UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ______ to ________
COMMISSION FILE NUMBER 0-13928
U.S. GLOBAL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of incorporation or organization)
74-1598370
(I.R.S. Employer Identification No.)
7900 CALLAGHAN ROAD, SAN ANTONIO, TX 78229
(Address of Principal Executive Offices) (Zip Code)
210-308-1234
(Registrant's Telephone Number, Including Area Code)
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 required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
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. [X]
The aggregate market value of the voting stock held by non-affiliates of
Registrant on September 17, 1999, was $156,883.50. The aggregate market value of
non-voting stock held by non-affiliates of Registrant on September 17, 1999, was
$7,173,931.50. Registrant's only voting stock is class C common stock, par value
$0.05 per share, for which there is no active market. The 104,589 shares of
class C common stock held by non-affiliates were valued at the last sale on
September 17, 1999, of Registrant's class A common stock as reported by Nasdaq,
which was $1.50 per share. There were 4,782,621 shares of class A common stock
held by non-affiliates.
On September 17, 1999, there were 1,496,800 shares of Registrant's class C
common stock outstanding, no shares of Registrant's class B non-voting common
shares outstanding, and 6,299,474 shares of Registrant's class A common stock
issued and 6,026,703 shares of Registrant's class A common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the ANNUAL REPORT TO SHAREHOLDERS for the fiscal year ended June 30,
1999, are incorporated by reference in Part I, Item 1 and Part II, Items 6, 7, 8
and Part III, Item 13 of this Form 10-K.
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U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 22
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business........................................................3
Item 2. Properties......................................................3
Item 3. Legal Proceedings...............................................3
Item 4. Submission of Matters to a Vote of Security Holders.............3
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters.............................................4
Item 6. Selected Financial Data.........................................5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................5
Item 8. Financial Statements and Supplementary Data.....................5
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................5
PART III
Item 10. Directors and Executive Officers of the Company................6
Item 11. Executive Compensation.........................................7
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................11
Item 13. Certain Relationships and Related Transactions................13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K...................................................14
SIGNATURES..................................................................16
EXHIBIT 11 -- Schedule of Computation of Net Earnings per Share.............17
EXHIBIT 13 -- Annual Report.................................................18
EXHIBIT 21 -- Subsidiaries of the Registrant, Jurisdiction of
Incorporation and Percentage of Ownership.....................55
EXHIBIT 23.1 -- Consent of Independent Accountants..........................56
EXHIBIT 23.2 -- Consent of Independent Accountants..........................57
EXHIBIT 23.3 -- Consent of Independent Accountants..........................58
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 3
PART I
ITEM 1. BUSINESS
There is incorporated in this Item 1 by reference that portion of the U.S.
Global Investors, Inc. (U.S. Global, the Company or Registrant) ANNUAL REPORT TO
SHAREHOLDERS, attached to this Form 10-K as Exhibit 13, appearing under the
caption "The Company."
ITEM 2. PROPERTIES
The Company presently occupies an office building as its headquarters located in
San Antonio, Texas. The office building is approximately 46,000 square feet on
approximately 2.5 acres of land. The Company purchased this building from the
Resolution Trust Corporation in 1992 and financed the acquisition and
improvements with a loan of $1,425,000. As of June 30, 1999, the balance of the
note was approximately $1,169,000. The Company and its subsidiaries, United
Shareholder Services, Inc. (USSI), A&B Mailers, Inc., Security Trust & Financial
Company (STFC), U.S. Global Brokerage, Inc. (USGB) and U.S. Global
Administrators, Inc. (USGA) occupy approximately 95 percent of the building.
ITEM 3. LEGAL PROCEEDINGS
There is no material pending legal proceeding 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 1999.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 4
PART II
ITEM 5. MARKET FOR REGISTRANT'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 $0.05 per share.
There is no established public trading market for the Company's class B and
class C common stock.
The holders of the Company's class C common stock of record on March 12, 1985
(and their transferees by gift, devise or descent) have the right to exchange
their shares of class C common stock for class A common stock on a
share-for-share basis until April 30, 2000. At September 17, 1999, the holders
of 28,358 shares of class C common
stock have the right to exchange.
The Company's class A common stock is traded over-the-counter and is quoted
daily under the Nasdaq Small Cap Issues. Trades are reported under the symbol
"GROW."
