U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 18 of 47
EXHIBIT 13 -- ANNUAL REPORT
The Company 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.
THE COMPANY
U.S. Global Investors, Inc., a Texas corporation organized in 1968 (Company or
U.S. Global), and its wholly owned subsidiaries are in the mutual fund
management business. 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; (4) custodial
and administrative services, through its wholly owned trust company and
administrator for IRAs and other types of retirement plans; and (5) distribution
services, through its wholly owned broker/dealer, to mutual funds advised by the
Company. The fees from investment advisory, transfer agent, fund distribution,
administrative and custodial services and investment income are the primary
sources of the Company's revenue.
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 eleven and three mutual funds,
respectively, on a no-load basis.
The Company organized U.S. Global Investors (Guernsey) Limited (USGG) in August
1993 for the purpose of acting as investment adviser for investment companies
whose shares are offered to non-U.S. citizens. USGG has delegated its investment
advisory duties to U.S. Global.
In addition to managing USGIF and USGAF, the Company is actively engaged in
trading for its proprietary 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
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 19 of 47
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 and also provides 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 of USGAF will consider renewal of the applicable
agreements in February and March 2001, 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 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 and 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 during
February and March 2001, respectively, and management anticipates that the
agreements will be renewed.
BROKERAGE SERVICES. The Company has registered its wholly owned subsidiary, U.S.
Global Brokerage, Inc. (USGB), with the 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. To date, the Company has capitalized USGB with
approximately $1,132,590 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.
TRUST COMPANY SERVICES. Security Trust & Financial Company (STFC), a wholly
owned state chartered trust company, provides custodial services for IRA and
other retirement plans administered by USGA.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 20 of 47
ADMINISTRATIVE SERVICES. Effective January 1, 2000, U.S. Global Administrators,
Inc. (USGA), a wholly owned subsidiary of the Company, began providing qualified
plan administration services for existing clients. USGA also actively markets
401(k) and other retirement plans.
CORPORATE INVESTMENT
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
As of June 30, 2000, U.S. Global and its subsidiaries employed 78 full-time
employees and 4 part-time employees; as of June 30, 1999, it employed 84
full-time employees and 3 part-time employees. The Company considers its
relationship with its employees to be excellent.
COMPETITION
The mutual fund industry is highly competitive. Recent reports show there are
approximately 8,000 registered open-end investment companies of varying sizes
and investment policies whose shares were being offered to the public worldwide.
Generally, there are two types of mutual funds: "load" and "no-load." In
addition there are both no-load and 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 USGIF's and USGAF's, 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. Recent
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. 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 the funds' investment performance, the quality of
services provided to shareholders and the Company's efforts to market fund
performance 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).
SUPERVISION AND REGULATION
The Company, USSI, USGB, USGA, 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,
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 21 of 47
and tax status. STFC operates under certain laws, including Texas banking laws,
governing its 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 had 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.
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. USSI is also subject to regulation
by the SEC under the Securities Exchange Act of 1934. 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 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 were
canceled or not renewed pursuant to the terms thereof, the Company would be
substantially adversely affected. U.S. Global, USSI and STFC 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 the Trusts will choose to continue their
relationships with the Company, USSI, and STFC.
ANNUAL STATUS REPORT
BUSINESS SEGMENTS
U.S. Global Investors, Inc. (Company), 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.
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). Notwithstanding that the
Company generates the majority of its revenues from this segment, the Company
holds a significant amount of its total assets in investments. As of June 30,
2000, the Company held approximately $2.6 million in investments, comprising 28%
of its total assets. The following is a brief discussion of the Company's two
business segments.
INVESTMENT MANAGEMENT PRODUCTS AND SERVICES
As noted above, the Company generates substantially all of its revenues from
managing and servicing USGIF and USGAF. These 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 2000,
total average assets under management increased slightly, 0.8%, to $1.4 billion
primarily as a result of market appreciation and shareholder purchases into the
Bonnel Growth Fund.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 22 of 47
AVERAGE ASSETS UNDER MANAGEMENT
(DOLLARS IN MILLIONS) 2000 1999 % CHANGE 1999 1998 % CHANGE
-------------------- ------ ------ --------- ------ ------ --------
USGIF - Money $ 928 $ 979 (5.2)% $ 979 $ 919 6.5%
Market
USGIF - Other 234 280 (16.4) 280 371 (24.5)
USGIF - Total 1,162 1,259 (7.7) 1,259 1,290 (2.4)
USGAF 238 130 83.1 130 146 (11.0)
------ ------ ---- ------ ------ ----
Total $1,400 $1,389 0.8% $1,389 $1,436 (3.3)%
INVESTMENT ACTIVITIES
Management believes it can more effectively manage the Company's cash position
by broadening the types of investments used in cash management. Management
attempts to maximize the Company's cash position by using a diversified venture
capital approach to investing. Strategically, management invests in early-stage
or start-up businesses seeking initial financing and more mature businesses in
need of capital for expansion, acquisitions, management buyouts or
recapitalization.
As of June 30, 2000 and 1999, the Company held approximately $2.6 and $1.3
million, respectively, in investments other than USGIF money market mutual fund
shares. In fiscal year 2000, the Company received $701,000 in trading and
available-for-sale securities in liquidation of its investment in the U.S.
Global Strategies Fund Limited (Guernsey Fund), an offshore fund managed by the
Company . Investment income from these investments includes realized gains and
losses, unrealized gains and losses on trading securities, and dividend and
interest income. This source of revenue does not remain at a consistent level
and is dependent on market fluctuations, the Company's ability to participate in
investment opportunities, and timing of transactions. For fiscal years 2000,
1999, and 1998, the Company had realized gains (losses) of approximately
$550,000, $238,000, and ($349,000), respectively. The Company expects that gains
(losses) will continue to fluctuate in the future; fluctuations in the market
value of the Company's investments will affect the amounts of such gains or
losses.
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.
2000 1999 % CHANGE 1999 1998 % CHANGE
------ -------- -------- -------- ------ ----------
Net Income (Loss)
(in thousands) $ 496 $(1,852) 126.8% $(1,852) $ (149) (1,143.0)%
Net Income (Loss)
Per Share:
Basic and Diluted $ 0.07 $ (0.28) 125.0% $ (0.28) $ (0.02) (1,300.0)%
Weighted average shares
outstanding (in thousands):
Basic 7,408 6,562 6,562 6,617
Diluted 7,411 6,564 6,564 6,669
YEAR ENDED JUNE 30, 2000, COMPARED WITH YEAR ENDED JUNE 30, 1999
The Company posted net after-tax income of $496,000 ($0.07 income per share) for
the year ended June 30, 2000, compared with a net after-tax loss of $1.9 million
($0.28 loss per share) for the year ended June 30, 1999. The increase in net
income for 2000 was principally due to an increase in net advisory fees. These
increases were partially offset by decreases in transfer agent fees.
Additionally, an equity interest in the net losses of the Guernsey Fund of
$743,041 for the year ended June 30, 1999, had reversed into a gain of $51,739
at the time of the Guernsey Fund's liquidation in September 1999.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 23 of 47
YEAR ENDED JUNE 30, 1999, COMPARED WITH YEAR ENDED JUNE 30, 1998
The Company posted net after-tax loss of $1.9 million ($0.28 per share) for
fiscal year 1999, compared with a net after- tax loss of $149,000 ($0.02 per
share) for fiscal year 1998. The decrease in net income for 1999 was primarily
due to a 14% decrease in net investment advisory fees and the elimination of
fund accounting fees. In 1997, the Company decided to outsource such services to
Brown Brothers Harriman & Co. (BBH), the conversion was completed during the
second quarter of fiscal year 1998. The Company has foregone accounting fee
revenue associated with this function and also has reduced direct costs for
personnel and equipment related to the fund accounting function. The decrease in
investment advisory fees was primarily the result of a decline in the net assets
of high-margin, gold-related funds.
