UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
Commission File Number 0-13928
U.S. GLOBAL INVESTORS, INC.
TEXAS 74-1598370
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
7900 CALLAGHAN ROAD
SAN ANTONIO, TEXAS 78229
(Address of Principal Executive Officer) (Zip Code)
210-308-1234
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of
the Act Title of Each Class: Class A common stock, par value $0.05 per share
Name of Each Exchange on Which Registered: Nasdaq Small Cap Issues
Indicate by check mark whether the Company (1) has filed all reports YES [X]
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.
Indicate by check mark if disclosure of delinquent filers pursuant to [ ]
Item 405 of Regulation S-K (ss.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.
The aggregate market value of the 4,216,277 shares of nonvoting class A common
stock held by nonaffiliates of the registrant on September 20, 2001 (based on
the last sale price on the Nasdaq as of such date), was $4,300,603. 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 September
20, 2001 (based on the last sale price of the class C common stock in a private
transaction) was $52,294. 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 20, 2001, there were 6,299,474 shares of Registrant's class A
common stock issued and 5,953,887 shares of Registrant's class A common stock
issued and outstanding, no shares of Registrant's class B nonvoting common
shares 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
Item 1. Business........................................................1
Item 2. Properties......................................................4
Item 3. Legal Proceedings...............................................4
Item 4. Submission of Matters to a Vote of Security Holders.............4
PART II OF ANNUAL REPORT ON FORM 10-K
Item 5. Market for Company's Common Equity and Related
Shareholder Matters...................................................5
Item 6. Selected Financial Data.........................................6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................7
Item 8. Financial Statements and Supplementary Data....................13
Item 9. Changes in and Disagreements With Accountants On
Accounting and Financial Disclosure..................................28
PART III OF ANNUAL REPORT ON FORM 10-K
Item 10. Directors and Executive Officers of the Company...............29
Item 11. Executive Compensation........................................30
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................................34
Item 13. Certain Relationships and Related Transactions................35
PART IV OF ANNUAL REPORT ON FORM 10-K
Item 14. Exhibits, Financial Statement Schedules, and
Reports On Form 8-K..................................................36
SIGNATURES..................................................................39
EXHIBIT 11 -- SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE.............40
EXHIBIT 21 -- SUBSIDIARIES OF THE COMPANY, JURISDICTION OF
INCORPORATION, AND PERCENTAGE OF OWNERSHIP.................. .............41
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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 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, transfer agent, and fund
distribution services as well as investment income are the primary sources
of the Company's revenue. Prior to June 30, 2001, the Company provided
custodial and administrative services through its wholly owned trust
company and administrator for IRAs and other types of retirement plans. The
fees from these custodial and administrative services contributed to the
Company's revenue. The Company will continue to receive the majority of the
aforementioned custodial fees as it has contracted with another entity to
assist with these services.
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.
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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 2002, 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 2002, 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
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distributing USGIF and USGAF fund shares. Effective September 3, 1998, USGB
became the distributor for USGIF and USGAF fund shares. Through June 30,
2001, the Company has capitalized USGB with approximately $542,740 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, provided custodial services for IRA
and other retirement plans administered by U.S. Global Administrators, Inc.
until June 1, 2001. Management determined that it was in the Company's best
interest to exit the 401(k) plan administration business and to voluntarily
withdraw the charter of the trust company. The Company continues to collect
the majority of the fees for custodial services to the IRAs for record
keeping activities and has contracted with another entity to act as
custodian to these accounts.
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
As of June 30, 2001, U.S. Global and its subsidiaries employed 66 full-time
employees and 4 part-time employees; as of June 30, 2000, it employed 78
full-time employees and 4 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 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.
Competition for sales of fund shares is influenced
3
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 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, 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.
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 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 the Trusts
will choose to continue their relationships with the Company, USSI, or
USGB.
ITEM 2. PROPERTIES
The Company presently 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. This building is currently subject to a
term loan for $1,082,841.
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
2001.
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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 $0.05 per share.
There is no established public trading market for the Company's class B and
class C common stock.
The Company's class A common stock is traded over-the-counter and is quoted
daily under Nasdaq's Small Cap Issues. Trades are reported under the symbol
"GROW."
The following table sets forth the range of high and low sales prices from
Nasdaq for the fiscal years ended June 30, 2001 and 2000. The quotations
represent prices between dealers and do not include any retail markup,
markdown, or commission.
SALES PRICE
-------------------------------------
2001 2000
----------------- -----------------
HIGH ($) LOW ($) HIGH ($) LOW ($)
----- ----- ----- -----
First quarter (9/30) 1.750 1.500 1.750 1.000
Second quarter (12/31) 1.500 0.938 1.625 1.250
Third quarter (3/31) 1.375 0.875 2.500 1.375
Fourth quarter (6/30) 1.210 1.000 1.813 1.438
HOLDERS
On September 20, 2001, there were 271 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 20, 2001, 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 seventeen 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.
5
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.
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, 1997, and the year then ended
are 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, 2001, and the years then ended is derived from the
Company's Consolidated Financial Statements, which were audited by Ernst &
Young LLP, independent accountants.
SELECTED
EARNINGS DATA YEAR ENDED JUNE 30,
------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ------------ ------------ ------------ --------------
Revenues $ 8,893,884 $ 10,912,764 $ 9,739,180 $ 10,195,349 $ 14,009,131(1)
Expenses 9,652,382 10,495,271 10,665,616 10,034,397 13,329,439
----------- ------------ ------------ ------------ --------------
Income (loss) before
equity interest and
income taxes (758,498) 417,493 (926,436) 160,952 679,692
Income tax (benefit)
expense 36,181 (26,526) 183,329 (39,571) 331,976
Equity in net loss
of joint venture -- -- -- -- (196,535)
Equity in income
(loss) of affiliate -- 51,739 (743,041)(1) (349,142)(1) 132,968
Net income (loss) (794,679) 495,758 (1,852,806) (148,619) 284,149
Basic income (loss)
per share (0.11) 0.07 (0.28) (0.02) 0.04
Working capital 3,246,792 3,138,009 2,441,109 3,719,539 2,440,198
Total assets 7,912,184 9,118,624 8,328,138 10,308,947 10,712,775
Long-term obligations 1,135,903 1,197,961 1,255,724 1,330,638 1,359,308
Shareholders' equity 5,715,520 6,484,486 5,912,238 7,941,859 7,966,407
------------------
(1) Amounts included in revenues for fiscal year 1997 include gains on
changes of interest in affiliate of $10,490. 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.
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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.
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 the fact 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, 2001, the Company held
approximately $1.9 million in investments, comprising 23% 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 2001, total average assets under management
decreased 8.6% to $1.3 billion primarily because of depreciation of the
equity markets and shareholder withdrawals from the Bonnel Growth Fund.
AVERAGE ASSETS UNDER MANAGEMENT
(DOLLARS IN MILLIONS)
----------------------------------------------------------
2001 2000 % CHANGE 2000 1999 % CHANGE
------ ------ ------- ------ ------ -------
USGIF - Money market $ 910 $ 928 (1.9)% $ 928 $ 979 (5.2)%
USGIF - Other 164 234 (29.9)% 234 280 (16.4)%
------ ------ ---- ------ ------ ---
USGIF - Total 1,074 1,162 (7.6)% 1,162 1,259 (7.7)%
USGAF 205 238 (13.9)% 238 130 83.1%
------ ------ ---- ------ ------ ---
Total $1,279 $1,400 (8.6)% $1,400 $1,389 0.8%
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, 2001 and 2000, the Company held approximately $1.9 and $2.6
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 the Company's 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 2001, 2000, and 1999, the Company
had net realized gains of approximately $383,000, $550,000, and $238,000,
respectively. The Company expects that gains or losses will continue to
fluctuate in the future as
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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.