The following table sets forth the range of high and low closing bid quotations
from Nasdaq for the fiscal years ended June 30, 1999 and 1998. The quotations
represent prices between dealers and do not include any retail markup,
markdown or commission and may not necessarily represent actual transactions.
BID PRICE ($)
------------------------------------
1999 1998
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
First Quarter (9/30) $1.875 $1.375 $3.000 $2.000
Second Quarter (12/31) $1.750 $1.313 $2.563 $1.750
Third Quarter (3/31) $2.906 $1.500 $2.813 $1.813
Fourth Quarter (6/30) $1.688 $1.250 $2.625 $1.875
HOLDERS
On September 17, 1999, there were 71 holders of record of class C common stock,
no holders of record of class B common stock and 292 holders of record of the
class A common stock.
Many of the class A common shares are held of record by nominees, and management
believes that as of September 8, 1999, 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 thirteen 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 upon earnings, operations, capital
requirements, general financial condition of the Company and general business
conditions.
Holders of the outstanding shares of the Company's class A common stock are
entitled to receive, when and as declared by the Company's board of directors, a
non-cumulative cash dividend equal in the aggregate to 5 percent of the
Company's after-tax net 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
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U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 5
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
There is incorporated by reference in this Item 6 that portion of the Company's
ANNUAL REPORT TO SHAREHOLDERS appearing under the caption "Selected Financial
Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
There is incorporated by reference in this Item 7 that portion of the Company's
ANNUAL REPORT TO SHAREHOLDERS appearing under the caption "Annual Status
Report."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements and notes thereto located in the Company's
ANNUAL REPORT TO Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As of June 5, 1998, U.S. Global Investors, Inc. discharged
PricewaterhouseCoopers LLP as its independent accountants since the firm closed
its local office. The report of PricewaterhouseCoopers LLP on the financial
statements for the fiscal year 1997 contained no adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principle. The Registrant's Audit Committee participated in and
approved the decision to change independent accountants. In connection with its
audits for the fiscal year 1997 and through June 5, 1998, there have been no
disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of
PricewaterhouseCoopers LLP would have caused them to make reference thereto in
their report on the financial statements for such years. During the fiscal year
1997 and through June 5, 1998, there have been no reportable events [as defined
in Regulation S-K Item 304(a)(1)(v)].
PricewaterhouseCoopers LLP continued to audit investment companies managed by
the Company in fiscal year 1999.
The Registrant engaged Ernst & Young LLP as its new independent accountants as
of June 8, 1998. Since June 8, 1998, 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.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 6
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- --------------------- --- ----------------------------------------------
David J. Clark 38 Chief Financial Officer of the Company since
May 1997 and Chief Operating Officer since
December 1997. Chief Financial Officer of USSI
and STFC since June 1997 and September 1997,
respectively. Treasurer of USGIF and USGAF
since January 1998. Director of USGB since
October 1997 and Chief Financial Officer since
January 1998. Foreign Service Officer with U.S.
Agency for International Development in the
U.S. Embassy, Bonn, West Germany from May 1992
to May 1997.
J. Michael Edwards 32 Chief Accounting Officer of the Company since
May 1997 and employed by the Company beginning
February 1997. Chief Accounting Officer of USSI
and STFC since June 1997 and September 1997,
respectively. President of USGA since January
1999. Assistant Treasurer of USGIF and USGAF
since January 1998. Assistant Controller for
Grant-Lydick Beverage Co. from January 1995 to
February 1997. Staff Accountant with
PricewaterhouseCoopers LLP from August 1992
through January 1995.
Frank E. Holmes 44 Chairman of the Board of Directors and Chief
Executive Officer of the Company since October
27, 1989, President from October 1989 to
September 1995 and from March 1997 to February
1998, and Chief Investment Officer since June
4, 1999. Director of STFC since October 1989.
President, Chief Executive Officer and Trustee
of USGIF since January 1990. President, Chief
Executive Officer and Trustee of USGAF since
April 1993. Director of U.S. Global Brokerage,
Inc. since October 1997. Director of U.S.
Global Investors (Guernsey) Limited, a wholly
owned subsidiary of the Company, and of the
Guernsey Funds managed by that Company since
September 1993. 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.
Thomas F. Lydon, Jr. 39 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 40 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.
J. Stephen Penner 58 Director since May 1997. Senior Vice President
of LCG Associates, and since March 1982 has
held various positions with that Company.