REVENUES
(DOLLARS IN THOUSANDS) 2000 1999 % CHANGE 1999 1998 % CHANGE
- --------------------- ------- ------ -------- ------ ------- --------
Investment advisory
fees:
USGIF - Money Market $ 2,438 $1,825 33.6% $1,825 $ 1,416 28.9%
USGIF - Other 1,666 2,037 (18.2) 2,037 3,066 (33.6)
------- ------ ------ ------ ------- ------
USGIF - Total 4,104 3,862 6.3 3,862 4,482 (13.8)
USGAF 2,393 1,319 81.4 1,319 1,423 (7.3)
Other 9 42 (78.6) 42 168 (75.0)
------- ------ ------ ------ ------- ------
Total investment
advisory fees $ 6,506 $5,223 24.5% $5,223 $ 6,073 (14.0)%
Transfer agent fees 2,934 3,341 (12.2)% 3,341 3,446 (3.0)%
Custodial and
administrative fees 484 465 4.3% 465 441 5.4%
Mailing services fees 368 293 25.6% 293 306 (4.3)%
Accounting fees 0 0 0.0% 0 318 (100.0)%
Investment income 556 352 58.0% 352 (419) 184.0%
Other revenues 65 65 0.0% 65 30 116.7%
------- ------ ------ ------ ------- ------
Total $10,913 $9,739 12.1% $9,739 $10,195 (4.5)%
======= ====== ======= ====== ======= ======
INVESTMENT ADVISORY FEES
Investment advisory fees, the largest component of the Company's revenues, are
calculated as a percentage ranging from 0.375% to 1.25% of average net assets
and are paid monthly. The Company has agreed to waive its fee revenues and/or
pay expenses for certain USGIF funds for purposes of enhancing the funds'
competitive market positions. The aggregate amount of fees waived and expenses
born by the Company totaled $2,125,773, $3,052,054, and $3,484,595 in 2000,
1999, and 1998, 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.
Net investment advisory fees are also affected by changes in the amounts of
assets under management, including market appreciation or depreciation, the
addition of new client accounts or 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.
The increase in net advisory fees in fiscal year 2000 of approximately $1.3
million, or 24.5%, over fiscal year 1999 was largely due to market appreciation
and shareholder purchases in the Bonnel Growth Fund. In addition, net advisory
fees of the U.S. Government Securities Savings Fund increased 83.4% over fiscal
year 1999, because the Company waived $839,000 less in fees than in fiscal year
1999.
The decrease in net advisory fees in fiscal year 1999 of approximately $850,000,
or 14.0%, over fiscal year 1998 was due, for the most part, to decreases in the
net assets of high-margin, gold-related funds of approximately 37.1%.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 24 of 47
TRANSFER AGENT FEES
United Shareholder Services, Inc., a wholly owned subsidiary of the Company,
provides transfer agency, lockbox and printing services for the Company clients.
The Company receives, as compensation for services rendered as transfer agent,
an annual fee per account, and is reimbursed for out-of-pocket expenses
associated with processing shareholder information. Transfer agent fees are
therefore affected by the number of client accounts.
The decrease in fees in fiscal year 2000 is a result in a decrease in client
accounts to 107,450 from 116,831 in fiscal year 1999. The decrease in fees in
fiscal year 1999 is also a result of a decrease in client accounts to 116,831
from 117,363 in fiscal year 1998. Management believes investors are shifting
from direct investment in the funds to omnibus accounts through mutual fund
trading facilities offered by broker/dealers such as Charles Schwab and
Fidelity.
CUSTODIAL AND ADMINISTRATIVE FEES
Security Trust & Financial Company (STFC), a wholly owned state chartered trust
company, provides custodial and/or trustee services for IRAs and other
retirement plans administered by the Company. The custodial fees are generally
paid to STFC at calendar year-end upon separate invoice to the customer, not the
funds. Effective January 1, 2000, U.S. Global Administrators, Inc. (USGA), a
wholly owned subsidiary of the Company, began providing qualified plan
administration and record keeping services for existing 401(k) clients, which
services were previously offered by STFC. The administrative fees are paid to
USGA on a quarterly basis by its clients. USGA also actively markets 401(k) and
other retirement plans.
Custodial and administrative fees increased approximately $20,000, or 4.3%, in
fiscal year 2000. This slight increase was due primarily to growth in the
underlying plans. The custodial and administrative fees increase of
approximately $24,000, or 5.4%, in fiscal year 1999 over fiscal year 1998 was
also due to the growth in existing client plans.
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. Each service is
priced separately.
Mailing service fees increased approximately $75,000, or 25.6%, in fiscal year
2000. This increase was due primarily to increased mailings for USGIF and USGAF.
There was a slight decrease in mailing service fees of approximately $13,000, or
4.3%, in fiscal year 1999 from fiscal year 1998.
ACCOUNTING FEES
United Shareholder Services Inc. formerly maintained the books and records of
each trust and of each fund of each trust, including calculations of the daily
net asset value per share. In 1997, the Company decided to outsource such
services to Brown Brothers Harriman & Co. (BBH). The conversion was completed
during the second quarter of fiscal year 1998. The Company has foregone
accounting fee revenue associated with this function and also has reduced direct
costs for personnel and equipment related to providing fund accounting services.
For the years ended June 30, 2000, 1999, and 1998, bookkeeping and accounting
fees net of waivers were $0, $0, and $318,000, respectively.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 25 of 47
EXPENSES
(DOLLARS IN THOUSANDS) 2000 1999 % CHANGE 1999 1998 % CHANGE
- --------------------- ------- ------ -------- ------ ------- --------
Employee compensation/
benefits $ 4,767 $ 5,125 (7.0)% $ 5,125 $ 4,611 11.1%
General and
administrative 4,525 4,061 11.4% 4,061 3,664 10.8%
Marketing and
distribution 695 860 (19.2)% 860 1,179 (27.1)%
Depreciation and
amortization 395 493 (19.7)% 493 457 7.7%
Interest and finance 113 127 (11.3)% 127 123 3.6%
Total $10,495 $10,666 (1.6)% $10,666 $10,034 6.3%
EMPLOYEE COMPENSATION AND BENEFITS
Employee compensation and benefits decreased in fiscal year 2000 over fiscal
year 1999 by approximately $358,000, or 7.0%, due to the reduction of personnel
resulting from the introduction of new technology and improved processes.
Employee compensation and benefits increased approximately $514,000, or 11.1% ,
in fiscal year 1999 over 1998 due primarily to the company filling certain key
positions in the investment management and legal departments. The Company
expects that employee compensation expenses for fiscal year 2001 will
approximate fiscal year 2000 levels.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by approximately $464,000, or
11.4%, in fiscal year 2000 over fiscal year 1999 largely due to (1) an increase
in sub-advisory fees paid for management of the Bonnel Growth Fund and
additional fees paid to mutual fund supermarkets due to the asset growth of the
fund, and (2) an increase in education and training expenses for company
personnel. General and administrative expenses increased by approximately
$397,000, or 10.8%, in fiscal year 1999 over fiscal year 1998. This increase was
due the reversal of approximately $750,000 in accrued legal expenses in 1998 due
to the successful appeal of an adverse judgment against the Company from a
lawsuit brought against the Company in 1994. This was a singular event, which
was not repeated in 1999. This difference between years was partially offset by
a decrease in fee waivers/expense reimbursements on behalf of USGIF and USGAF in
fiscal year 1999 from fiscal year 1998.