2001 2000 % CHANGE 2000 1999 % CHANGE
------ ----- ------- ----- ------- --------
Net income (loss) (in thousands) $(795) $496 (260.3)% $496 $(1,852) 126.8%
Net income (loss) per share - basic
and diluted $(0.11) $0.07 (257.1)% $0.07 $(0.28) 125.0%
Weighted average shares outstanding
(in thousands)
Basic 7,525 7,409 7,409 6,562
Diluted 7,525 7,411 7,411 6,564
YEAR ENDED JUNE 30, 2001, COMPARED WITH YEAR ENDED JUNE 30, 2000
The Company posted a net after-tax loss of $795,000 ($0.11 loss per share)
for the year ended June 30, 2001, compared with net after-tax income of
$496,000 ($0.07 income per share) for the year ended June 30, 2000. The
decrease in net income for 2001 was principally due to declines in net
advisory fees, transfer agent fees, and investment income. These decreases
were partially offset by reductions in general and administrative expenses.
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, which was recognized in fiscal year 2000.
REVENUES
(DOLLARS IN THOUSANDS) 2001 2000 % CHANGE 2000 1999 % CHANGE
------ ------- ----- ------- ------ ----
Investment advisory fees:
USGIF - Money market $2,357 $2,438 (3.3)% $2,438 $1,825 33.6 %
USGIF - Other 1,081 1,666 (35.1)% 1,666 2,037 (18.2)%
------ ------- ----- ------- ------ ----
USGIF - Total 3,438 4,104 (16.2)% 4,104 3,862 6.3 %
USGAF 2,060 2,393 (13.9)% 2,393 1,319 81.4 %
Other -- 9 (100.0)% 9 42 (78.6)%
------ ------- ----- ------- ------ ----
Total investment advisory fees $5,498 $6,506 (15.5)% $6,506 $5,223 24.5 %
Transfer agent fees 2,682 2,934 (8.6)% 2,934 3,341 (12.2)%
Custodial and administrative fees 302 484 (37.6)% 484 465 4.3 %
Mailing services fees 302 368 (17.9)% 368 293 25.6 %
Investment income 127 556 (77.2)% 556 352 58.0 %
Other revenues (18) 65 (127.7)% 65 65 0.0 %
------ ------- ----- ------- ------ ----
Total $8,894 $10,913 (18.5)% $10,913 $9,739 12.1 %
====== ======= ===== ======= ====== ====
8
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 $2,039,360, $2,125,773, and $3,052,054 in 2001, 2000, and 1999,
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 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 decrease in net advisory fees in fiscal year 2001 of approximately $1.0
million, or 15.5%, over fiscal year 2000 was largely due to market declines
in the Company's equity funds, particularly in the Bonnel Growth Fund,
World Gold Fund, and All American Equity Fund, and shareholder withdrawals
from the Bonnel Growth Fund.
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.
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, 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 2001, as compared with fiscal year
2000, is a result of a decrease in client accounts from 107,450 to 97,932.
The fee decrease in fiscal year 2000, as compared with fiscal year 1999, is
a result of a decrease in client accounts from 116,831 to 107,450.
Management believes investors are shifting from direct investment in the
funds to mutual fund supermarkets 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, provided custodial
and/or trustee services for IRAs and other retirement plans administered by
the Company. The custodial fees were previously 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 were paid to USGA
on a quarterly basis by its clients. USGA ceased revenue-generating
operations on May 31, 2001. STFC continued to collect its custodial fees
through May 31, 2001, at which time a majority of these fees transferred to
USGI. Both companies will be liquidated subsequent to fiscal year end.
Custodial and administrative fees decreased approximately $180,000, or
37.6%, in fiscal year 2001. This decrease was primarily due to the
dissolution of USGA's 401(k) operations. The custodial and administrative
fee increase of approximately $20,000, or 4.3%, in fiscal year 2000 over
fiscal year 1999 was due primarily to growth in the retirement plans under
administration.
MAILING SERVICES. A&B Mailers, Inc., a wholly owned subsidiary of the
Company, provides mail-handling services to various entities. One of A&B
Mailers' primary customers is the Company in connection with its efforts to
promote the funds. Each service is priced separately.
9
Mailing service fees decreased approximately $66,000, or 17.9%, in fiscal
year 2001. This decline was due primarily to reduced mailing activities for
USGIF and USGAF as well as outside clients. There was an increase in
mailing service fees of approximately $75,000, or 25.6%, in fiscal year
2000 from fiscal year 1999. This increase was related to increased mailings
for USGIF and USGAF.
EXPENSES
(DOLLARS IN THOUSANDS) 2001 2000 % CHANGE 2000 1999 % CHANGE
------- ------- ------- ------- ------- -------
Employee compensation and
benefits $ 4,701 $ 4,767 (1.4)% $ 4,767 $ 5,125 (7.0)%
General and administrative 4,304 4,525 (4.9)% 4,525 4,061 11.4 %
Marketing and distribution 311 695 (55.3)% 695 860 (19.2)%
Depreciation and
amortization 226 395 (42.8)% 395 493 (19.7)%
Interest and finance 110 113 (2.7)% 113 127 (11.3)%
Total $ 9,652 $10,495 (8.0)% $10,495 $10,666 (1.6)%
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits
decreased in fiscal year 2001 over fiscal year 2000 by approximately
$66,000, or 1.4%, due to staff reductions implemented during the third and
fourth quarters of fiscal year 2001 in response to market downturns and
decreased shareholder activity. 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. The Company expects
that employee compensation expenses for fiscal year 2002 will continue to
decline as the staff reductions in fiscal year 2001 were not fully
effective until the end of the fiscal year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
by approximately $221,000, or 4.9%, in fiscal year 2001 over fiscal year
2000 largely due to (1) a decrease in sub-advisory fees paid for management
of the Bonnel Growth Fund, and (2) a decrease in travel and training
expenses incurred on behalf of company personnel. These decreases were
offset by increased professional fees and leasing costs associated with
equipment and computers. 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.
MARKETING AND DISTRIBUTION. Fiscal year 2001 marketing and distribution
expenses decreased by approximately $384,000, or 55.3%, over fiscal year
2000. The net decrease was due to an overall reduction of marketing
expenditures as well as an increased percentage of marketing costs that
were reimbursed by 12b-1 plans adopted by the funds. 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 an increase in
the percentage of marketing costs reimbursed by the 12b-1 plans, which
offset an overall increase in marketing expenditures. The Company expects
that marketing and distribution expenses for fiscal year 2002 will
approximate fiscal year 2001 levels.
DEPRECIATION AND AMORTIZATION. Depreciation expenses decreased by
approximately $169,000, or 42.8%, in fiscal year 2001 from fiscal year 2000
due to the Company's decision to lease its computer equipment. As such,
fully depreciated assets were replaced by operating leases. 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.
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 $3,000, or 2.7%, in fiscal year 2001 from fiscal year 2000 and
the decrease of $14,000, or 11.3%, in fiscal year 2000 from fiscal year
1999 were due to the continued amortization of the note payable.