Senior Vice President of LCG Holdings, Inc.
since November 1992.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 7
NAME AGE POSITION
- --------------------- --- ----------------------------------------------
Anthony A. Rabago 32 Associate Counsel for the Company since August
1998. President of USGB since January 1999.
Compliance Director for American General
Corporation from August 1997 to July 1998.
Compliance Administrator for American General
Corporation for August 1995 to July 1997. Staff
Attorney for the Texas State Securities Board
from August 1994 until July 1995.
Jerold H. Rubinstein 61 Director of the Company since October 1989.
Chairman and Chief Executive Officer of Xtra
Music since July 1997. Chairman of the Board of
Directors and Chief Executive Officer of DMX
Inc. from May 1986 to July 1997.
Roy D. Terracina 53 Director of the Company since December 1994 and
Vice Chairman of the Board of Directors since
May 1997. Director of STFC since August 1992.
Owner of Sunshine Ventures, Inc., an investment
company, since January 1994.
None of the directors or executive officers of the Company has a family
relationship with any of the other directors or executive officers.
Each member of the board of directors is elected for a one-year term or until
their successors are elected and qualified. The executive officers of the
Company are appointed by the board of directors. The Company does not have a
Nominating Committee. The Company's Compensation Committee consists of Messrs.
Holmes, Terracina and Rubinstein. The Company's Audit Committee consists of
Messrs. Rubinstein and Terracina. The Stock Option Committee consists of Messrs.
Rubinstein and Terracina.
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 percent 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 percent 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, 1999, all Section 16(a)
filing requirements applicable to its directors, officers and more than 10
percent beneficial owners were met.
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------------------
ANNUAL COMPENSATION AWARDS
- ----------------------------------------------------------------------------------------------------- -------------------------
(A) (B) (C) (D) (E) (F) (G)
- -------------------------------------------- ---- --------- -------- --------- ---------- ---------
OTHER
NAME AND ANNUAL RESTRICTED NUMBER OF
PRINCIPAL POSITION COMPEN- STOCK OPTIONS/
DURING FY 98 YEAR SALARY (1) BONUS SATION (2) AWARDS (3) SARS (4)
- -------------------------------------------- ---- --------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Frank E. Holmes ............................ 1999 $318,280 $ 92,054 $41,780 $ 338 --
Chairman, Chief ....................... 1998 $315,917 $164,902 $37,405 -- --
Executive Officer ..................... 1997 $304,079 $128,848 $36,277 $5,683 0
Susan B. McGee ............................. 1999 $132,408 $ 43,491 -- $ 338 --
President, General .................... 1998 $104,786 $ 55,439 -- $1,328 --
Counsel ............................... 1997 $ 74,850 $ 34,818 -- $9,995 25,000
</TABLE>
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 8
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, 1999, fiscal year) and amounts for company savings plans (calculable
through the end of the June 30, 1999, fiscal year).
- ------------------
(1) Mr. Holmes also received trustee fees from U.S. Global Investors Funds and
U.S. Global Accolade Funds in the amount of $24,000 in 1997, $28,000 in
1998, and $32,000 in 1999.
(2) The Company believes that the aggregate amounts of such omitted personal
benefits do not exceed the lesser of $50,000 or 10 percent of the total of
annual salary or bonus reported in columns (c) and (d) for the named
executive officers.
(3) The dollar value of the shares reflected in the table is based on the
market value for the shares on the date the shares were awarded. The dollar
value of the long term compensation value is also factored in the bonus
section of the annual compensation table.
(4) All options pertain to Company class A common stock.
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. During fiscal year 1997, part of the team bonus was
payable in the Company's class A common stock. The portion of the team
performance program paid in Company stock was suspended at the beginning of
fiscal year 1998. 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 percent
of its net income before taxes during each fiscal year, limited to 15 percent 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, 1999, 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 contribute or match a certain percentage of an
employee's pay deferment. The Company will make contributions to employee
accounts at the end of each plan year if the employee is still employed on that
date. For the fiscal year ended June 30, 1999, the Company has accrued $44,723,
for its 401(k) plan matching contribution.