MARKETING AND DISTRIBUTION
Fiscal year 2000 marketing and distribution expenses decreased by approximately
$165,000, or 19.2%, over fiscal year 1999. The net decrease was due to a shift
in marketing efforts to funds whereby expenditures are reimbursed via a 12b-1
arrangement. Fiscal year 1999 marketing and distribution expenses decreased by
approximately $319,000, or 27.1%, over fiscal year 1998 primarily due to lower
prospectus printing and mailing costs. The Company expects that marketing and
distribution expenses for fiscal year 2001 will approximate fiscal year 2000
levels.
DEPRECIATION AND AMORTIZATION
Depreciation expenses decreased by approximately $98,000, or 19.7%, in fiscal
year 2000 from fiscal year 1999 due to certain assets becoming fully
depreciated. Depreciation expense increased by $36,000, or 7.7%, in fiscal year
1999 over fiscal year 1998, primarily due to depreciation expense on computer
equipment placed into service during 1999.
INTEREST AND FINANCE
Interest and finance charges are incurred primarily from a note payable on the
Company's building. The decrease in interest expense of $14,000, or 11.3%, in
fiscal year 2000 from fiscal year 1999 was largely due to the amortization of
the note payable. Interest and finance charges increased by $4,000, or 3.6%, in
fiscal year 1999 over fiscal year 1998.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 26 of 47
INCOME TAXES
Provisions for income taxes include deferred taxes for temporary differences in
the bases of assets and liabilities for financial and tax purposes, resulting
from the use of the liability method of accounting for income taxes. For federal
income tax purposes at June 30, 2000, the Company has net operating losses
(NOLs) of approximately $1.4 million, which will expire in fiscal 2007 and 2010,
charitable contribution carryovers of approximately $193,000 expiring between
2000 and 2001, and alternative minimum tax credits of $132,128 with indefinite
expirations. Certain changes in the Company's ownership may result in a
limitation on the amount of NOLs that could be utilized under Section 382 of the
Internal Revenue Code. If certain changes in the Company's ownership occur
subsequent to June 30, 2000, there could be an annual limitation on the amount
of NOLs that could be utilized.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax amount will not be realized. As such, management has
included a valuation allowance of approximately $293,000 at June 30, 2000,
providing for the utilization of NOLs, charitable contributions, and investment
tax credits against future taxable income.
LIQUIDITY AND CAPITAL STRUCTURE
LIQUIDITY
At year end, the Company had net working capital (current assets minus current
liabilities) of approximately $3.1 million and a current ratio of 3.2 to 1. With
approximately $1.4 million in cash and cash equivalents and almost $2.6 million
in marketable securities, the Company has adequate liquidity to meet its current
debt obligations. Total shareholders' equity was approximately $6.5 million,
with cash, cash equivalents, and marketable securities comprising 43.2% of total
assets. With the exception of operating expenses, the Company's only material
commitment is the mortgage on its corporate headquarters (a long-term debt). The
Company's cash flow is expected to be sufficient to cover current expenses,
including debt service.
The investment advisory and related contracts between the Company and USGIF and
USGAF will expire on February 28, 2001, and March 8, 2001, respectively.
Management anticipates the trustees of both USGIF and USGAF will renew the
contracts.
Management believes current cash reserves, and financing obtained and/or
available, and cash flow from operations will be sufficient to meet foreseeable
cash needs or capital necessary for the above-mentioned activities and allow the
Company to take advantage of investment opportunities whenever available.
CAPITAL STRUCTURE
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
common stock is traded over-the-counter and is quoted daily under the Nasdaq
Small Cap Issues.
Trades are reported under the symbol "GROW."
The Company's current capital structure, as of September 19, 2000, includes
6,299,474 shares of class A common stock issued and 6,034,794 shares of class A
common stock issued and outstanding; no shares of class B common stock issued
and outstanding; and 1,496,800 shares of class C common stock issued and
outstanding.
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
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 27 of 47
market prices or management's estimate of fair value as of the balance sheet
date. Market prices fluctuate and the amount realized in the subsequent sale of
an investment may differ significantly from the reported market value. Company
compliance personnel review the Company's investment activities and periodically
report certain information to investment advisory clients.
The table below summarizes the Company's equity price risks as of June 30, 2000,
and shows the effects of a hypothetical 25% increase and a 25% decrease in
market prices.
ESTIMATED
FAIR VALUE
AFTER INCREASE
HYPOTHETICAL HYPOTHETICAL (DECREASE) IN
FAIR VALUE AT PERCENTAGE PRICE SHAREHOLDERS'
JUNE 30, 2000 CHANGE CHANGE EQUITY
------------- ------------ ------------ --------------
Trading Securities $1,424,120 25% increase $1,780,150 $ 234,980
25% decrease $1,068,090 $(234,980)
Available-for-sale $1,159,042 25% increase $1,448,803 $ 191,242
25% decrease $ 869,282 $(191,242)
The selected hypothetical change does not reflect what could be considered best-
or worst-case scenarios. Results could be much worse due to both the nature of
equity markets and the concentration of the Company's investment portfolio.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 28 of 47
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 Annual Report. The selected
financial data as of June 30, 1996, through June 30, 1997, and the years then
ended is derived from the Company's Consolidated Financial Statements, which
were audited by other auditors. The selected financial data as of June 30, 1998,
through June 30, 2000, and the years then ended is derived from the Company's
Consolidated Financial Statements, which were audited by Ernst & Young LLP,
independent accountants.
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
SELECTED EARNINGS DATA 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Revenues $10,912,764 $ 9,739,180 $10,195,349 $14,009,131(2) $20,214,546(2)
Expenses 10,495,271 10,665,616 10,034,397 13,329,439 17,261,592
----------- ----------- ----------- ----------- -----------
Income (loss) before minority
interest, equity interest, and
income taxes 417,493 (926,436) 160,952 679,6922 2,952,954(2)
Income tax (benefit) expense (26,526) 183,329 (39,571) 331,976 1,013,517
Minority interest -- -- -- -- (55,098)
Equity in net loss of joint venture -- -- -- (196,535) --
Equity in income (loss) of affiliate 51,739 (743,041) (349,142) 132,9682 102,7282
Net income (loss) 495,758 (1,852,806) (148,619) 284,149 1,987,067
Basic income (loss) per share 0.07 (0.28) (0.02) 0.04 0.30
Working capital 3,138,009 2,441,109 3,719,539 2,440,198 1,316,006(1)
Total assets 9,118,624 8,328,138 10,308,957 10,712,775 39,307,196
Long-term obligations 1,197,961 1,255,724 1,330,638 1,359,308 1,410,479
Shareholders' equity 6,484,486 5,912,238 7,941,859 7,966,407 8,544,072
- ------------------------
(1) Working capital includes amounts due to broker/dealers under reverse
repurchase agreements related to the Company's purchase of certain U.S.
Government securities but does not include the securities collateralizing
the obligations.