10
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, 2001, the Company
has net operating losses (NOLs) of approximately $2.1 million, which will
expire between fiscal 2005 and 2011, charitable contribution carryovers of
approximately $230,000 expiring between fiscal 2002 and 2006, and
alternative minimum tax credits of $139,729 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, 2001, 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 $547,000 and
$293,000 at June 30, 2001, and June 30, 2000, respectively, providing for
the utilization of NOLs, charitable contributions, and investment tax
credits against future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
At year end, the Company had net working capital (current assets minus
current liabilities) of approximately $3.2 million and a current ratio of
4.1 to 1. With approximately $1.3 million in cash and cash equivalents and
almost $1.9 million in marketable securities, the Company has adequate
liquidity to meet its current debt obligations. Total shareholders' equity
was approximately $5.7 million, with cash, cash equivalents, and marketable
securities comprising 40.3% of total assets. With the exception of
operating expenses, the Company's only material commitment is the mortgage
on its corporate headquarters. The Company also has access to a $1 million
credit facility, which can be utilized for working capital purposes. The
Company's available working capital and potential cash flow are expected to
be sufficient to cover current expenses, including debt service.
The investment advisory and related contracts between the Company and USGIF
and USGAF will expire on February 28, 2002, and May 31, 2002, respectively.
Management anticipates the trustees of both USGIF and USGAF will renew the
contracts.
Management believes current cash reserves, financing obtained and/or
available, and potential cash flow from operations will be sufficient to
meet foreseeable cash needs or capital necessary for the above-mentioned
activities and allow the Company to take advantage of investment
opportunities whenever available.
MARKET RISK DISCLOSURES
The Company's balance sheet includes assets whose fair value is subject to
market risks. Due to the Company's investments in equity securities, equity
price fluctuations represent a market risk factor affecting the Company's
consolidated financial position. The carrying values of investments subject
to equity price risks are based on quoted market prices or, if not actively
traded, management's estimate of fair value as of the balance sheet date.
Market prices fluctuate, and the amount realized in the subsequent sale of
an investment may differ significantly from the reported market value. The
Company's investment activities are reviewed and monitored by Company
compliance personnel, and various reports are provided to investment
advisory clients.
11
The table below summarizes the Company's equity price risks as of June 30,
2001, and shows the effects of a hypothetical 25% increase and a 25%
decrease in market prices.
ESTIMATED FAIR INCREASE
HYPOTHETICAL VALUE AFTER (DECREASE) IN
FAIR VALUE AT PERCENTAGE HYPOTHETICAL PRICE SHAREHOLDERS'
JUNE 30, 2001 ($) CHANGE CHANGE ($) EQUITY ($)
----------------- ------------ ------------------ -------------
Trading securities 1,163,693 25% increase 1,454,616 192,009
25% decrease 872,770 (192,009)
Available-for-sale 694,870 25% increase 868,587 114,653
25% decrease 521,153 (114,653)
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.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 2001 and 2000,
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, 2001. 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.
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, 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, 2001
and 2000, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended June 30, 2001, in
conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
September 27, 2001
13
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30,
-------------------------
2001 2000
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $1,333,922 $1,356,903
Trading securities, at fair value 1,163,693 1,424,120
Receivables
Mutual funds 773,595 779,809
Other 396,829 447,548
Prepaid Expenses 203,565 350,729
Deferred Tax Asset 435,949 215,077
----------- -----------
TOTAL CURRENT ASSETS 4,307,553 4,574,186
----------- -----------
NET PROPERTY AND EQUIPMENT 2,029,899 2,278,744
----------- -----------
OTHER ASSETS
Restricted investments 225,000 240,000
Long-term deferred tax asset 605,066 836,056
Investment securities available-for-sale, at fair value 694,870 1,159,042
Other 49,796 30,596
----------- -----------
TOTAL OTHER ASSETS 1,574,732 2,265,694
----------- -----------
TOTAL ASSETS $7,912,184 $9,118,624
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 280,587 $ 498,632
Accrued compensation and related costs 224,094 298,826
Current portion of notes payable 69,094 68,257
Current portion of annuity and contractual obligation 9,100 8,487
Other accrued expenses 477,886 561,975
----------- -----------
TOTAL CURRENT LIABILITIES 1,060,761 1,436,177
----------- -----------
NONCURRENT LIABILITIES
Notes payable - net of current portion 1,013,747 1,066,705
Annuity and contractual obligations 122,156 131,256
----------- -----------
TOTAL NONCURRENT LIABILITIES 1,135,903 1,197,961
----------- -----------
TOTAL LIABILITIES 2,196,664 2,634,138
----------- -----------
SHAREHOLDERS' EQUITY
Common stock (class A) -- $0.05 par value; nonvoting; 314,974 314,974
authorized 7,000,000 shares
Common stock (class C) -- $0.05 par value; voting;
authorized 1,750,000 shares 74,840 74,840
Additional paid-in capital 10,678,419 10,578,419
Treasury stock, class A shares at cost; 313,426 and 282,350
shares at June 30, 2001 and 2000, respectively (632,261) (637,298)
Accumulated other comprehensive loss, net of tax (102,364) (51,771)
Accumulated deficit (4,618,088) (3,794,678)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 5,715,520 6,484,486
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,912,184 $9,118,624
=========== ===========
The accompanying notes are an integral part of this statement.
14
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEAR ENDED JUNE 30,
----------------------------------------
2001 2000 1999
------------ ------------ ------------
REVENUE
Investment advisory fees $ 5,497,802 $ 6,505,552 $ 5,223,405
Transfer agent fees 2,682,226 2,933,855 3,340,528
Custodial and administrative fees 302,017 484,441 464,666
Investment income 127,395 556,165 352,204
Other 284,444 432,751 358,377
------------ ------------ ------------
8,893,884 10,912,764 9,739,180
------------ ------------ ------------
EXPENSES
General and administrative 9,315,982 9,987,166 10,046,087
Depreciation and amortization 226,150 395,452 492,581
Interest 110,250 112,653 126,948
------------ ------------ ------------
9,652,382 10,495,271 10,665,616
------------ ------------ ------------
INCOME (LOSS) BEFORE EQUITY INTEREST AND INCOME TAXES (758,498) 417,493 (926,436)
------------ ------------ ------------
EQUITY IN NET INCOME (LOSS) OF AFFILIATE -- 51,739 (743,041)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (758,498) 469,232 (1,669,477)
PROVISION FOR FEDERAL INCOME TAXES
Tax (Benefit) Expense 36,181 (26,526) 183,329
------------ ------------ ------------
NET INCOME (LOSS) (794,679) 495,758 (1,852,806)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale
securities (50,593) 23,167 806
------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $(845,272) $ 518,925 $(1,852,000)
============ ============ ============
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ (0.11) $ 0.07 $ (0.28)
============ ============ ============
The accompanying notes are an integral part of this statement.
15
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON COMMON ACCUMULATED
STOCK STOCK ADDITIONAL OTHER
(CLASS (CLASS PAID-IN ACCUMULATED TREASURY COMPREHENSIVE
A) C) CAPITAL DEFICIT STOCK INCOME (LOSS) TOTAL
--------- -------- ------------ ------------ ---------- -------------- -----------
BALANCE AT JUNE 30, 1998 $314,972 $24,842 $10,591,708 $(2,437,630) $(476,289) $(75,744) $7,941,859
(6,299,444 SHARES OF CLASS A;
496,830 SHARES OF CLASS C)
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
Purchase of 71,346 shares of
Common Stock (Class A) -- -- -- -- (81,326) -- (81,326)
Reissuance of 40,270 shares of
Common Stock (Class A) -- -- -- (28,731) 86,363 -- 57,632
Recognition of current year
portion of deferred compensation -- -- 100,000 -- -- -- 100,000
Unrealized gain (loss) on
securities available-for-sale
(net of tax) -- -- -- -- -- (50,593) (50,593)
Net Loss -- -- -- (794,679) -- -- (794,679)
--------- -------- ------------ ------------ ---------- -------------- -----------
BALANCE AT JUNE 30, 2001 $314,974 $74,840 $10,678,419 $(4,618,088) $(632,261) $(102,364) $5,715,520
(6,299,474 SHARES OF CLASS A; ========= ======== ============ ============ ========== ============== ===========
1,496,800 SHARES OF CLASS C)
The accompanying notes are an integral part of this statement.