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, the Company will match these contributions on a
limited basis. Beginning in fiscal year 1997, a similar savings plan utilizing
UGMA accounts has been offered to employees to save for their children's
education. For the fiscal year ended June 30, 1999, the Company match aggregated
in all programs to $57,317, reflected in base salary expense.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 9
STOCK OPTION PLANS
In March 1985, the board of directors of the Company adopted an Incentive Stock
Option Plan (1985 Plan), which the shareholders of the Company approved on April
2, 1985. Under the terms of the 1985 Plan, certain executives and key salaried
employees of the Company and its subsidiaries were granted options to purchase
shares of the Company's class A common stock. The maximum number of shares of
class A common stock authorized for issuance under the 1985 Plan was 200,000
shares (subject to adjustment in the event of reorganization, merger,
consolidation, liquidation, recapitalization, or stock splits). Shares subject
to purchase pursuant to an option granted under the 1985 Plan may be either
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company.
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 1934 Act Rule 16b-3. The 1985 Plan was
administered by a committee consisting of the two outside members of the board
of directors of the Company. The 1985 Plan terminated on December 31, 1994.
Options granted under the 1985 Plan were granted for a term of up to five years
for employees who own more than 10 percent of the total combined voting power of
all classes of the Company's stock and for up to ten years for other employees.
The options were granted at an exercise price of not less than 100 percent of
the fair market value as of the date of the grant, or 110 percent of the fair
market value for any officer or employee holding more than 10 percent of the
combined voting power of the Company's stock. The aggregate fair market value of
the class A common stock for which any employee was granted options in any
calendar year could not exceed $100,000 plus any unused carry-over from a
preceding year. All of the options were granted at or above market price on the
date of the grant. As of September 17, 1999, grants covering 88,000 shares have
been exercised under the 1985 plan. Grants covering 51,500 shares have expired.
In November 1989 the board of directors adopted the 1989 Non-Qualified Stock
Option Plan (1989 Plan) which provides for the granting of options to purchase
shares of the Company's class A common stock to directors, officers and
employees of the Company and its subsidiaries. On December 6, 1991, shareholders
approved and amended the 1989 Plan to provide provisions to cause the plan and
future grants under the plan to qualify under 1934 Act Rule 16b-3. The 1989 Plan
is administered by a committee consisting of two outside members of the board of
directors. The maximum number of shares of class A common stock initially
approved for issuance under the 1989 Plan is 800,000 shares. During the fiscal
year ended June 30, 1999, there were no grants. As of September 17, 1999, grants
covering 393,000 shares have been exercised under the 1989 plan. Grants covering
121,400 shares have expired.
The board of directors, at a meeting held on July 14, 1992, amended the Stock
Option Agreement for stock options granted during November 1989 to provide for
an option period of ten years. All optionees accepted the amendment.
In April 1997, the board of directors adopted the 1997 Non-Qualified Stock
Option Plan (1997 Plan), which shareholders approved on April 25, 1997. It
provides for the granting of stock appreciation rights (SARs) and/or options to
purchase shares of the Company's class A common stock to directors, officers and
employees of the Company and its subsidiaries. The 1997 Plan expressly requires
that all grants under the plan qualify under 1934 Act Rule 16b-3. The 1997 Plan
is administered by a committee consisting of two outside members of the board of
directors. The maximum number of shares of class A common stock initially
approved for issuance under the 1997 Plan is 200,000 shares. During the fiscal
year ended June 30, 1999, there were no grants. As of September 17, 1999, grants
covering 6,000 shares have been exercised under the 1997 Plan, and grants
covering 29,500 shares have expired. Shares available for stock option grants
under the 1989 Plan and the 1997 Plan aggregate to approximately 66,700 and
55,000 shares, respectively, on September 17, 1999.
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.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 10
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ----------------------------------------------------------------------------------------------------- --------------------
(A) (B) (C) (D) (E) (F) (G)
- -------------------- ------------ ------------ -------- --------------- ------ -------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARS EMPLOYEES IN PRICE
NAME GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
- -------------------- ------------ ------------ -------- --------------- ------ -------
<S> <C>
Frank E. Holmes 0/0 -- -- -- -- --
Susan B. McGee 0/0 -- -- -- -- --
</TABLE>
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.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
- ---------------- ------------ -------- ------------- -------------
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN THE MONEY
OPTIONS/SARS OPTIONS/SARS AT
NUMBER OF AT FY END FY END($)
SHARES ------------- -------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Frank E. Holmes 0 0 201,000/400 $0/$0
Susan B. McGee 0 0 36,500/500 $0/$0
</TABLE>
COMPENSATION OF DIRECTORS
The Company may grant non-employee 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 arrears. During the fiscal year ended June 30,
1999, the non-employee directors each received cash compensation of $12,000. Mr.
