’s cash management activities.

		~~Note~~2.~~Significant Accounting Policies~~

		~~Principles of Consolidation.~~~~The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: USSI, A&B, USGG, and USGB.~~

		~~All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes.~~

		~~Cash and Cash Equivalents.~~~~Cash and cash equivalents include highly liquid investments with original maturities of three months or less.~~

		~~Due from Brokers.~~The Company conducts business with various brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with the brokers. The due from brokers balance represents cash balances with these brokers. The Company is subject to credit risk to the extent any broker with whom the Company conducts business is unable to deliver cash balances owed the Company. Management monitors the financial condition of the brokers with which the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.

		~~Security Investments.~~The Company accounts for its investments in securities in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS 115).

		In accordance with SFAS 115, the Company classifies its investments in equity and debt securities based on intent. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each reporting period date. Securities that are purchased and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value. Unrealized gains and losses on these securities are included in earnings as investment income. Investments classified neither as trading securities nor as held-to-maturity securities are classified as available-for-sale securities and reported at fair value. Unrealized gains and losses on these available-for-sale securities are excluded from earnings, reported net of tax as a separate component of shareholders’ equity, and recorded in earnings on the date of sale. For available-for-sale securities with declines in value deemed other than temporary, the cost basis of the securities is reduced accordingly, and the resulting loss is realized in earnings.

		Securities traded on a securities exchange are valued at the last sale price. Securities for which over-the-counter market quotations are available, but for which there was no trade on the balance sheet date,

		~~are valued at the mean price between the last price bid and last price asked. Securities for which quotations are not readily available are valued at cost.~~

		The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.

		~~Mutual Fund Receivables.~~Mutual fund receivables consist primarily of monthly investment advisory and transfer agent fees owed to the Company by USGIF and USGAF. In addition, mutual fund receivables include amounts reimbursed to the Company for certain advertising and distribution expenses incurred on behalf of USGAF in accordance with Rule 12b-1 of the Investment Company Act of 1940. The Company evaluates the collectibility of these receivables on an ongoing basis, and, as a result, placed an allowance of $0 and $64,488 against the receivable balance as of June 30, 2004, and June 30, 2003, respectively. Growth in mutual fund assets, in particular growth in assets that are invested directly with the funds and not through broker/dealer distribution platforms, have served to reduce this allowance currently and may do so in future periods. Conversely, a reduction in assets may create the necessity to set up an allowance again in future years.

		~~Property and Equipment.~~Fixed assets are recorded at cost. Depreciation for fixed assets is recorded using the straight-line method over the estimated useful life of each asset as follows: furniture and equipment are depreciated over 3 to 10 years, and the building and related improvements are depreciated over 31.5 to 40 years.

		~~Treasury Stock.~~~~Treasury stock purchases are accounted for under the cost method. The subsequent issuances of these shares are accounted for based on their weighted-average cost basis.~~

		~~Stock-Based Compensation.~~~~The Company accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No.~~ 25 “Accounting for Stock Issued to Employees” (APB 25), and related interpretations, as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). In accordance with APB 25, no compensation expense is recognized for stock options where the exercise price equals or exceeds the underlying stock price on the date of grant.

		~~The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123:~~

		For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options’ vesting period. The fair value of these options was estimated at the date of the grant using a Black-Scholes option-pricing model. No options were granted during fiscal years 2004, 2003, or 2002.

		Transactions with other parties in which goods or services are exchanged for the issuance of equity instruments are accounted for at fair value in accordance with FAS 123. On March 15, 2004, a fully vested option to purchase 20,000 shares of class A stock was granted as payment for services to an outside vendor. These options carry an exercise price of $4.35 and expire on May 15, 2005. The effect of this issuance was recorded in general and administrative expenses on the Statement of Operations and Comprehensive Income based on the fair value at grant date. The fair value was determined using a Black-Scholes option-pricing model with the exercise price and expiration dates listed above as well as an expected volatility of 0.56, a risk-free interest rate of 1.25% and an expected dividend yield of $0.

		~~Income Taxes.~~The Company and its subsidiaries file a consolidated federal income tax return. 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. The liability method requires that deferred tax assets be reduced by a valuation allowance in cases where it is more likely than not that the deferred tax assets will not be realized.