16
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED JUNE 30,
--------------------------------------
2001 2000 1999
--------- --------- ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $(794,679) $ 495,758 $(1,852,806)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 226,150 395,452 492,581
Net gain on sales of securities (383,379) (550,000) (238,394)
(Gain) loss on disposal of equipment 97,752 (5,752) --
Gain on changes of interest in affiliate -- -- (97,744)
Provision for deferred taxes 36,181 (26,526) 183,329
Reserve against impairment of equipment 9,436 -- --
Changes in assets and liabilities, impacting
cash from operations:
Accounts receivable 56,933 (62,213) 913,527
Prepaid expenses and other 142,964 46,134 954,571
Trading securities 1,018,363 676,746 377,260
Accounts payable and accrued expenses (376,866) 286,245 118,253
--------- --------- -----------
Total adjustments 827,534 760,086 2,703,383
--------- --------- -----------
NET CASH PROVIDED BY OPERATIONS 32,855 1,255,844 850,577
--------- --------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (84,493) (258,644) (323,069)
Proceeds on disposal of equipment -- 16,792 --
Purchase of available-for-sale securities (233,310) (717,652) (97,056)
Redemption (investment) in equity affiliate -- 100,000 (550,000)
Proceeds on sale of available-for-sale
securities 246,269 -- --
--------- --------- -----------
NET CASH USED IN INVESTING ACTIVITIES (71,534) (859,504) (970,125)
--------- --------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Payments on annuity (8,487) (7,915) (7,381)
Payments on note payable (52,121) (60,092) (62,070)
Proceeds from issuance or exercise
of stock, warrants, and options 157,632 47,185 52,491
Purchase of treasury stock (81,326) (43,862) (230,112)
--------- --------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 15,698 (64,684) (247,072)
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (22,981) 331,656 (366,620)
BEGINNING CASH AND CASH EQUIVALENTS 1,356,903 1,025,247 1,391,867
--------- --------- -----------
ENDING CASH AND CASH EQUIVALENTS 1,333,922 1,356,903 1,025,247
========== ========= ===========
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Receipt of trading and available-for-sale
securities in liquidation of equity investment -- $701,478 --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $133,250 $89,653 $126,948
The accompanying notes are an integral part of this statement.
17
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 formed the following companies to provide supplementary
services to USGIF and USGAF: United Shareholder Services, Inc. (USSI), A&B
Mailers, Inc. (A&B), U.S. Global Brokerage, Inc. (USGB), U.S. Global
Administrators, Inc. (USGA), and Security Trust & Financial Company (STFC).
USGA and STFC will be liquidated subsequent to fiscal year end.
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: USSI, STFC,
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. Before 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 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, are reported, net
of tax, as a separate component of shareholders' equity, and are recorded
in earnings on the date of sale.
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.
Realized gains (losses) from security transactions are calculated on the
first-in/first-out cost basis and are recorded in earnings on the date of
sale. For those securities with declines in value that are deemed
permanent, the cost basis of the securities is reduced accordingly, and the
resulting loss is realized in earnings.
18
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 agent 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 $264,000, $575,000, and $741,000 in 2001, 2000, and 1999,
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.
NOTE 2. INVESTMENTS
The following table summarizes investment activity over the last three
fiscal years:
YEAR ENDED JUNE 30,
-----------------------------------
2001 2000 1999
--------- --------- ---------
Realized gains on sale of
securities $ 383,379 $550,000 $238,394
Trading securities, at cost 1,951,963 1,832,282 1,197,233
Trading securities, at fair value 1,163,693 1,424,120 884,837
Net change in unrealized losses on
trading securities (included in
earnings) (379,861) 95,974 41,251
Available-for-sale securities,
at cost 849,966 1,237,483 484,382
Available-for-sale securities, at
fair value 694,870 1,159,042 370,840
Unrealized loss recorded in
shareholders' equity (net of 102,364 51,771 74,938
tax)
Unrealized gains on available-for-
sale securities reclassified as
trading securities during fiscal
year -- -- 344,394
NOTE 3. INVESTMENT MANAGEMENT, TRANSFER AGENT, AND OTHER FEES
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
Company also serves as transfer agent to USGIF and USGAF and receives a fee
based on the number of shareholder accounts serviced. The Company also
provides in-house legal services to USGIF and USGAF. The Company also
receives exchange, maintenance, closing, and small account fees directly
from USGIF and USGAF shareholders. Fees for providing services to USGIF and
USGAF continue to be the Company's primary revenue source.
19
The Company receives additional revenue from several sources including:
custodian 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 through June 30, 2002,
or such later date as the Company determines. The aggregate amount of fees
waived and expenses borne by the Company were $2,039,360, $2,125,773, and
$3,052,054 in 2001, 2000, and 1999, respectively.
The investment advisory contract and related contracts between the Company
and USGIF expire in February 2002, and the contracts between the Company
and USGAF expire in May 2002. 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,
------------------------
2001 2000
----------- -----------
Building and land $2,203,757 $2,203,757
Furniture, equipment, and other 2,122,642 5,600,773
Building improvements 67,856 189,156
----------- -----------
4,394,255 7,993,686
Accumulated depreciation and amortization (2,364,356) (5,714,942)
----------- -----------
Net property and equipment $2,029,899 $2,278,744
========== ===========
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, 2001, the balance
on the note was $1,082,841. The loan is currently amortizing over a
twelve-year period with payments of both principal and interest due monthly
based on Bank One Texas Prime. The rate was locked in September 1, 2001, at
6.50%. The current monthly payment is $12,320, and the note matures on
January 31, 2006. Under this agreement, the Company must maintain certain
financial covenants. The Company was not in compliance with certain debt
covenants but received a waiver from the bank through June 30, 2001. The
Company projects that it will be in full compliance with its debt covenants
for the quarter ended September 30, 2001, and believes that the bank will
provide a waiver if the Company falls short of its projections.
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 and pledged
securities.
Management believes that the Company has adequate cash, cash equivalents,
and equity in the underlying asset to retire the obligation if necessary.
Future principal payments to be made over the next five years based on the
note payable outstanding at June 30, 2001, are as follows:
FISCAL YEAR AMOUNT
----------- ----------
2002 $ 69,094
2003 77,236
2004 83,012
2005 89,219
2006 764,280
----------
Total $1,082,841
20
NOTE 6. LEASE COMMITMENTS
The Company has operating leases for computers and equipment that expire
between fiscal years 2002 and 2006. Total lease expenses were $202,006,
$108,925, and $57,859 in fiscal years 2001, 2000, and 1999, respectively.
Future minimum lease payments required under these leases are as follows:
FISCAL YEAR AMOUNT
----------- ---------
2002 $ 215,872
2003 169,089
2004 36,687
2005 9,036
2006 3,012
---------
Total $ 433,696
NOTE 7. 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 noncompete/noninterference
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 $225,000 at
June 30, 2001.