(2) Amounts included in revenues for fiscal years 1997 and 1996 include gains
on changes of interest in affiliate of $10,490 and $555,905, respectively.
The gains (losses) for fiscal years 1999 and 1998 of $97,744 and ($17,146),
respectively, are included in equity in income (loss) of affiliate.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 29 of 47
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of U. S. Global Investors, Inc.
We have audited the accompanying consolidated balance sheets of U.S. Global
Investors, Inc. and Subsidiaries (Company) as of June 30, 2000 and 1999, and the
related consolidated statements of operations and comprehensive income (loss),
shareholders' equity, and cash flows for each of the three years in the period
ended June 30, 2000. 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 did not audit the 1998 financial
statements of U.S. Global Investors (Guernsey) Limited, a wholly owned
subsidiary, which statements reflect a loss of $432,453 for the year ended June
30, 1998. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
U.S. Global Investors (Guernsey) Limited, is based solely on the report of the
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of U.S. Global Investors,
Inc. and Subsidiaries at June 30, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
San Antonio, Texas
September 22, 2000
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 30 of 47
AUDITORS' REPORT TO THE MEMBERS OF U.S. GLOBAL INVESTORS (GUERNSEY) LIMITED
We have audited the financial statements on page 4 to 10 of U.S. Global
Investors (Guernsey) Limited.
Respective responsibilities of Directors and Auditors
As described on page 2 the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of Opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board in the United Kingdom. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation of the
financial statements, and of whether the accounting polices are appropriate to
the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatements, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 30th of June, 1998 and of its net revenue for the
year then ended and have been properly prepared in accordance with the Companies
(Guernsey) Law, 1994.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers,
Chartered Accountants,
P.O. Box 321,
National Westminster House,
Le Truchot,
St Peter Port,
Guernsey, GY1 4ND
Channel Islands.
Date: 28th September, 1998
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 31 of 47
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30,
------------------------------
2000 1999
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 1,356,903 $ 1,025,247
Trading securities, at fair value 1,424,120 884,837
Receivables:
Mutual funds 779,809 794,562
Other 447,548 370,582
Prepaid expenses 350,729 384,506
Deferred tax asset 215,077 141,551
------------ ------------
TOTAL CURRENT ASSETS 4,574,186 3,601,285
------------ ------------
NET PROPERTY AND EQUIPMENT 2,278,744 2,426,592
------------ ------------
OTHER ASSETS
Restricted investments 240,000 255,000
Long-term deferred tax asset 836,056 878,091
Investment securities
available-for-sale,
at fair value 1,159,042 370,840
Equity investment in affiliate -- 749,739
Other 30,596 46,591
------------ ------------
TOTAL OTHER ASSETS 2,265,694 2,300,261
------------ ------------
TOTAL ASSETS $ 9,118,624 $ 8,328,138
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 498,632 $ 346,504
Accrued compensation and
related costs 298,826 274,667
Current portion of notes
payable 68,257 68,988
Current portion of annuity
and contractual obligation 8,487 18,000
Other accrued expenses 561,975 452,017
------------ ------------
Total Current Liabilities 1,436,177 1,160,176
------------ ------------
NON-CURRENT LIABILITIES
Notes payable - net of
current portion 1,066,705 1,126,066
Annuity and contractual
obligations 131,256 129,658
------------ ------------
TOTAL NON-CURRENT LIABILITIES 1,197,961 1,255,724
------------ ------------
TOTAL LIABILITIES 2,634,138 2,415,900
------------ ------------
SHAREHOLDERS' EQUITY
Common stock (class A)--
$0.05 par value; non-voting;
authorized, 7,000,000
shares 314,974 314,974
Common stock (class C)
(formerly class A)--
$.05 par value;
authorized 1,750,000
shares 74,840 24,840
Additional paid-in-capital 10,578,419 10,586,628
Treasury stock, class A
shares at cost; 282,350
and 288,029 shares at
June 30, 2000 and 1999,
respectively (637,298) (648,830)
Accumulated other
comprehensive loss (51,771) (74,938)
Accumulated deficit (3,794,678) (4,290,436)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 6,484,486 5,912,238
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 9,118,624 $ 8,328,138
============ ============
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 32 of 47
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEAR ENDED JUNE 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
REVENUE
Investment advisory fees $ 6,505,552 $ 5,223,405 $ 6,073,005
Transfer agent fees 2,933,855 3,340,528 3,445,681
Custodial and
administrative fees 484,441 464,666 440,884
Investment income (loss) 556,165 352,204 (419,096)
Other 432,751 358,377 654,875
------------ ------------ ------------
10,912,764 9,739,180 10,195,349
------------ ------------ ------------
EXPENSES
General and administrative 9,987,166 10,046,087 9,454,481
Depreciation and
amortization 395,452 492,581 457,386
Interest expense 112,653 126,948 122,530
------------ ------------ ------------
10,495,271 10,665,616 10,034,397
------------ ------------ ------------
INCOME (LOSS) BEFORE EQUITY
INTEREST AND INCOME TAXES 417,493 (926,436) 160,952
------------ ------------ ------------
EQUITY IN NET INCOME (LOSS)
OF AFFILIATE 51,739 (743,041) (349,142)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES 469,232 (1,669,477) (188,190)
PROVISION FOR FEDERAL INCOME
TAXES
Tax (Benefit) Expense (26,526 183,329 (39,571)
------------ ------------ ------------
NET INCOME (LOSS) 495,758 (1,852,806) (148,619)
Other comprehensive income
(loss), net of tax:
Unrealized gains (losses)
on available-for-sale
securities 23,167 806 81,441
------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ 518,925 $ (1,852,000) $ (67,178)
============ ============ ============
BASIC AND DILUTED NET INCOME
(LOSS) PER SHARE: $ 0.07 $ (0.28) $ (0.02)
============ ============ ============
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 33 of 47
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
COMMON COMMON ADDITIONAL OTHER
STOCK STOCK PAID-IN ACCUMULATED TREASURY COMPREHENSIVE
(CLASS A) (CLASS C) CAPITAL DEFICIT STOCK INCOME (LOSS) TOTAL
--------- --------- ------------ ----------- --------- ------------- -----------
Balance at June 30, 1997
(6,277,074 shares of Class A;
562,200 shares of Class C) $ 311,354 $ 28,110 $ 10,587,909 ($2,289,011) ($514,770) ($157,185) $ 7,966,407
Purchase of 29,525 shares of
Common Stock (Class A) -- -- -- -- (67,856) -- (67,856)
Reissuance of 32,972 shares of
Common Stock (Class A) -- -- (8,271) -- 106,337 -- 98,066
Exercise of 7,000 Stock Options 350 -- 12,070 -- -- -- 12,420
Conversion of 63,370 shares
of Common stock (Class C) to
Common Stock (Class A)3,268 (3,268) -- -- -- -- -- --
Unrealized gain (loss) on
securities available-for-sale
(net of tax) -- -- -- -- -- 152,544 152,544
Equity in unrealized gain (loss)
on available-for-sale securities
of affiliated company (net
of tax) -- -- -- -- -- (71,103) (71,103)
Net Loss -- -- -- (148,619) -- -- (148,619)
--------- -------- ------------ ----------- --------- --------- -----------
Balance at June 30, 1998
(6,299,444 shares of Class A;
496,830 shares of Class C) 314,972 24,842 10,591,708 (2,437,630) (476,289) (75,744) 7,941,859
Purchase of 133,685 shares of
Common Stock (Class A) -- -- -- -- (230,113) -- (230,113)
Reissuance of 28,892 shares of