		~~Revenue Recognition.~~The Company earns substantially all of its revenues from mutual fund investment advisory and transfer agency services. Mutual fund investment advisory fees, calculated as a percentage of assets under management, are recorded as revenue as services are performed. Transfer agency fees are account based and calculated using a charge based upon the number of shareholder accounts serviced. A separate advisory client contract provided for a performance fee, in addition to the base fee, which was calculated as a percentage of absolute investment results. The separate advisory client contract ended in March 2004. Revenue shown on the Consolidated Statements of Operations and Comprehensive Income are net of any fee waivers.

		~~Dividends and Interest.~~~~Dividends are recorded on the ex-dividend date, and interest income is recorded on an accrual basis. Both dividends and interest income are included in investment income.~~

		~~Advertising Costs.~~The Company expenses advertising costs as they are incurred. Certain sales materials, which are considered tangible assets, are capitalized and then expensed during the period in which they are distributed. At June 30, 2004, 2003, and 2002, the Company had capitalized sales materials of approximately $16,000, $11,000, and $4,000, respectively. Net advertising expenditures were approximately $373,000, $242,000 and $243,000 during fiscal 2004, 2003, and 2002, respectively.

		~~Foreign Currency Transactions.~~Transactions between the Company and foreign entities are converted to U.S. dollars using the exchange rate on the date of the transactions. Security investments valued in foreign currencies are translated to U.S. dollars using the applicable exchange rate as of the reporting date. Realized foreign currency gains and losses are included as a component of investment income.

		~~Use of Estimates.~~The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

		~~Earnings Per Share.~~Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised.


	Less Than 12 Months				12 Months or Greater				Total
Fiscal Year	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2004	$	150,134	$	76,829	$	11,860	$	103,898	$	161,994	$	180,727
2003		195,522		34,384		15,037		10,097		210,559		44,481

		~~Note~~4.~~Investment Management, Transfer Agent, and Other Fees~~

		~~Fees for providing services to USGIF and USGAF continue to be the Company’s primary continuing revenue source.~~

		The Company serves as investment adviser to USGIF and USGAF and receives a fee based on a specified percentage of net assets under management. The investment advisory contract and related contracts between the Company and USGIF expire in February 2005, and the contracts between the Company and USGAF expire in May 2005. Management anticipates the trustees of both USGIF and USGAF will renew the contracts.

		The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses on several funds within USGIF through June 30, 2005, or such later date as the Company determines. The aggregate amount of fees waived and expenses borne by the Company was $1,471,151, $1,509,061, and $1,530,046 in 2004, 2003, and 2002, respectively.

		As of June 30, 2004, two of the three funds within USGAF are sub-advised by outside third-party managers, who are in turn paid out of the investment advisory fees received by the Company. In March 2002, an agreement was reached with one of these subadvisers whereby $165,000 of subadvisory fees payable was waived.

		Prior to June 1, 2004, the Holmes Growth Fund (formerly the Bonnel Growth Fund) was also sub-advised. Bonnel, Inc., the former subadviser of the fund, notified the Company that its portfolio manager, Art Bonnel, would be taking an extended sabbatical beginning June 1, 2004, and therefore Bonnel, Inc. would no longer provide subadvisory services to the fund. The Board of Trustees of USGAF approved the Company to provide investment advisory services to the fund effective June 1, 2004.

		The Company also serves as transfer agent to USGIF and USGAF and receives a fee based on the number of shareholder accounts serviced, as well as revenues from miscellaneous transfer agency activities including lockbox functions. The Company also receives exchange, service, and custodian fees directly from USGIF and USGAF shareholders.

		The Company also receives revenue from its mailroom operations. During fiscal 2002, an adjustment was made to these billing practices, and a resulting reduction of $104,000 was applied to mail service revenues and related receivables in order to reflect billing volumes.

		~~The Company provides in-house legal services to USGIF and USGAF for which it is reimbursed.~~

		The Company provided investment management services for an advisory client from May 2002 through March 2004. The Company had a fee arrangement for these services whereby it received an administrative fee annually plus a percentage of any gains from the sale of the securities in the client account. The Company recorded $670,387 and $385,820 in revenue from these fee arrangements for fiscal year 2004 and 2003, respectively.