NOTE 8. BENEFIT PLANS
The Company has a contributory profit sharing plan, which includes all
qualified employees who have completed one year of employment with the
Company as of June 30. 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 fiscal years 2001, 2000, and 1999.
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% of their compensation. The Company has recorded expenses
related to the 401(k) plan of $37,477, $48,743, and $45,143 for fiscal
years 2001, 2000, and 1999, 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. 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 $67,485, $53,417, and $57,317 in
fiscal years 2001, 2000, and 1999, 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, 2001.
21
NOTE 9. 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,
2001, options covering 88,000 shares have been exercised, and options
covering 111,000 shares have expired. The 1985 plan expired December 31,
1994; consequently, 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, 2001, options covering 393,000 shares have
been exercised under this plan, and options covering 273,400 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, 2001, options covering
6,000 shares have been exercised under this plan, and options covering
106,500 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
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 $.05 per share. Stock option transactions under the various
stock option plans are summarized below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE ($)
---------- --------
OUTSTANDING JUNE 30, 1998 971,600 2.41
Granted 20,000 1.56
Canceled 38,800 2.48
Exercised -- --
----------
22
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE ($)
---------- --------
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
Granted -- --
Canceled 39,000 1.58
Exercised -- --
----------
OUTSTANDING JUNE 30, 2001 341,800 2.23
==========
As of June 30, 2001, 2000, and 1999, exercisable stock options totaled
293,000, 295,700, and 948,020 shares and had weighted average exercise
prices of $2.35, $2.35, and $2.39 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 $7,670,
$1,227, and $13,121 in fiscal years 2001, 2000, and 1999, respectively, and
the pro forma net income and income per share would have been as follows:
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 $7,670, $1,227, and $13,121 in
fiscal years 2001, 2000, and 1999, respectively, and the pro forma net
income and income per share would have been as follows:
FISCAL YEAR ENDED JUNE 30,
--------------------------------------
2001 2000 1999
---------- -------- -----------
Pro forma net income (loss) $(802,349) $494,531 $(1,865,927)
Pro forma income (loss) per
share - basic and diluted $(0.11) $0.07 $(0.28)
The weighted average fair value of options granted during the fiscal years
ended June 30, 2000 and 1999, was $0.81 and $0.85, respectively. Because
SFAS 123 is applicable only to options granted in fiscal years beginning
subsequently to December 15, 1994, its pro forma effect was not fully
reflected until fiscal 2001 due to vesting requirements. For purposes of
pro forma disclosure, the estimated fair value of the options is amortized
to expense over the options' vesting period. The fair value of these
options was estimated at the date of the grant using a Black-Scholes
option-pricing model with the following weighted-average assumptions:
FISCAL YEAR ENDED JUNE 30,
-------------------------------------------
2001 2000 1999
------------- ------------- -------------
Expected volatility 0.42 - 0.55 0.42 - 0.55 0.42 - 0.55
Expected dividend yield -- -- --
Expected life (term) 8 years 8 years 8 years
Risk-free interest rate 5.07% - 6.16% 4.41% - 6.16% 4.41% - 5.53%
23
Class A common stock options outstanding and exercisable at June 30, 2001,
were as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
DATE OF AVERAGE REMAINING AVERAGE AVERAGE
OPTION OPTION NUMBER LIFE IN OPTION NUMBER OPTION
GRANT PRICE ($) OUTSTANDING YEARS PRICE ($) EXERCISABLE PRICE ($)
-------- --------- ----------- -------- --------- ----------- ---------
1985 PLAN
CLASS A 12/15/94 2.63 3,500 3.45 2.63 3,500 2.63
1989 PLAN
CLASS A 12/06/91 2.63 148,300 0.43 2.63 148,300 2.63
05/16/94 4.75 2,000 2.87 4.75 2,000 4.75
09/05/95 2.63 5,000 4.18 2.63 5,000 2.63
05/24/96 3.06 10,000 4.90 3.06 10,000 3.06
06/04/97 2.00 30,000 5.93 2.00 30,000 2.00
12/03/99 1.50 15,000 8.42 1.50 3,000 1.50
----------- ------- ---- ---- ------- ----
1.50 - 4.75 210,300 1.26 2.50 198,300 2.56
1997 PLAN
CLASS A 06/04/97 1.82 32,000 5.93 1.82 32,000 1.82
06/04/97 2.00 50,000 5.93 2.00 50,000 2.00
12/03/99 1.50 46,000 8.42 1.50 9,200 1.50
----------- ------- ---- ---- ------- ----
1.50 - 2.00 128,000 6.82 1.78 91,200 1.89
ALL PLANS 12/91
through 1.50 - 4.75 341,800 3.37 2.23 293,000 2.35
12/99 =========== ========== ==== ==== ======== ====
During the fiscal years ended June 30, 2001, and June 30, 2000, the Company
purchased 71,346 and 25,375 shares of its class A common stock at an
average price of $1.14 and $1.73 per share, respectively.
NOTE 10. INCOME TAXES
The reconciliation of income tax computed at the U.S. federal statutory
rates to income tax expense is:
YEAR ENDED JUNE 30,
-------------------------------------
2001 2000 1999
----------- ---------- ---------
Tax expense (benefit) at
statutory rate $ (257,889) $ 159,539 $ (563,373)
Nondeductible membership dues 18,758 11,379 12,238
Nondeductible meals and
entertainment 10,788 27,813 35,194
Change in valuation allowance 253,966 (258,095) 886,891
Other 10,558 32,838 (187,621)
----------- ---------- ---------
$ 36,181 $ (26,526) $183,329
=========== ========== ========
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:
24
YEAR ENDED JUNE 30,
----------------------------
2001 2000
----------- -----------
BOOK/TAX DIFFERENCES IN THE BALANCE SHEET
Trading securities $ 268,012 $ 138,775
Accumulated depreciation -- 147,941
Accrued expenses 115,202 76,301
Available-for-sale securities 52,733 26,670
Reduction in cost basis of available-for-sale securities 177,466 177,466
Annuity obligations 44,627 47,513
Affiliated investment -- 17,591
----------- -----------
658,040 632,257
TAX CARRYOVERS
Net operating loss (NOL) carryover 699,061 479,095
Charitable contributions carryover 78,363 65,748
Investment tax credit 34,472 34,472
Alternative minimum tax credits 139,729 132,128
----------- -----------
951,625 711,443
----------- -----------
TOTAL GROSS DEFERRED TAX ASSET 1,609,665 1,343,700
----------- -----------
BOOK/TAX DIFFERENCES IN THE BALANCE SHEET
Accumulated depreciation (22,117) --
Unrealized loss on available-for-sale securities (52,733) (26,670)
----------- -----------
TOTAL GROSS DEFERRED TAX LIABILITY (74,850) (26,670)
----------- -----------
DEFERRED TAX ASSET 1,534,815 1,317,030
VALUATION ALLOWANCE (546,533) (292,567)
----------- -----------
NET DEFERRED TAX ASSET $ 988,282 $ 1,024,463
=========== ===========
For federal income tax purposes at June 30, 2001, the Company has NOLs of
approximately $2.1 million, which will begin expiring between fiscal 2005
and 2011, charitable contribution carryovers of approximately $230,000
expiring between 2002 and 2006, and alternative minimum tax credits of
$139,729 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 $546,533 and $292,567 at June 30, 2001
and 2000, respectively, providing for the utilization of NOLs, charitable
contributions, and investment tax credits against future taxable income.