Common Stock (Class A) -- -- (5,080) -- 57,572 -- 52,492
Conversion of 30 shares of
Common stock (Class C) to
Common Stock (Class A) 2 (2) -- -- -- -- --
Unrealized gain (loss) on
securities available-for-sale
(net of tax) -- -- -- -- -- 806 806
Net Loss -- -- -- (1,852,806) -- -- (1,852,806)
--------- -------- ------------ ----------- --------- --------- -----------
Balance at June 30, 1999
(6,299,474 shares of Class A;
496,800 shares of Class C) 314,974 24,840 10,586,628 (4,290,436) (648,830) (74,938) 5,912,238
Purchase of 25,375 shares of
Common Stock (Class A) -- -- -- -- (43,862) -- (43,862)
Reissuance of 31, 054 shares
of Common Stock (Class A) -- -- (8,209) -- 55,394 -- 47,185
Issuance of 1,000,000 shares
of Common Stock (Class C) to
Frank Holmes as deferred
compensation -- 50,000 (50,000) -- -- -- --
Recognition of current year
portion of deferred
compensation -- -- 50,000 -- -- -- 50,000
Unrealized gain (loss) on
securities available-for-sale
(net of tax) -- -- -- -- -- 23,167 23,167
Net Income -- -- -- 495,758 -- -- 495,758
--------- -------- ------------ ----------- --------- --------- -----------
Balance at June 30, 2000
(6,299,474 shares of Class A;
1,496,800 shares of Class C) $ 314,974 $ 74,840 $ 10,578,419 ($3,794,678) ($637,298) ($ 51,771) $ 6,484,486
========= ======== ============ =========== ========= ========= ===========
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 34 of 47
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED JUNE 30,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH FLOW FROM OPERATING
ACTIVITIES:
Net income (loss) $ 495,758 $ (1,852,806) $ (148,619)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization 395,452 492,581 457,386
Net (gain) loss on
sales of securities (550,000) (238,394) 348,579
Gain on disposal of
equipment (5,752) -- (1,266)
(Gain) loss on
changes of interest
in affiliate -- (97,744) 17,146
Provision for
deferred taxes (26,526) 183,329 (39,571)
Changes in assets and
liabilities, impacting
cash from operations:
Restricted investments 15,000 16,166 371,362
Accounts receivable (62,213) 913,527 172,223
Prepaid expenses and
other 31,134 938,405 579,710
Trading securities 676,746 377,260 (41,271)
Accounts payable and
accrued expenses 286,245 118,253 (360,564)
------------ ------------ ------------
Total adjustments 760,086 2,703,383 1,503,734
------------ ------------ ------------
NET CASH PROVIDED BY OPERATIONS 1,255,844 850,577 1,355,115
------------ ------------ ------------
CASH FLOW FROM INVESTING
ACTIVITIES:
Purchase of furniture
and equipment (258,644) (323,069) (469,633)
Proceeds on disposal of
equipment 16,792 -- 1,240
Purchase of available-
for-sale securities (717,652) (97,056) (383,630)
Redemption (investment)
in equity affiliate 100,000 (550,000) --
Proceeds on sale of
available-for-sale
securities -- -- 212,830
------------ ------------ ------------
NET CASH USED IN INVESTING
ACTIVITIES (859,504) (970,125) (639,193)
------------ ------------ ------------
CASH FLOW FROM FINANCING
ACTIVITIES:
Payments on annuity (7,915) (7,381) (6,883)
Payments on note payable
to bank (60,092) (62,070) (50,762)
Principal payments on
capital lease obligation -- -- (8,660)
Proceeds from issuance
or exercise of stock,
warrants, and options 47,185 52,491 87,985
Purchase of treasury stock (43,862) (230,112) (67,856)
------------ ------------ ------------
NET CASH USED IN FINANCING
ACTIVITIES (64,684) (247,072) (46,176)
------------ ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 331,656 (366,620) 669,746
BEGINNING CASH AND CASH
EQUIVALENTS 1,025,247 1,391,867 722,121
------------ ------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 1,356,903 $ 1,025,247 $ 1,391,867
============ ============ ============
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Receipt of trading and
available-for-sale
securities in liqui-
dation of equity
investment $ 701,478 -- --
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for interest $ 89,653 $ 126,948 $ 122,530
The accompanying notes are an integral part of this statement.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 35 of 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. U.S. Global Investors, Inc. (Company or U.S. Global) serves as
investment adviser, investment manager, 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, the commencement of operations. For these services, the
Company receives fees from USGIF and USGAF.
U.S. Global has also formed a company, U.S. Global Brokerage, Inc. (USGB),
formerly United Services Brokerage, Inc., originally incorporated in Texas on
April 24, 1994. USGB is registered as a broker/dealer with the National
Association of Securities Dealers, Inc. and the appropriate state regulatory
agencies so that it may provide distribution services for USGIF and USGAF mutual
fund shares. The Company has also formed U.S. Global Administrators, Inc.
(USGA), incorporated in Texas on October 23, 1998, to provide qualified plan
administration services for existing clients. Another wholly owned subsidiary,
Security Trust & Financial Company (STFC), serves as custodian for retirement
accounts invested in USGIF, USGAF, and other mutual funds.
The Company has 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.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, United Shareholder
Services, Inc. (USSI), STFC, A&B Mailers, Inc. (A&B), USGG, USGB, and USGA.
All significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts have been reclassified for comparative purposes.
ACCOUNTING FOR EQUITY INVESTMENTS. Prior to the liquidation of the U.S. Global
Strategies Fund (Guernsey Fund) in fiscal year 2000, the Company accounted for
its investment in the Guernsey Fund under the equity method.
CASH AND CASH EQUIVALENTS. Cash consists of cash on hand and cash equivalents
with original maturities of three months or less.
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 them 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 not classified 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 and
reported, net of tax, as a separate component of shareholders' equity and are
recorded in earnings on trade date.
The Company values its investments using third-party quoted prices. For
securities that have no quoted price or for which the Company owns a significant
portion of shares relative to trading volume, management estimates the fair
value of these securities.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 36 of 47
Realized gains (losses) from security transactions are calculated on the
first-in/first-out cost basis and are recorded in earnings on trade date. For
those securities with declines in fair value, which are considered other than
temporary, the cost basis of the security is written down as a new cost basis,
and the amount of the write down is included in earnings.
FIXED ASSETS. 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: building improvements, furniture and equipment are
depreciated over 3 years and the building is depreciated over 31.5 years.
INCOME TAXES. Provisions for income taxes include deferred taxes for temporary
differences in the bases of assets and liabilities for financial and tax
purposes, resulting from the use of the liability method of accounting for
income taxes. 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. Investment advisory fees, transfer agency fees, accounting
fees, custodian fees and all other fees earned by the Company are recorded as
income during the period in which services are performed.
ADVERTISING. The Company expenses advertising and sales promotion costs as they
are incurred. Total advertising and sales promotion expenditures were
approximately $575,000, $741,000, and $820,000 in 2000, 1999, and 1998,
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 gain (loss) is 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.
ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." In June 1999, SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS 133
(an amendment to SFAS 133)" was issued, which delayed the required adoption fo
SFAS No. 133 by one year. In 2000, the FASB issued SFAS No. 138, "Accounting for
Derivative Instruments and Hedging Activities," which addresses certain
implementation issues related to SFAS No. 133. The Company adopted SFAS No. 133
on July 1, 2000 as required, and the adoption had no impact on the financial
position or earnings of the Company as the Company did not have any off-balance
sheet derivatives.
In 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No.
25." This interpretation has been adopted by the Company, and there has been no
impact on the financial position or earnings of the Company as a result of this
adoption.
NOTE 2. INVESTMENTS
The following table summarizes investment activity over the last three fiscal
years:
YEAR ENDED JUNE 30
-------------------------------------
2000 1999 1998
---------- ---------- -----------
Realized gains (losses) on
sale of securities $ 550,000 $ 238,394 $ (349,579)
Trading securities, at cost 1,832,282 1,197,233 1,173,011
Trading securities, at fair value 1,424,120 884,837 901,647
Net change in unrealized losses
on trading securities (included
in earnings) 95,974 41,251 220,468
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 37 of 47
Available-for-sale securities,
at cost 1,237,483 484,382 509,382
Available-for-sale securities,
at fair value 1,159,042 370,840 472,240
Unrealized loss recorded in
shareholders' equity
(Net of tax) 51,771 74,938 24,514
Unrealized gains on available-
for-sale securities reclas-
sified as trading securities
during fiscal year -- 344,394 103,205
During fiscal year 1998, the Company reduced the carrying value of investments
held as available-for-sale by approximately $350,000 for certain investments
with declines in fair value that were considered other than temporary.
NOTE 3. INVESTMENT MANAGEMENT, TRANSFER AGENT AND OTHER FEES
The Company serves as investment adviser to USGIF, USGAF and the Guernsey Fund
and receives a fee based on a specified percentage of net assets under
management. The Company also serves as transfer agent to USGIF and USGAF and
receives a fee based on the number of shareholder accounts. The Company also
provides in-house legal services to USGIF and USGAF. During the second quarter
of fiscal year 1998, the Company outsourced the bookkeeping and accounting
functions performed by USSI. The Company also receives exchange, maintenance,
closing and small account fees directly from USGIF and USGAF shareholders. Fees
for providing services to USGIF and USGAF continue to be the Company's primary
revenue source.
The Company receives additional revenue from several sources including: STFC
custodian revenues, USGA administrative fee revenues, revenues from
miscellaneous transfer agency activities including lockbox and printing
functions, A&B mailroom operations, as well as gains on marketable securities
transactions.
The Company has voluntarily waived or reduced its advisory fees and/or has
agreed to pay expenses on several funds within USGIF and USGAF through June 30,
2001, or such later date as the Company determines. The aggregate amount of fees
waived and expenses borne by the Company were $2,125,773, $3,052,054, and
$3,484,595 in 2000, 1999, and 1998, respectively.
The investment advisory contract and related contracts between the Company and
USGIF expire in February 8, 2001, and the contracts between the Company and
USGAF expire in March 8, 2001. Management anticipates the trustees of both USGIF
and USGAF will renew the contracts.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment are composed of the following:
JUNE 30,
------------------------------
2000 1999
------------ ------------
Furniture and equipment $ 5,600,773 $ 5,350,812
Building and land 2,203,757 2,203,757
Building improvements 189,156 186,549
------------ ------------
7,993,686 7,741,118
Accumulated depreciation and amortization (5,714,942) (5,314,526)
------------ ------------
Net property and equipment $ 2,278,744 $ 2,426,592
============ ============
The building and land are pledged as collateral for the financing used to
acquire the building.
NOTE 5. BORROWINGS
The Company has a note payable to a bank, which is secured by land, an office
building, and related improvements. As of June 30, 2000, the balance on the note
was $1,127,464. The loan is currently amortizing over a twenty-year period with
payments of both principal and interest due monthly based on a floating rate of
Bank One Texas Prime
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 38 of 47
plus 0.25%. The current monthly payment is $11,750, and the note matures on July
1, 2001. Under this agreement, the Company must maintain certain financial
covenants. The company is in full compliance with its financial covenants at
June 30, 2000. Additionally, the Company believes it has adequate cash, cash
equivalents, and equity in the underlying asset to retire the obligation if
necessary. The Company also carries a small note on a vehicle, which will mature
in fiscal year 2001.
Future principal payments to be made over the next five years based on the notes
payable outstanding at June 30, 2000, are as follows:
FISCAL YEAR AMOUNT
----------- ----------
2001 $ 68,257
2002 1,066,705
Thereafter --
----------
Total $1,134,962
==========
NOTE 6. ANNUITY AND CONTRACTUAL OBLIGATIONS
On February 6, 1989, the Company entered into an agreement with Clark Aylsworth
(Aylsworth) 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 predeceases her. The Company has
recorded an obligation related to this agreement.
On December 30, 1990, the Company entered into a non-compete/non-interference
agreement, an executory contract, pursuant to which it pays the Aylsworths
$4,500 monthly, such amount to continue for the longer of Aylsworth's or his
wife's life. The Company determined that the executory contract should be
expensed as payments are made. The Company placed cash in escrow to cover the
Company's obligation to the Aylsworths if the Company defaults. The escrowed
amount decreases $15,000 annually and amounted to $240,000 at June 30, 2000.
NOTE 7. BENEFIT PLANS
The Company has a contributory profit sharing plan in which all qualified
employees who have completed one year of employment as of June 30 with the
Company are included. The amount of the annual contribution, which may not
exceed 15% of earnings before income taxes, is approved by the Company's board
of directors. The Company has neither accrued nor paid a contribution for the
fiscal years 2000, 1999, and 1998.
The Company also has a savings and investment plan qualified under Section
401(k) of the Internal Revenue Code. In connection with this 401(k) Plan,
participants can voluntarily contribute up to 15% of their compensation to this
plan, and the Company will match 50% of their contribution up to a match of 2%.
The Company has recorded expense related to the 401(k) plan of $48,743; $38,674;
and $45,143 for fiscal years 2000, 1999, and 1998, respectively.
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, 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. Beginning in fiscal year 1997, a similar savings plan utilizing
UGMA accounts has been offered to employees to save for their children's
education. The Company match, reflected in base salary expense, aggregated in
all programs to $53,417; $57,317; and $61,102 in fiscal years 2000, 1999, and
1998, 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.
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 39 of 47
NOTE 8. SHAREHOLDERS' EQUITY
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 may
be 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. Since adoption of the 1985
plan, options have been granted at prices ranging from $1.50 to $4.50 per share,
which equaled or exceeded the fair market value at date of grant. As of June 30,
2000, options covering 88,000 shares have been exercised, and options covering
110,500 shares have expired. The 1985 plan expired December 31, 1994; as a
consequence, there will be no further option grants under the 1985 plan.
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. During fiscal year 2000, options covering 22,000 shares were
granted at an exercise price of $1.50 per share. 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. As of June 30, 2000, options
covering 393,000 shares have been exercised under this plan, and options
covering 265,900 shares have expired.
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. During fiscal year 1999, options covering 20,000 shares were
granted at an exercise price of $1.56 per share. During fiscal year 2000,
options covering 72,000 shares were granted at an exercise price of $1.50 per
share. As of June 30, 2000, options covering 6,000 shares have been exercised
under this plan, and options covering 75,500 shares have expired.