		~~Note~~5.~~Property and Equipment~~

		~~Property and equipment are composed of the following:~~


	June 30,
	2004			2003
Building and land	$	2,275,123		$	2,271,613
Furniture, equipment, and other		1,734,770			2,144,770

		4,009,893			4,416,383
Accumulated depreciation		(2,198,405	)		(2,637,551	)

Net property and equipment	$	1,811,488		$	1,778,832

		~~Note~~6.~~Other Accrued Expenses~~

		~~Other accrued expenses consist of the following:~~

		~~Note~~7.~~Borrowings~~

		The Company had a note payable to a bank, which was secured by land, an office building, and related improvements. The Company paid the note in full in fiscal 2004. The loan was being amortized over a twelve-year period with payments of both principal and interest due monthly based on a fixed rate of 6.50%. The monthly payment was $10,840, and the note was to mature on January 31, 2006. Under this agreement, the Company maintained certain financial covenants. One of the covenants required that the Company maintain cash and cash equivalents and eligible marketable securities to meet or exceed $1 million at the end of each quarter. Through the date the note was paid in full, the Company was in full compliance with all financial covenants.

		The Company has access to a $1 million credit facility with a one-year maturity for working capital purposes. Any use of this credit facility will be secured by the Company’s eligible accounts receivable.

		~~As of June 30, 2004, this credit facility remained unutilized by the Company.~~

		~~Note~~8.~~Lease Commitments~~

		The Company has operating leases for computers and equipment that expire between fiscal years 2005 and 2009. Total lease expenses were $245,776, $188,558 and $222,983 in fiscal years 2004, 2003, and 2002, respectively. Future minimum lease payments required under these leases are as follows:


Fiscal Year	Amount
2005	$	83,580
2006		79,777
2007		76,765
2008		52,334
2009		24,093

Total	$	316,549

		~~Note~~9.~~Annuity and Contractual Obligations~~

		On February 6, 1989, the Company entered into an agreement with Clark Aylsworth (Aylsworth), the founder of the Company, related to his retirement on December 31, 1988. This agreement provided for the payment to Aylsworth of a monthly annuity of $1,500 for the remainder of his life or his wife’s life, if he predeceased her. Aylsworth passed away in June 2004, and his wife predeceased him. Accordingly, the Company eliminated the obligation related to this agreement.

		On December 30, 1990, the Company entered into a noncompete/noninterference agreement, an executory contract, pursuant to which it paid the Aylsworths $4,500 monthly, such amount to have continued for the longer of Aylsworth’s or his wife’s life. The Company determined that the executory contract should be expensed as payments were made. Because Aylsworth died in June 2004, and his wife predeceased him, no further expenses shall be recorded related to this agreement.

		The Company had placed cash in escrow to cover the Company’s obligation to the Aylsworths if the Company defaulted. The escrowed amount decreased $15,000 annually and the balance was $195,000 at June 30, 2003, which was disclosed on the balance sheet as restricted investments. As of June 30, 2004, the escrowed balance of $180,000 was transferred to an unrestricted account and is now included in cash and cash equivalents.

		~~Note~~~~10.~~~~Benefit Plans~~

		The Company offers a savings and investment plan qualified under Section 401(k) of the Internal Revenue Code covering substantially all employees. In connection with this 401(k) plan, participants can voluntarily contribute a portion of their compensation, up to certain limitations, to this plan, and the Company will match 50% of their contribution up to 2% of compensation. The Company has recorded expenses related to the 401(k) plan for contributions of $51,523, $46,918, and $48,760 for fiscal years 2004, 2003, and 2002, respectively.

		The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company has neither accrued nor paid a contribution for fiscal years 2004, 2003, and 2002. Prior to January 1, 2002, there was a separate profit sharing plan. Effective January 1, 2002, the separate profit sharing plan was merged into the 401(k) plan for more efficient administration.

		The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using mutual funds managed by the Company, which essentially all such employees accepted. Limited employee contributions to an Individual Retirement Account are matched by the Company. Similarly, certain employees may contribute monthly to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children’s education. The Company match, reflected in base salary expense, aggregated in all programs to $50,903, $52,983, and $52,692 in fiscal years 2004, 2003, and 2002, respectively.