NOTE 11. EARNINGS PER SHARE
The following table sets forth the computation for basic and diluted
earnings per share (EPS):
25
YEAR ENDED JUNE 30,
-------------------------------------------
2001 2000 1999
----------- ---------- -----------
BASIC AND DILUTED NET INCOME (LOSS) $ (794,679) $ 495,758 $(1,852,806)
WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES
Basic 7,524,913 7,408,821 6,562,140
EFFECT OF DILUTIVE SECURITIES
Employee stock options -- 2,278 1,704
----------- ---------- -----------
Diluted 7,524,913 7,411,099 6,563,844
=========== ========== ===========
EARNINGS (LOSS) PER SHARE
Basic $ (0.11) $ 0.07 $ (0.28)
=========== ========== ===========
Diluted $ (0.11) $ 0.07 $ (0.28)
=========== ========== ===========
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, 2001, 2000, and 1999, options for 341,800, 296,800,
and 910,800 shares, respectively, were excluded from diluted EPS.
Additionally, for the year ended June 30, 1999, there were 586,122 warrants
outstanding which had no dilutive effect and were excluded from diluted
EPS.
NOTE 12. COMPREHENSIVE INCOME
The Company has disclosed the components of comprehensive income in the
consolidated statements of operations and comprehensive income.
TAX
BEFORE-TAX (EXPENSE) OR NET-OF-TAX
AMOUNT BENEFIT ($) AMOUNT ($)
--------- --------- ---------
JUNE 30, 2001
Unrealized gains (losses) on
available-for-sale securities $ (76,656) $ 26,063 $ (50,593)
Less reclassification adjustment
for gains in net income -- -- --
--------- --------- ---------
Other comprehensive income (loss) $ (76,656) $ 26,063 $ (50,593)
========= ========= =========
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
========= ========= =========
26
NOTE 13. 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 CORPORATE CONSOLI-
MANAGEMENT INVESTMENT DATED
SERVICES($) ($) ($)
---------- --------- ----------
YEAR ENDED JUNE 30, 2001
Net revenues 8,881,776 12,108 8,893,884
========== ========= ==========
Net income (loss) before income taxes (742,801) (15,697) (758,498)
========== ========= ==========
Depreciation and amortization 226,150 -- 226,150
========== ========= ==========
Interest expense 109,995 255 110,250
========== ========= ==========
Capital expenditures 84,493 -- 84,493
========== ========= ==========
Gross identifiable assets at June 30, 2001 4,910,242 1,858,563 6,768,805
Deferred tax asset 1,041,015
Accumulated other comprehensive loss 102,364
---------
Consolidated total assets at June 30, 2001 7,912,184
=========
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
==========
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 comprehensive loss 74,938
----------
Consolidated total assets at June 30, 1999 8,328,138
==========
NOTE 14. RELATED PARTY TRANSACTIONS
In addition to the Company's receivable from USGIF and USGAF relating to
investment management, transfer agent, and other fees, the Company had
$1,303,789 and $1,280,768 invested in USGIF money market mutual funds at
June 30, 2001 and 2000, respectively. Receivables from mutual funds
represent
27
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, has served as a director
of Franc-Or Resources beginning in June 2000, Broadband Collaborative
Solutions in May 2000, and Consolidated Fortress Resources in November
2000. The Company owns positions in Franc-Or Resources, Broadband
Collaborative Solutions, and Consolidated Fortress Resources with estimated
fair market values of $352,060, $232,944, and $81,547, respectively.
NOTE 15. CONTINGENCIES
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 internal legal counsel and determined that it was
probable that this sum could be claimed against the Company's insurance
policy. The deductible on this policy is $25,000. This amount has been
expensed, but the remainder is in a receivable until final determination
from the insurance carrier is received.
The Company has been named as one of several defendants in a civil law suit
filed in New York. Management consulted with internal legal counsel and
determined that the Company has strong merits for either having the case
dismissed or obtaining a favorable ruling. In addition, the Company has
filed a claim against its insurance policy, and the carrier has agreed to
coverage of this claim. Legal expenses associated with this law suit have
been expensed as incurred.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Within twenty-four months prior to the date of the Company's most recent
financial statement, no Form 8-K recording a change of accountants due to a
disagreement on any matter of accounting principles or practices or
financial statement disclosure has been filed with the Commission.
28
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:
NAME AGE POSITION
-------------------- --- --------------------------------------------
Frank E. Holmes 46 Chairman of the Board of Directors and Chief
Executive Officer of the Company since
October 27, 1989, and Chief Investment
Officer since June 4, 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. Director of USACI since
February 1995, Director, and President from
February 1995 to June 1997. Mr. Holmes has
served as director of Franc-Or Resources
Corporation since June 2000 and Consolidated
Fortress since November 2000.
Jerold H. Rubinstein 63 Director of the Company since October 1989.
Chairman and Chief Executive Officer of Xtra
Music 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. Chairman of Musicplex, Inc.
September 1999 to present.
Roy D. Terracina 55 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.
J. Stephen Penner 60 Director since May 1997. From March 1982
through November 2000 held various positions
with LCG Associates. Mr. Penner currently
serves as President and CEO of Fiduciary
Advisory and Management Co., Inc.
Thomas F. Lydon, Jr. 41 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 42 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.
Bobby D. Duncan 44 Chief Financial Officer and Chief Operating
Officer of the Company since December 2000.
From 1985 through 1999, Mr. Duncan served
in various positions with the Company, its
subsidiaries, and the investment companies
it sponsors. Mr. Duncan served as Chief
Financial Officer for Robbins Research
International, Inc. from 1999 through 2000.
None of the directors or executive officers of the Company has a family
relationship with any of the other directors or executive officers.
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
29
Company's Compensation Committee consists of Messrs. Holmes, Terracina, and
Rubinstein. The Company's Audit Committee consists of Messrs. Penner,
Rubinstein, and Terracina. The Stock Option Committee consists of Messrs.
Penner, Rubinstein, and Terracina. The Company does not have a Nominating
Committee.
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, 2001, all Section
16(a) filing requirements applicable to its directors, officers, and more
than 10% beneficial owners were met.
ITEM 11. EXECUTIVE COMPENSATION
The Company has intentionally omitted columns (h) and (i) as they are not
applicable.
Includes amounts identified for 401(k) contributions (calculable through
the end of June 30, 2001, fiscal year) and amounts for Company savings
plans (calculable through the end of the June 30, 2001, fiscal year).
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------------------------------------- ------------------------
(A) (B) (C) (D) (E) (F) (G)
-------------------------- ---- ---------- --------- --------- ----------- ---------
OTHER
ANNUAL
NAME AND COMPEN- RESTRICTED NUMBER OF
PRINCIPAL POSITION SATION(1) STOCK OPTIONS/
DURING FY 2001 YEAR SALARY ($) BONUS ($) ($) AWARDS ($) SARS (2)
-------------------------- ---- ---------- --------- --------- ----------- ---------
Frank E. Holmes 2001 318,280 141,918 64,817(3) 100,000 (4) --
Chairman, Chief Executive 2000 318,280 58,602 48,640 50,000 (4) --
Officer 1999 318,280 92,054 41,780 338 --
Susan B. McGee 2001 139,054 46,867 -- -- --
President, General Counsel 2000 135,886 55,857 -- -- 15,000
1999 132,408 43,491 -- 338 --
--------------------
(1) 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.