Terracina is also a director of STFC where he received cash compensation of
$3,300. 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 Registrant. 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 June 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 1999, with an annual compensation value of $50,000.
The base pay of the executives is relatively fixed, but the executive has the
opportunity to increase his/her compensation by (1) participating in team
building programs to enhance operational and fiscal efficiencies throughout the
Company
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U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 11
with a percent of resulting savings flowing to the executive and (2)
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. Rubinstein and
Terracina constitute the Stock Option Committee of the board of directors. This
committee acts upon recommendations of the Chief Executive Officer, President
and Executive Vice President.
COMPANY PERFORMANCE PRESENTATION
The graph below compares the cumulative total return for the Company's class A
common stock to the cumulative total return for the S&P 500 Composite Index and
the Financial Times Gold Mine Index for the Company's last five fiscal years.
The graph assumes an investment of $100 in the class A common stock and in each
index as of June 30, 1994, and that all dividends are reinvested.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
DATE FINANCIAL TIMESPO500MINDIXNDEX GROW FT GOLD MINE INS&P
500 INDEXGROW
30-Jun-93 100.00 100.00 100.00 1904.13 450.53 5
30-Jul-93 106.31 99.47 112.50 2024.35 448.13 5.625
31-Aug-93 98.74 102.89 95.00 1880.17 463.56 4.75
30-Sep-93 88.09 101.86 80.00 1677.43 458.93 4
29-Oct-93 103.62 103.84 95.00 1973 467.83 4.75
30-Nov-93 101.34 102.50 97.50 1929.64 461.79 4.875
31-Dec-93 116.87 103.53 112.50 2225.36 466.45 5.625
31-Jan-94 113.68 106.90 115.00 2164.52 481.61 5.75
28-Feb-94 106.25 103.69 105.00 2023.09 467.14 5.25
31-Mar-94 106.90 98.94 107.50 2035.44 445.77 5.375
29-Apr-94 99.60 100.08 87.50 1896.43 450.91 4.375
31-May-94 102.64 101.33 97.50 1954.46 456.51 4.875
30-Jun-94 100.30 98.61 92.50 1909.93 444.27 4.625
29-Jul-94 103.01 101.72 85.00 1961.46 458.26 4.25
31-Aug-94 109.36 105.54 85.00 2082.37 475.5 4.25
30-Sep-94 122.06 102.70 92.50 2324.26 462.71 4.625
31-Oct-94 113.22 104.84 82.50 2155.91 472.35 4.125
30-Nov-94 99.22 100.70 75.00 1889.36 453.69 3.75
30-Dec-94 103.76 101.94 65.00 1975.79 459.27 3.25
31-Jan-95 86.02 104.41 67.50 1637.91 470.42 3.375
28-Feb-95 90.88 108.18 67.50 1730.51 487.39 3.375
31-Mar-95 101.35 111.14 67.50 1929.82 500.71 3.375
28-Apr-95 101.33 114.25 67.50 1929.38 514.71 3.375
31-May-95 99.84 118.39 55.00 1901.1 533.4 2.75
30-Jun-95 101.23 120.91 52.50 1927.52 544.75 2.625
31-Jul-95 102.41 124.76 52.50 1950.05 562.06 2.625
31-Aug-95 103.59 124.72 50.00 1972.57 561.88 2.5
29-Sep-95 104.29 129.72 52.50 1985.73 584.41 2.625
31-Oct-95 90.48 129.07 42.50 1722.93 581.5 2.125
30-Nov-95 99.12 134.37 37.50 1887.36 605.37 1.875
29-Dec-95 100.49 136.71 32.50 1913.46 615.93 1.625
31-Jan-96 121.09 141.17 60.00 2305.74 636.02 3
29-Feb-96 122.90 142.15 57.50 2340.21 640.43 2.875
29-Mar-96 122.58 143.28 54.68 2334.02 645.5 2.734
30-Apr-96 122.19 145.20 55.00 2326.67 654.17 2.75