		The Company has a program whereby eligible employees can purchase treasury shares, at market price, and the Company will match their contribution up to 3% of gross salary. During fiscal years 2004, 2003, and 2002, employees purchased 28,180, 20,510, and 37,770 shares of treasury stock from the Company, respectively.

		Additionally, the Company self-funds its employee health care plan. The Company has obtained reinsurance with both a specific and an aggregate stop-loss in the event of catastrophic claims. The Company has accrued an amount representing the Company’s estimate of claims incurred but not paid at June 30, 2004.

		~~Note~~~~11.~~~~Shareholders’ Equity~~

		On a per share basis, the holders of the class C common stock and the nonvoting class A common stock participate equally in dividends as declared by the Company’s board of directors, with the exception that any dividends declared must first be paid to the holders of the class A stock to the extent of 5% of


	Options Outstanding								Options Exercisable
							Weighted				Weighted
	Date of				Remaining		Average				Average
	Option		Number		Life in		Exercise		Number		Option
	Grant		Outstanding		Years		Price ($)		Exercisable		Price ($)
1985		12/15/94		1,500		0.45		2.63		1,500		2.63
Plan Class A
1989		09/05/95		3,500		1.18		2.63		3,500		2.63
Plan		05/24/96		10,000		1.89		3.06		10,000		3.06
Class A
		06/04/97		20,000		2.92		2.00		20,000		2.00
		12/03/99		15,000		5.42		1.50		12,000		1.50

				48,500		3.36		2.11		45,500		2.15
		06/04/97		31,000		2.92		1.82		31,000		1.82
1997		06/04/97		50,000		2.92		2.00		50,000		2.00
Plan Class A		12/03/99		20,000		5.42		1.50		16,000		1.50

				101,000		3.42		1.85		97,000		1.86
All		12/94
Plans	through
		12/99		151,000		3.37		1.26		144,000		1.96

		~~Note~~~~12.~~~~Income Taxes~~

		~~The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is:~~

		~~Note~~13~~Earnings Per Share~~

		~~The following table sets forth the computation for basic and diluted earnings per share (EPS):~~

		The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed the average market price for the period. For the years ended June 30, 2004, 2003, and 2002, employee stock options for 0, 88,000, and 179,500 shares, respectively, were excluded from diluted EPS. Additionally, an option issued to a vendor for 20,000 shares was excluded for the year ended June 30, 2004, because it was anti-dilutive as the exercise price was greater than the year-end share price.

		~~Note~~~~14.~~~~Comprehensive Income~~

		~~The Company has disclosed the components of comprehensive income in the consolidated statements of operations and comprehensive income.~~

		Holmes also served as an independent director for BCS Global Networks (formerly Broadband Collaborative Solutions), a private company, from May 2000 to June 30, 2002, when the entity became a public company. Holmes personally owned shares of BCS Global Networks at June 30, 2004. The Company owned a position in BCS Global Networks at June 30, 2004, with an estimated fair value of $16,882 recorded as available for sale on the balance sheet.

		~~Holmes had an outstanding payable to the Company of $0 and $1,613 at June 30, 2004, and 2003, respectively.~~

		~~During fiscal year 2002, J. Stephen Penner, a former director of the Company who resigned during fiscal year 2002, exercised options for 10,000 shares of Class A stock at $2.00 per share.~~

		~~Note~~~~17.~~~~Receivable Adjustments~~

		In fiscal year 2001, the Company paid $182,115 for losses from shareholder activity incurred by USGIF in previous years. Management consulted with its insurance carrier and determined that it was probable that this sum could be claimed against the Company’s insurance policy. The deductible on this policy was $25,000, which amount was expensed in fiscal 2000. The balance of approximately $157,000 was booked as a receivable at June 30, 2001. In fiscal year 2002, discussions with the insurance carrier indicated that the possibility of recovery was not likely, and as such, the entire receivable balance was expensed. Any subsequent collections on this claim will result in a reversal of this expense to the extent of collection. During fiscal year 2003, the Company collected $20,000 on this claim. During fiscal year 2004, no additional amounts were collected on the claim.

		~~Note~~~~18.~~~~Contingencies and Commitments~~

		During fiscal year 2001, the Company was named as one of several defendants in a civil lawsuit filed in New York. In June 2003, this lawsuit was dismissed. However, in July 2003, the plaintiff filed an appeal. In November 2003, the Company’s insurance carrier authorized a settlement offer, which was accepted in August 2004. This settlement was paid by the carrier; therefore, it had no impact on the Company’s earnings.