(2) All options pertain to Company class A common stock
(3) Includes trustee fees of $52,000 paid by the Company.
(4) Includes the board's issuance, in June 1999, of 1,000,000 shares of
class C common stock to be vested over a ten-year period beginning
with fiscal year 1999, with an annual compensation value of $50,000.
Mr. Holmes will be fully vested on June 30, 2008. Issuance was in part
to compensate him for his efforts and upon cancellation of Mr. Holmes'
warrants and option to acquire 986,122 shares of class C common stock.
30
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.
PROFIT SHARING PLAN
In June 1983, the Company adopted a profit sharing plan in which all
qualified employees who have completed one year of employment with the
Company are included. Subject to board action, the Company may contribute
up to 15% of its net income before taxes during each fiscal year, limited
to 15% of qualifying salaries, to a profit sharing plan, the beneficiaries
of which are the eligible employees of the Company. The Company's
contribution to the plan is then apportioned to each employee's account in
the plan in an amount equal to the percentage of the total basic
compensation paid to all eligible employees, which each employee's
individual basic compensation represents. For the fiscal year ended June
30, 2001, the Company did not contribute to the profit sharing plan. There
have been no recent material changes to the plan.
401(K) PLAN
The Company adopted a 401(k) plan in October 1990 for the benefit of 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.
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, 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.
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, 2001, under this plan, 202,500 options were granted, 88,000 options had
been exercised, 111,000 options had expired, and 3,500 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
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, 2001,
there were no grants. As of June 30, 2001, under this amended plan, 876,700
options had been granted, 393,000 options had been exercised, 273,400
options had expired, and 210,300 options remained outstanding.
31
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 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, 2001, there were no options granted. As of June 30, 2001, 240,500
options had been granted; 6,000 shares had been exercised; 106,500 options
had expired; 128,000 options remained outstanding.
Shares available for stock option grants under the 1989 Plan and the 1997
Plan aggregate to approximately 196,700 and 66,000 shares, respectively, on
September 20, 2001.
The following table shows, as to each officer of the Company listed in the
cash compensation table, grants of stock options and freestanding stock
appreciation rights made during the last fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------------------
POTENTIAL
REALIZED VALUE
AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS TERM
----------------------------------------------------------------------------- ----------------
(A) (B) (C) (D) (E) (F) (G)
--------------- ------------ ------------ ----------- ---------- ------ -------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OF
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
--------------- ------------ ------------ ----------- ---------- ------ -------
Frank E. Holmes 0/0 0/0 0 N/A 0 0
Susan B. McGee 0/0 0/0 0 N/A 0 0
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.
(A) (B) (C) (D) (E)
--------------- ---------------- -------- ------------- -------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY END AT FY END (%)
--------------- ---------------- -------- ------------- -------------
NUMBER OF SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
--------------- ---------------- -------- ------------- -------------
Frank E. Holmes 0 0 101,000/0 $0/$0
Susan B. McGee 0 0 51,000/0 $0/$0
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 $3,000 in any quarter paid in advance.
32
During the fiscal year ended June 30, 2001, the nonemployee directors each
received cash compensation of $12,000. Mr. Terracina was also a director of
STFC for which he received cash compensation of $2,700. 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. Holmes, Terracina, and Rubinstein as members of
the Executive Compensation Committee during fiscal year 1997, and they
continue to serve on the committee. There are no compensation committee
interlocks to report. Mr. Holmes served as an employee and officer of the
Company. The board of directors reviews 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 board of directors also reviews Mr.
Holmes' performance in managing the Company's securities portfolio with
respect to which he is paid a cash bonus, which bonus is paid periodically
throughout the year. 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 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.
Messrs. Penner, Rubinstein, and Terracina constitute the Stock Option
Committee of the board of directors. This committee acts upon
recommendations of the Chief Executive Officer and President.
COMPANY PERFORMANCE PRESENTATION
{Linear graph plotted from data in table below.]
FT GOLD RUSSELL
S&P 500 MINES 2000 U.S.
TOTAL INDEX (NO TOTAL GLOBAL
RETURN DIVIDEND RETURN INVESTORS
DATE INDEX REINVEST) INDEX CLASS A
--------- --------- --------- --------- ---------
30-Jun-96 10,000.00 10,000.00 10,000.00 10,000.00
31-Jul-96 9,558.19 9,896.12 9,126.54 8,260.87
31-Aug-96 9,759.82 10,073.09 9,656.49 8,695.65
30-Sep-96 10,309.15 9,182.57 10,033.83 9,347.83
31-Oct-96 10,593.48 9,311.10 9,879.19 8,260.87
30-Nov-96 11,394.21 9,298.65 10,286.23 8,260.87
31-Dec-96 11,168.44 9,042.29 10,555.82 8,260.87
31-Jan-97 11,866.19 8,421.37 10,766.80 9,565.22
28-Feb-97 11,959.19 9,458.52 10,505.73 8,260.87
31-Mar-97 11,468.01 8,116.91 10,010.00 7,173.91
30-Apr-97 12,152.42 7,282.23 10,037.90 6,086.96
31-May-97 12,892.31 7,784.49 11,154.61 6,304.35
30-Jun-97 13,469.90 6,906.56 11,632.68 6,956.52
31-Jul-97 14,541.67 7,012.23 12,173.96 8,260.87
31-Aug-97 13,727.05 7,001.22 12,452.53 8,478.26
30-Sep-97 14,478.80 7,562.14 13,363.96 7,608.70
31-Oct-97 13,995.28 6,156.77 12,776.89 7,608.70
30-Nov-97 14,643.10 4,847.65 12,694.22 7,826.09
31-Dec-97 14,894.60 5,247.31 12,916.45 6,521.74
31-Jan-98 15,059.38 5,542.89 12,712.58 6,956.52
28-Feb-98 16,145.49 5,340.88 13,652.62 8,260.87
31-Mar-98 16,972.29 5,678.22 14,215.62 9,130.43
30-Apr-98 17,143.08 6,438.42 14,294.31 8,913.04
31-May-98 16,848.35 5,390.62 13,524.47 7,826.09
30-Jun-98 17,532.75 4,928.17 13,552.91 6,956.52
31-Jul-98 17,346.06 4,465.88 12,455.73 5,652.17
31-Aug-98 14,838.21 3,478.87 10,037.12 5,000.00
30-Sep-98 15,788.75 5,459.09 10,822.59 5,434.78
31-Oct-98 17,073.01 5,519.49 11,264.01 4,565.22
30-Nov-98 18,107.80 5,231.99 11,854.13 5,434.78
31-Dec-98 19,151.27 4,633.78 12,587.63 5,434.78
31-Jan-99 19,952.11 4,622.18 12,754.93 5,652.17
28-Feb-99 19,332.05 4,321.09 11,721.83 7,173.91
31-Mar-99 20,105.46 4,309.04 11,904.84 5,217.39
30-Apr-99 20,884.05 5,047.83 12,971.62 4,782.61
31-May-99 20,390.87 4,107.32 13,161.11 5,000.00
30-Jun-99 21,522.51 4,388.63 13,756.23 4,347.83
31-Jul-99 20,850.50 4,188.10 13,378.81 4,782.61
31-Aug-99 20,747.36 4,452.89 12,883.63 5,000.00
30-Sep-99 20,178.60 5,599.72 12,886.45 5,217.39
31-Oct-99 21,455.54 4,857.86 12,938.64 5,652.17
30-Nov-99 21,891.66 4,641.57 13,711.22 5,217.39
31-Dec-99 23,180.99 4,603.04 15,263.33 5,217.39
31-Jan-00 22,016.32 4,062.10 15,018.21 5,652.17
29-Feb-00 21,599.56 4,190.33 17,498.24 7,608.70
31-Mar-00 23,712.51 3,876.10 16,344.57 5,652.17
30-Apr-00 22,999.22 3,750.25 15,361.01 5,217.39
31-May-00 22,527.33 3,863.51 14,465.75 5,869.57
30-Jun-00 23,082.70 4,003.89 15,726.79 6,086.96
31-Jul-00 22,721.82 3,613.25 15,220.83 5,869.57
31-Aug-00 24,133.17 3,658.42 16,382.16 5,434.78
30-Sep-00 22,859.10 3,463.99 15,900.65 5,217.39
31-Oct-00 22,762.46 2,936.84 15,190.90 4,891.48
30-Nov-00 20,967.88 3,097.65 13,631.52 3,913.04
31-Dec-00 21,070.51 3,389.71 14,802.23 3,695.65
31-Jan-01 21,818.07 3,309.63 15,572.85 3,913.04
28-Feb-01 19,828.66 3,544.27 14,551.08 4,239.30
31-Mar-01 18,572.50 3,195.43 13,839.30 4,130.43
30-Apr-01 20,015.78 3,725.66 14,921.94 4,000.00
31-May-01 20,149.88 3,853.39 15,288.73 3,652.17
30-Jun-01 20,149.88 3,849.82 15,816.65 3,721.74
The graph above compares the cumulative total return for the Company's
class A common stock to the cumulative total return for the Financial Times
Gold Mines Index (without dividend reinvestment),
33
S&P 500 Composite Index, and Russell 2000 Index 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, 1996, and that all dividends
are reinvested.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
CLASS C COMMON STOCK (VOTING STOCK)
At September 20, 2001, 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.