31-May-96 124.83 148.52 67.50 2376.96 669.12 3.375
28-Jun-96 105.91 148.85 57.50 2016.69 670.63 2.875
31-Jul-96 104.81 142.04 47.50 1995.74 639.95 2.375
30-Aug-96 106.69 144.72 50.00 2031.43 651.99 2.5
30-Sep-96 97.25 152.56 53.76 1851.84 687.31 2.688
31-Oct-96 98.62 156.54 47.50 1877.76 705.27 2.375
29-Nov-96 98.48 168.03 47.50 1875.25 757.02 2.375
31-Dec-96 95.77 164.42 47.50 1823.55 740.74 2.375
31-Jan-97 89.19 174.50 55.00 1698.33 786.16 2.75
28-Feb-97 100.18 175.53 47.50 1907.49 790.82 2.375
31-Mar-97 85.97 168.05 41.26 1636.93 757.12 2.063
30-Apr-97 77.13 177.87 35.00 1468.6 801.34 1.75
30-May-97 82.45 188.28 36.26 1569.89 848.28 1.813
30-Jun-97 73.15 196.47 40.00 1392.84 885.14 2
31-Jul-97 74.27 211.81 47.50 1414.15 954.29 2.375
29-Aug-97 74.15 199.65 48.75 1411.93 899.47 2.4375
30-Sep-97 80.09 210.26 43.75 1525.05 947.28 2.1875
31-Oct-97 65.21 203.01 43.75 1241.63 914.62 2.1875
28-Nov-97 51.34 212.06 45.00 977.62 955.4 2.25
31-Dec-97 55.57 215.40 37.50 1058.22 970.43 1.875
30-Jan-98 58.71 217.58 40.00 1117.83 980.28 2
27-Feb-98 56.57 232.91 47.50 1077.09 1049.34 2.375
31-Mar-98 60.14 244.55 52.50 1145.12 1101.75 2.625
30-Apr-98 68.19 246.76 51.25 1298.43 1111.75 2.5625
29-May-98 57.09 242.12 45.00 1087.12 1090.82 2.25
30-Jun-98 52.19 251.67 40.00 993.86 1133.84 2
31-Jul-98 47.30 248.74 32.50 900.63 1120.67 1.625
31-Aug-98 36.85 212.48 28.76 701.58 957.28 1.438
30-Sep-98 57.82 225.74 31.26 1100.93 1017.01 1.563
30-Oct-98 58.46 243.86 26.26 1113.11 1098.67 1.313
30-Nov-98 55.41 258.28 31.26 1055.13 1163.63 1.563
31-Dec-98 49.08 272.84 31.26 934.49 1229.23 1.563
29-Jan-99 48.95 284.03 32.50 932.15 1279.64 1.625
26-Feb-99 45.77 274.86 41.26 871.43 1238.33 2.063
31-Mar-99 45.64 285.52 30.00 869.00 1286.37 1.5
30-Apr-99 53.46 296.36 27.50 1017.99 1335.18 1.375
31-May-99 43.50 288.96 28.76 828.32 1301.84 1.438
30-Jun-99 46.48 304.69 25.00 885.05 1372.71 1.25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
CLASS C COMMON STOCK (VOTING STOCK). At September 17, 1999, 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
percent or more of the outstanding shares of class C common stock.
CLASS C PERCENT OF
NAME AND ADDRESS COMMON SHARES SHARES ISSUED
OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
--------------------- ------------------ ------------
Frank E. Holmes 1,392,211 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 the next 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.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 12
CLASS A COMMON STOCK (NON-VOTING STOCK). At September 17, 1999, there were
6,026,703 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 percent or more of the outstanding shares of class A
common stock.
CLASS A COMMON SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------------ --------------------- ----------------
Frank E. Holmes --
San Antonio, TX 380,782 6.31%
Mason Hill Asset
Management, Inc.--
New York, NY 409,000 6.78%
Heartland Advisors, Inc.--
Milwaukee, WI 588,300 9.76%
- ---------------------
(1) Detail of beneficial ownership set forth below under "Security Ownership of
Management."
(2) Mason Hill Asset Management, Inc. owns 250,500 shares or 4.02 percent.
Equinox Partners, LP owns 158,500 shares or 2.55 percent. 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, 1997.