		The Company was the plaintiff in a lawsuit filed in Ontario, Canada. As a result of mediation in June 2003, the Company and the defendant agreed to a settlement in the amount of $371,057, which was recorded as a receivable on the balance sheet and a gain on the statement of operations, respectively. The Company received payment on the settlement in fiscal 2004, and the case was formally dismissed.

		~~In addition, in fiscal 2004, the Company was named as one of two defendants in a lawsuit, which the Company settled for $7,500 prior to June 30, 2004.~~

		Beginning in July 2003, the Company agreed to maintain a minimum yield on its U.S. Treasury Securities Cash Fund. In order to comply with this arrangement, it may be necessary for the Company to waive a portion of its management fees. These fee waivers are recorded as incurred. If in future periods the yield exceeds the minimum, the Company may be eligible to recover previously waived amounts. The amount of fees waived during fiscal 2004 was $45,136. Due to the unpredictability of future yields, the Company has not recorded a receivable for this amount in its financial statements.

		The Company entered into an agreement in March 2004 with a financial consulting company to render advice, disseminate information about the Company, and assist in public relations. The Company is obligated to pay the consulting company $5,000 per month until the agreement terminates in March 2005.

		~~The Company entered into an agreement with a telecommunications company, which commenced in August 2004, to provide an e-mail server and a web server. The agreement terminates in July 2007.~~


Fiscal 2004	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
(in thousands except per share figures)
Revenues	$	2,629	$	4,337	$	3,217	$	2,800
Expenses	$	1,946	$	2,514	$	2,870	$	2,811
Gain on Litigation Settlement	$	—	$	—	$	—	$	—
Income (Loss) Before Income Taxes	$	683	$	1,823	$	347	$	(11	)
Net Income	$	688	$	1,248	$	240	$	(10	)
Earnings per Share:
Basic	$	0.09	$	0.17	$	0.03	($	0.00	)
Diluted	$	0.09	$	0.17	$	0.03	($	0.00	)


Fiscal 2003	1st Quarter		2nd Quarter		3rd Quarter			4th Quarter
(in thousands except per share figures)
Revenues	$	1,971	$	2,041	$	1,874		$	1,593
Expenses	$	1,857	$	1,904	$	1,948		$	2,109
Gain on Litigation Settlement	$	—	$	—	$	—		$	371
Income (Loss) Before Income Taxes	$	114	$	137	$	(74	)	$	(145	)
Net Income	$	111	$	142	$	(70	)	$	(140	)
Earnings per Share:
Basic	$	0.01	$	0.02	($	0.01	)	($	0.02	)
Diluted	$	0.01	$	0.02	($	0.01	)	($	0.02	)


~~Item 9.~~	~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure~~

		The members of the board of directors are elected for one-year terms or until their successors are elected and qualified. The board of directors appoints the executive officers of the Company. The Company’s Compensation Committee consists of Messrs. Lydon, Rubinstein, and Terracina. The Company’s Audit Committee consists of Messrs. Lydon, Rubinstein, and Terracina. The board of directors has determined that a member of the Audit Committee, namely Roy D. Terracina, is an “audit committee financial expert” (as defined by the SEC). The Stock Option Committee consists of Mr. Rubinstein and Mr. Terracina. The Company does not have a Nominating Committee.

		~~Code of Ethics for Senior Financial Officers~~

		The Company has adopted a Code of Ethics for Senior Financial Officers that applies to the Company’s principal executive officer and principal financial officer. This code charges these individuals with responsibilities regarding honest and ethical conduct, the preparation and quality of the disclosures in documents and reports the Company files with the Securities and Exchange Commission, and compliance with applicable laws, rules and regulations.

		~~Compliance with~~~~Section 16(a)~~ ~~of the 1934 Act~~

		Section 16(a) of the 1934 Act requires directors and officers of the Company, and persons who own more than 10% of the Company’s class A common stock, to file with the Securities and Exchange Commission (SEC) initial reports of ownership and reports of changes in ownership of the stock. Directors, officers and more than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

		To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended June 30, 2004, all Section 16(a) filing requirements applicable to its directors, officers and more than 10% beneficial owners were met.