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 in exchange
for services and cancellation of the option to purchase 400,000 shares of Class
C common stock held by Mr. Holmes and the cancellation of warrants to purchase
586,122 shares of class C common stock held by Mr. 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 Mr. Holmes
death, and were valued at $.50 per share for compensation purposes. The
agreement was executed on August 10, 1999.
On a per share basis, the holders of the class C common stock and the non-voting
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. Certain class C common stock is exchangeable on a
one-for-one basis for class A stock.
Stock option transactions under the various stock option plans are summarized
below:
WEIGHTED AVERAGE
------------------------
EXERCISE
SHARES PRICE
--------- --------
Outstanding June 30, 1997 1,058,800 $ 2.53
--------- --------
Granted -- --
Canceled 80,200 $ 3.96
Exercised 7,000 $ 1.94
--------- --------
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 40 of 47
Outstanding June 30, 1998 971,600 $ 2.41
Granted 20,000 $ 1.56
Canceled 38,800 $ 2.48
Exercised -- --
--------- --------
Outstanding June 30, 1999 952,800 $ 2.40
--------- --------
Granted 94,000 $ 1.50
Canceled 666,000 $ 2.40
Exercised -- --
--------- --------
Outstanding June 30, 2000 380,800 $ 2.16
=========
As of June 30, 2000, 1999, and 1998, exercisable stock options totaled 295,700,
948,020, and 958,580 shares and had weighted average exercise prices of $2.35,
$2.39, and $2.41 per share, respectively.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock option plans as allowed under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Accordingly, the
Company has not recognized compensation expense for its stock options granted
subsequent to December 15, 1994, the effective date of the Statement. Had
compensation expense for the Company's stock options granted after issuance of
SFAS 123 been determined based on the fair value at the grant dates consistent
with the methodology of SFAS 123, such compensation expense, net of tax benefit,
would have been $1,227, $13,121, and $2,567 in fiscal years 2000, 1999, and
1998, respectively, and the pro forma net income and income per share would have
been as follows:
FISCAL YEAR ENDED JUNE 30,
-------------------------------------
2000 1999 1998
---------- ----------- -----------
Pro forma net income (loss) $ 494,531 ($1,865,927) ($ 151,186)
Pro forma income per share:
Basic and diluted $ 0.07 ($ 0.28) ($ 0.02)
The weighted average fair value of options granted during the fiscal years ended
June 30, 2000 and 1999, was $0.81 and $0.85, respectively. Because SFAS 123 is
applicable only to options granted in fiscal years beginning subsequently to
December 15, 1994, its pro forma effect will not be fully reflected until fiscal
2001 due to vesting requirements.
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 with the following weighted-average assumptions:
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------
2000 1999 1998
------------- ------------- -------------
Expected volatility 0.42 - 0.55 0.42 - 0.55 0.50 - 0.55
Expected dividend yield -- -- --
Expected life (term) 8 Years 8 Years 8 Years
Risk-free interest rate 4.41% - 6.16% 4.41% - 5.53% 5.07% - 5.53%
Class A and class C common stock options outstanding and exercisable at June 30,
2000, were as follows:
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 41 of 47
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
DATE OF AVERAGE AVERAGE AVERAGE
OPTION OPTION NUMBER REMAINING OPTION NUMBER OPTION
GRANT PRICE OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
-------- ------ ----------- ------------- -------- ----------- --------
1985 Plan 12/15/94 $ 2.63 4,000 4.45 $ 2.63 4,000 $ 2.63
Class A
1989 Plan 12/06/91 $ 2.63 148,300 1.43 $ 2.63 148,300 $ 2.63
Class A 05/16/94 $ 4.75 2,000 3.87 $ 4.75 2,000 $ 4.75
09/05/95 $ 2.63 5,000 5.18 $ 2.63 4,000 $ 2.63
11/07/95 $ 2.19 500 5.35 $ 2.19 400 $ 2.19
05/24/96 $ 3.06 10,000 5.90 $ 3.06 10,000 $ 3.06
06/04/97 $ 2.00 30,000 6.93 $ 2.00 30,000 $ 2.00
12/03/99 $ 1.50 22,000 9.42 $ 1.50 -- $ 1.50
------ ------- ---- ------ ------- ------
$1.50 - $4.75 217,800 2.36 $ 2.46 194,700 $ 2.57
1997 Plan 06/04/97 $1.82 37,000 6.93 $ 1.82 37,000 $ 1.82
Class A 06/04/97 $2.00 50,000 6.93 $ 2.00 50,000 $ 2.00
12/09/98 $1.56 10,000 8.44 $ 1.56 10,000 $ 1.56
12/03/99 $1.50 62,000 9.42 $ 1.50 -- $ 1.50
------ ------- ---- ------ ------- ------
$1.56 - $2.00 159,000 7.46 $ 1.74 97,000 $ 1.89
All Plans 12/91
thru
12/99 $1.50 - $4.75 380,800 4.51 $2.16 295,700 $ 2.35
============= ======= ==== ===== ======= ======
During the fiscal years ended June 30, 2000, and June 30, 1999, the Company
purchased 25,375 and 133,685 shares of its class A common stock at an average
price of $1.73 and $1.72 per share, respectively.
NOTE 9. INCOME TAXES
The reconciliation of income tax computed at the U.S. federal statutory rates to
income tax expense is:
YEAR ENDED JUNE 30,
-------------------------------------
2000 1999 1998
---------- ---------- -----------
Tax expense (benefit) at statutory rate $ 159,539 $ (563,373) $ (63,984)
Non-deductible membership dues 11,379 12,238 11,880
Non-deductible meals and entertainment 27,813 35,194 31,401
Valuation allowance (258,095) 886,891 (31,986)
Other 32,838 (187,621) 13,118
---------- ---------- -----------
$ (26,526) $ 183,329 $ (39,571)
========== ========== ===========
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 are as follows:
YEAR ENDED JUNE 30,
----------- -----------
2000 1999
----------- -----------
Book/tax differences in the balance sheet:
Trading securities $ 138,775 $ 106,214
Accumulated depreciation 147,941 148,169
Accrued expenses 76,301 35,335
Available-for-sale securities 26,670 38,604
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 42 of 47
Reduction in cost basis of AFS securities 177,466 177,466
Annuity obligations 47,513 50,204
Affiliated investment 17,591 217,542
----------- -----------
632,257 773,534
Tax carryovers:
Net operating loss (NOL) carryover 479,095 886,891
Charitable contributions carryover 65,748 130,879
Investment tax credit 34,472 34,472
Alternative minimum tax credits 132,128 115,228
----------- -----------
711,443 1,167,470
----------- -----------
Total gross deferred tax asset 1,343,700 1,941,004
----------- -----------
Unrealized gain (loss) on
available-for-sale securit (26,670) (38,604)
----------- -----------
Total gross deferred tax liability (26,670) (38,604)
----------- -----------
Deferred tax asset 1,317,030 1,902,400
Valuation allowance (292,567) (921,363)
----------- -----------
Net deferred tax asset $ 1,024,463 $ 981,037
=========== ===========
For federal income tax purposes at June 30, 2000, the Company has NOLs of
approximately $1.4 million which will begin expiring in fiscal 2007 and 2010,
charitable contribution carryovers of approximately $193,000 expiring between
2000 and 2001, and alternative minimum tax credits of $132,128 with indefinite
expirations. If certain changes in the Company's ownership should occur, there
could be an annual limitation on the amount of NOLs that could be utilized.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax amount will not be realized. Management included a
valuation allowance of $292,567 and $921,363 at June 30, 2000 and 1999,
respectively, providing for the utilization of NOLs, charitable contributions
and investment tax credits against future taxable income.