PERCENT OF
SHARES
BENEFICIALLY ISSUED
OWNED CLASS C OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON (%) SHARES
------------------------------------ ------------- -----------
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)
At September 20, 2001, there were 5,953,887 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 (%)
------------------------------------ ------------- -----------
Frank E. Holmes - San Antonio, Texas 332,458(1) 5.58%
Mason Hill Asset Management, Inc. -
New York, New York 409,000(2) 6.87%
Royce & Associates, Inc. - New York,
New York 386,205(3) 6.49%
RS Investment Management Co., LLC -
San Francisco, CA 394,750(4) 6.63%
----------------------
(1) Detail of beneficial ownership set forth below under "Security
Ownership of Management."
(2) Mason Hill Asset Management, Inc. owns 250,500 shares or 4.21%.
Equinox Partners, LP owns 158,500 shares or 2.66%. Mason Hill Asset
Management, Inc. and Equinox Partners, L.P. may be deemed to be under
the common control of William W. Strong. Information is from Schedule
13D filed with the SEC on March 18, 1996.
(3) Information is from Schedule 13G, dated February 5, 2001, filed with
the SEC.
(4) Information is from Schedule 13G dated February 15, 2001, filed with
the SEC. The beneficial owner is a group that includes RS Investments
Co., LLC, RS Investment Management L.P., RS Value Group LLC, and The
RS Orphan Fund L.P.
34
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of September 20, 2001, 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 1,392,211(1) 93.01% 332,458(2) 5.58%
Thomas F. Lydon, Jr. -- -- 10,000(3) 0.17%
Susan B. McGee -- -- 56,097(3) 0.94%
J. Stephen Penner -- -- 10,000(3) 0.17%
Jerold H. Rubinstein -- -- 50,000(3) 0.84%
Roy D. Terracina -- -- 89,100(3) 1.50%
All directors and
executive officers
as a group (six
persons) 1,392,211 93.01% 547,655 9.20%
------------------------
(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 101,000 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, 72,341
shares owned directly by Mr. Holmes, 57,817 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. Penner - 10,000
shares; Mr. Rubinstein - 50,000 shares; and Mr. Terracina - 51,000
shares.
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 14 to the
Consolidated Financial Statements and filed as a part of this report.
35
PART IV OF ANNUAL REPORT ON FORM 10-K
ITEM 14. 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:
o Report of Independent Accountants
o Consolidated Balance Sheets at June 30, 2001 and 2000
o Consolidated Statements of Operations for the three years ended June
30, 2001
o Consolidated Statements of Shareholders' Equity for the three years
ended June 30, 2001
o Consolidated Statements of Cash Flows for the three years ended June
30, 2001
o 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
36
Company's Form 10-K for fiscal year ended June 30, 1995 (EDGAR
Accession Number 0000754811-95-000002).
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 February 28, 1997, by and between
Company, U.S. Global Accolade Funds/Regent Eastern European Fund,
and Regent Fund Management Limited incorporated by reference to
Post-Effective Amendment No. 9 to Registration Statement on Form
N-1A dated December 24, 1996 (EDGAR Accession No.
0000902042-96-000083).
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,
included herein.
10.8 Loan Agreement between Company and Bank One NA, dated February 1,
2001, and for refinancing building, included herein.
10.9 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).
10.10 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).
10.11 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).
10.12 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 Registraton
Statement on Form N-1A dated September 2, 1998 (EDGAR Accession
No. 0000101507-98-000031).
10.13 Amendment dated June 30, 2001, to Custodian Agreement dated
November 1, 1997, between U.S. Global Investors Funds and Brown
Brothers Harriman & Co., included herein.
10.14 Appendix A to Custodian Agreement dated November 1, 1997, between
U.S. Global Investors Funds and Brown Brothers Harriman & Co.,
included herein.
10.15 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., included herein.
10.16 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).
37
10.17 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).
10.18 Amendment dated June 30, 2001, to Custodian Agreement dated
November 1, 1997, between U.S. Global Accolade Funds and Brown
Brothers Harriman & Co., included herein.
10.19 Appendix A to Custodian Agreement dated November 1, 1997, between
U.S. Global Accolade Funds and Brown Brothers Harriman & Co.,
included herein.
10.20 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).
10.21 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).
10.22 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).
11 Statement regarding Computation of Per Share Earnings, included
herein.
21 List of Subsidiaries of the Company, included herein.
24 Power of Attorney, included herein.
(b) Reports on Form 8-K
None.
38
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.
BY: /s/ Frank E. Holmes
-------------------------------------------
FRANK E. HOLMES
Chief Executive Officer
Date: September 28, 2001
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 E. Holmes
--------------------------
FRANK E. HOLMES Chairman of the Board September 28, 2001
of Directors,
Chief Executive
Officer, Chief
Investment Officer
* /s/ Thomas F. Lydon, Jr.
--------------------------
THOMAS F. LYDON, JR. Director September 28, 2001
* /s/ Stephen J. Penner
--------------------------
STEPHEN J. PENNER Director September 28, 2001
* /s/ Jerold H. Rubinstein
--------------------------
JEROLD H. RUBINSTEIN Director September 28, 2001
* /s/ Roy D. Terracina
--------------------------
ROY D. TERRACINA Director September 28, 2001
/s/ Bobby D. Duncan
--------------------------
BOBBY D. DUNCAN Chief Financial Officer September 28, 2001
Chief Operating Officer
/s/ Tracy C. Peterson
--------------------------
TRACY C. PETERSON Chief Accounting Officer September 28, 2001
*BY: /s/ Susan B. McGee
--------------------------
SUSAN B. MCGEE September 28, 2001
Attorney-in-Fact under
Power of Attorney dated
September 26, 2001
39