											Long-Term
Annual Compensation											Compensation Awards

(a)	(b)		(c)			(d)		(e)			(f)
								Other
Name and								Annual			Restricted
Principal Position								Compen-			Stock
During FY 2004	Year		Salary ($)			Bonus ($)		sation ($)			Awards ($)
Frank Holmes		2004		485,190	⁽¹⁾		206,640		—	⁽³⁾		50,000	⁽²⁾
Chairman, Chief Executive		2003		486,025	⁽¹⁾		110,195		—	⁽³⁾		50,000	⁽²⁾
Officer		2002		356,480	⁽¹⁾		103,715		—	⁽³⁾		50,000	⁽²⁾
Susan B. McGee		2004		188,714			168,210		—	⁽³⁾		—
President, General		2003		175,206			64,390		—	⁽³⁾		6,500
Counsel		2002		151,610			50,536		—	⁽³⁾		4,300
Tracy C. Peterson⁽⁴⁾		2004		91,286			21,037		—	⁽³⁾		—
Chief Financial Officer		2003		91,284			14,333		—	⁽³⁾		4,050
		2002		82,443			19,130		—	⁽³⁾		2,150

		~~Incentive Compensation~~

		Executive officers, except Mr. Holmes, participate in a team performance pay program based on each employee’s annual salary to recognize monthly completion of departmental goals. Additionally, key executive officers are compensated based on individual performance pay arrangements.

		4~~01(k)~~ ~~Plan~~

		The Company offers a 401(k) plan covering substantially all employees. The Company will match a certain percentage of a participating employee’s pay deferment. The Company contributes to participants’ accounts at the same time that the employee’s pay deferral is made. Employees are immediately vested in both their 401(k) salary deferral contribution and the Company’s matching contribution.

		The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company did not make a profit sharing contribution for the 2004, 2003 or 2002 fiscal years. Prior to January 1, 2002, there was a separate profit sharing plan. Effective

		~~January 1, 2002, the separate profit sharing plan was merged into the 401(k) plan to provide a more efficient manner of administration.~~

		~~Savings Plans~~

		The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using managed investment companies. Limited employee contributions to an Individual Retirement Account are matched by the Company. Similarly, certain employees may contribute monthly to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children’s education.

		~~Stock Purchase Plan~~

		The Company has a program whereby employees can purchase treasury shares, at market price, and the Company will match their contribution up to 3% of gross salary. During fiscal years 2004, 2003 and 2002, employees purchased 28,180, 20,510 and 37,770 shares of treasury stock from the Company respectively.

		~~Stock Option Plans~~

		In March 1985, the board of directors of the Company adopted an Incentive Stock Option Plan (1985 Plan), giving certain executives and key salaried employees of the Company and its subsidiaries options to purchase shares of the Company’s class A common stock. The 1985 Plan was amended on November 7, 1989 and December 6, 1991. In December 1991, it was amended to provide provisions to cause the plan and future grants under the plan to qualify under the Securities Exchange Act of 1934 (1934 Act) Rule 16b-3. As of June 30, 2004, under this plan, 202,500 options were granted, 88,000 options had been exercised, 113,000 options had expired, and 1,500 options remained outstanding. The 1985 Plan, as amended, terminated on December 31, 1994.

		In November 1989 the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan) which provides for the granting of options to purchase shares of the Company’s class A common stock to directors, officers and employees of the Company and its subsidiaries. On December 6, 1991, shareholders approved and amended the 1989 Plan to provide provisions to cause the plan and future grants under the plan to qualify under 1934 Act Rule 16b-3. The 1989 Plan is administered by a committee consisting of two outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1989 Plan is 800,000 shares. During the fiscal year ended June 30, 2004, there were no grants. As of June 30, 2004, under this amended plan, 876,700 options had been granted, 403,000 options had been exercised, 425,200 options had expired, and 48,500 options remained outstanding, and 348,500 options are available for grant.

		In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which shareholders approved on April 25, 1997. It provides for the granting of stock appreciation rights (SARs) and/or options to purchase shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. The 1997 Plan expressly requires that all grants under the plan qualify under 1934 Act Rule 16b-3. The 1997 Plan is administered by a committee consisting of two outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1997 Plan is 200,000 shares. During the fiscal year ended June 30, 2004, there were no options granted. As of June 30, 2004, 240,500 options had been granted, 8,500 shares had been exercised, 131,000 options had expired, 101,000 options remained outstanding, and 90,500 options are available for grant.