NOTE 10. EARNINGS PER SHARE
The following table sets forth the computation for basic and diluted earnings
per share (EPS):
YEAR ENDED JUNE 30,
--------------------------------------
2000 1999 1998
---------- ----------- -----------
Basic and diluted net income (loss) $ 495,758 $(1,852,806) $ (148,619)
Weighted average number of
outstanding shares:
Basic 7,408,821 6,562,140 6,617,153
Effect of dilutive securities:
Employee stock options 2,278 1,704 52,210
---------- ---------- -----------
Diluted 7,411,099 6,563,844 6,669,363
========== ========== ===========
Earnings (loss) per share:
Basic $ 0.07 $ (0.28) $ (0.02)
========== ========== ===========
Diluted $ 0.07 $ (0.28) $ (0.02)
========== ========== ===========
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, 2000, 1999, and 1998, options for 296,800, 910,800, and 650,400
shares, respectively, were excluded from diluted EPS. Additionally, for the
years ended June 30, 1999 and 1998, there were 586,122 warrants outstanding
which had no dilutive effect and were excluded from diluted EPS.
NOTE 11. COMPREHENSIVE INCOME
Effective December 31, 1998, the Company adopted Statement No. 130, Reporting
Comprehensive Income (SFAS 130). SFAS 130 established standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements. The
Company has disclosed
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 43 of 47
the components of comprehensive income in the consolidated statements of
operations and comprehensive income and has reclassified a prior period to
conform with the requirements.
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
--------- --------- ---------
JUNE 30, 2000:
Unrealized gains (losses) on
available-for-sale securities $ 35,101 $ (11,934) $ 23,167
Less: reclassification adjustment
for gains in net income -- -- --
--------- --------- ---------
Other comprehensive income (loss) $ 35,101 $ (11,934) $ 23,167
========= ========= =========
JUNE 30, 1999:
Unrealized gains (losses) on
available-for-sale securities $(333,172) $ 113,278 $(219,894)
Less: reclassification adjustment
for gains in net income 334,394 (113,694) 220,700
--------- --------- ---------
Other comprehensive income (loss) $ 1,222 $ (416) $ 806
========= ========= =========
JUNE 30, 1998:
Unrealized gains (losses) on
available-for-sale securities $ 20,191 $ (6,865) $ 13,326
Less: reclassification adjustment
for gains in net income 103,205 35,090) 68,115
--------- --------- ---------
Other comprehensive income (loss) $ 123,396 $ (41,955) $ 81,441
========= ========= =========
NOTE 12. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company operates principally in two business segments: providing mutual fund
investment management services to its clients, and investing for its own account
in an effort to add growth and value to its cash position. The following details
total revenues and income (loss) by business segment:
INVESTMENT
MANAGEMENT CORPORATE
SERVICES INVESTMENT CONSOLIDATED
----------- ---------- -----------
YEAR ENDED JUNE 30, 2000:
Net revenues $10,458,738 $ 454,026 $10,912,764
Income (loss) before income taxes
and equity interest $ (36,533) $ 454,026 $ 417,493
Equity in net loss of affiliate -- 51,739 51,739
----------- ---------- -----------
Net income (loss) before income
taxes $ (36,533) $ 505,765 $ 469,232
=========== ========== ===========
Depreciation and amortization $ 395,452 $ -- $ 395,452
=========== ========== ===========
Interest expense $ 111,757 $ 896 $ 112,653
=========== ========== ===========
Capital expenditures $ 247,421 $ -- $ 247,421
=========== ========== ===========
Gross identifiable assets at
June 30, 2000 $6,700,188 $1,315,532 $ 8,015,720
Deferred tax asset $1,051,133
Accumulated other comprehensive
loss $ 51,771
Consolidated total assets at
June 30, 2000 $9,118,624
U.S. Global Investors, Inc.
Annual Report on Form 10-K 2000 Page 44 of 47
YEAR ENDED JUNE 30, 1999:
Net revenues $9,542,037 $ 197,143 $ 9,739,180
=========== ========== ===========
Income (loss) before income taxes
and equity interest $(1,123,579) $ 197,143 $ (926,436)
Equity in net loss of affiliate -- (743,041) (743,041)
----------- ---------- -----------
Net income (loss) before income
taxes $(1,123,579) $ (545,898) $(1,669,477)
=========== ========== ===========
Depreciation and amortization $ 492,568 $ 13 $ 492,581
=========== ========== ===========
Interest expense $ 126,898 $ 50 $ 126,948
=========== ========== ===========
Capital expenditures $ 323,069 $ -- $ 323,069
=========== ========== ===========
Gross identifiable assets at
June 30, 1999 $5,283,452 $1,950,106 $ 7,233,558
Deferred tax asset 1,019,642
Accumulated other compre-
hensive loss 74,938
-----------
Consolidated total assets at
June 30, 1999 $8,328,138
===========
YEAR ENDED JUNE 30, 1998:
Net revenues $10,764,522 $ (569,173) $10,195,349
=========== ========== ===========
Income (loss) before income taxes
and equity interest $ 730,125 $ (569,173) $ 160,952
Equity in net loss of affiliate -- (349,142) (349,142)
----------- ---------- -----------
Net income (loss) before income
taxes $ 730,125 $ (918,315) $ (188,190)
=========== ========== ===========
Depreciation and amortization $ 457,224 $ 162 $ 457,386
=========== ========== ===========
Interest expense $ 122,530 $ -- $ 122,530
=========== ========== ===========
Capital expenditures $ 469,633 $ -- $ 469,633
=========== ========== ===========
Gross identifiable assets at
June 30, 1998 $6,848,706 $2,181,121 $ 9,029,827
Deferred tax asset 1,203,386
Accumulated other comprehensive
loss 75,744
-----------
Consolidated total assets at
June 30, 1998 $10,308,957
===========
NOTE 13. RELATED PARTY TRANSACTIONS
In addition to the Company's receivable from USGIF and USGAF relating to
investment management, transfer agency and other fees, the Company had
$1,280,768 and $892,778 invested in USGIF money market mutual funds at June 30,
2000 and 1999, respectively. Receivables from mutual funds represent amounts due
the Company, and its wholly owned subsidiaries, for investment advisory fees,
transfer agent fees, and exchange fees, net of amounts payable to the mutual
funds.
During fiscal year 1998, the Company purchased 4,379 shares for $200,000 of Xtra
Music Limited, of which Jerold H. Rubinstein, a director of the Company, has
controlling interest. Additionally, during fiscal year 1998, the Company paid
Bobby D. Duncan, a former director of the Company, approximately $60,000 in
consulting fees.
Frank Holmes, a director and CEO of the Company, has served as a director of
Franc-Or Resources beginning in June 2000. The Company owns a position in
Franc-Or Resources with an estimated fair market value of $173,000.
NOTE 14. CONTINGENCIES
Subsequent to year end, the Company became aware of a potential sum it will owe
to USGIF in fiscal year 2001. In prior years, USGIF incurred losses of
approximately $150,000, primarily due to forged signatures. Management has
consulted with its insurance carrier and internal legal counsel and believes
that it is probable that this claim will be honored under its insurance policy.
The deductible on this policy is $25,000. Management believes that, as such, the
Company's loss would be limited to this amount. As a result, the Company has
accrued $25,000 during fiscal year 2000.