		~~Compensation of Directors~~

		The Company may grant nonemployee directors options under the Company’s 1989 and 1997 Stock Option Plans. Their compensation is subject to a minimum of $6,000 in any quarter paid in arrears. For the fiscal year ended June 30, 2004, two nonemployee directors each received compensation of $24,000 and one nonemployee director received compensation of $21,000. Directors are reimbursed for reasonable travel expenses incurred in attending the meetings held by the board of directors

		~~Report on Executive Compensation~~

		The board appointed Messrs. Lydon, Terracina, and Rubinstein as members of the Compensation Committee. There are no compensation committee interlocks to report. The Compensation Committee reviews, and recommends to the board, Mr. Holmes’ compensation annually to determine an acceptable base compensation, reflecting an amount competitive with industry peers and taking into account the relative cost of living in San Antonio, Texas. The Compensation Committee also reviews Mr. Holmes’ performance in managing the Company’s securities portfolio and in overseeing the management of the Company’s client portfolios and determines periodically whether to recommend to the full board to pay Mr. Holmes a cash bonus with respect to such performance. During fiscal year 1999, Mr. Holmes, in addition to his other duties, became the Company’s Chief Investment Officer responsible for supervising management of clients’ portfolios. In August 1999, in part to compensate him for these efforts and upon cancellation of Mr. Holmes’ warrants and option to acquire 986,122 shares of class C common stock, the board approved the issuance of 1,000,000 shares of class C common stock to Mr. Holmes to be vested over a ten-year period beginning with fiscal year 1998, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008.

		The base pay of the executives is relatively fixed, but the executive has the opportunity to increase his/her compensation through bonuses or by participating directly in retirement and savings programs whereby the Company will contribute amounts relative to the executive’s contribution.

		The Company has utilized option grants under the 1985 Plan, the 1989 Plan, and the 1997 Plan to induce qualified individuals to join the Company with a base pay consistent with the foregoing, thereby providing the individual with an opportunity to benefit if there is significant Company growth. Similarly, options have been utilized to reward existing employees for long and faithful service and to encourage them to stay with the Company. Mr. Rubinstein and Mr. Terracina are the members of the

		~~Stock Option Committee of the board of directors. This committee acts upon recommendations of the Chief Executive Officer.~~

		~~Company Performance Presentation~~


	Class C						Class A
	Common Stock						Common Stock
	Number						Number
	of						of
Beneficial Owner	Shares			%			Shares			%
Frank E. Holmes, CEO, Director		1,392,211	⁽¹⁾		93.01	%		290,013	⁽²⁾		4.85	%
Thomas F. Lydon, Jr., Director		—			—			10,000	⁽³⁾		0.17	%
Susan B. McGee, President, General Counsel		—			—			65,872	⁽³⁾		1.10	%
Tracy C. Peterson, CFO⁽⁴⁾		—			—			13,276	⁽³⁾		0.22	%
Jerold H. Rubinstein, Director		—			—			10,000	⁽³⁾		0.17	%
Roy D. Terracina, Director		—			—			50,100	⁽³⁾		0.84	%
All directors and executive officers as a group (six persons)		1,392,211			93.01	%		439,261			7.35	%


	Fiscal year ended June 30,
	2004		2003
Audit fees⁽¹⁾	$	90,000	$	79,500
Audit-related fees⁽²⁾		6,900		—
Tax fees⁽³⁾		14,000		16,000
All other fees		—		—

Total fees	$	110,900	$	95,500

		~~Audit Committee Pre-Approval Policies~~

		The Audit Committee has established pre-approval policies pursuant to which all audit and auditor- provided non-audit engagement fees and terms must be approved. Pre-approval is generally provided for up to six months and is detailed as to the particular service or category of services. The Audit Committee is also responsible for considering, to the extent applicable, whether the independent auditors’ provision of other non-audit services to the Company is compatible with maintaining the independence of the independent auditors.

		~~All services provided by BDO Seidman, LLP in the fiscal year ended June 30, 2004, were pre-approved by the Audit Committee.~~