(3) Information is from Schedule 13G, dated January 21, 1999, filed with the
SEC.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of September 17, 1999, information regarding
the beneficial ownership of the Company's class A and class C common stock by
each director and by all directors and 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 COMMON STOCK CLASS A COMMON STOCK (1)
------------------------ ------------------------
BENEFICIAL OWNER NUMBER OF SHARES % NUMBER OF SHARES %
- ---------------------- ---------------- ----- ---------------- -----
Frank E. Holmes 1,392,211 (2) 93.01% 380,782 (3) 6.31%
Thomas F. Lydon, Jr -- -- 10,000 0.16%
Susan B. McGee -- -- 52,035 0.86%
J. Stephen Penner -- -- 10,000 0.16%
Jerold H. Rubinstein -- -- 50,000 0.83%
Roy D. Terracina -- -- 89,100 1.48%
All directors and
officers as a group 1,378,363 93.60% 649,392(4) 10.77%
(11 persons)
- -----------------------------
(1) Includes shares of class A common stock underlying presently exercisable
options held directly by each individual as follows: Mr. Holmes - 201,000
shares; Mr. Lydon - 10,000 shares; Ms. McGee - 36,500 shares; Mr. Penner -
10,000 shares; Mr. Rubinstein - 50,000 shares; and Mr. Terracina - 51,000
shares.
(2) Includes 1,000,000 shares of class C common stock issued to Mr. Holmes
that will be vested in equal amounts over the next 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.
(3) Includes 79,782 shares and options to obtain 201,000 shares of class A
common stock as well as 100,000 shares of class A common stock held by
F.E. Holmes Organization, Inc. a corporation wholly owned by Mr. Holmes.
Mr. Holmes' 79,782 shares also include 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.
(4) Includes the shares underlying presently exercisable options held by the
directors and officers listed above and an additional 33,500 of class A
common stock underlying presently exercisable options held by officers
other than those listed above.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 13
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 by reference that portion of the U.S. Global
Investors, Inc. ANNUAL REPORT TO SHAREHOLDERS, attached to this Form 10-K as
Exhibit 13, appearing under Note 17 to the Consolidated Financial Statements.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 14
PART IV
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 are incorporated herein by
reference to the Company's ANNUAL REPORT TO SHAREHOLDERS as an exhibit
hereto (see Item 8):
* Reports of Independent Accountants
* Consolidated Balance Sheets at June 30, 1999 and 1998
* Consolidated Statements of Operation for the three years ended
June 30, 1999
* Consolidated Statements for Cash Flows for the three years
ended June 30, 1999
* Consolidated Statements of Shareholders' Equity for the three
years ended June 30, 1999
* Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
None
3. EXHIBITS
3.1 Third Restated and Amended Articles of Incorporation of Registrant,
incorporated by reference in the Registrant's Form 10-K for the fiscal
year ended June 30, 1996 (EDGAR Accession Number
0000754811-96-000025).
3.2 By-Laws of Registrant, incorporated by reference to Exhibit D of the
Registrant's Registration Statement No. 33-33012 filed on Form S-8
with the Commission on January 30, 1990, as amended.
10.1 Advisory Agreement dated October 27, 1989, by and between Registrant
and United Services Funds (USF), incorporated by reference to Exhibit
(4)(b) to the Registrant'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 Registrant
and Accolade Funds, incorporated by reference to Exhibit 10.2 to
Registrant'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
Registrant and Accolade Funds/Bonnel Growth Fund and Bonnel, Inc.,
incorporated by reference to Exhibit 10.3 to Registrant's Form 10-K
for fiscal year ended June 30, 1995 (EDGAR Accession Number
0000754811-95-000002).
10.4 Transfer Agency Agreement dated September 21, 1994, by and between
United Shareholder Services , Inc. ("USSI") and Accolade Funds/Bonnel
Growth Fund, incorporated by reference to Exhibit 10.4 to Registrant's
Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number
0000754811-95- 000002).
10.5 Transfer Agent Agreement by and between USSI and USF, incorporated by
reference to Exhibit 10(b) to the Registrant's Form 10-K for the
fiscal year ended June 30, 1989 Transfer Agency Agreement, as amended,
between U.S. Global Investors Funds and United Shareholder Services,
Inc. dated November 1, 1988, incorporated by reference to Post
Effective Amendment No. 79 filed September 3, 1996 (EDGAR Accession
No. 0000101507-96-000065).
10.6 Loan Agreement between Registrant and Bank One, dated April 12, 1994,
and Modification Agreement, dated February 28, 1995, for $1,385,000
for refinancing new building, incorporated by reference to
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 15
Exhibit 10.8 to Registrant's Form 10-K for fiscal year ended June 30,
1995 (EDGAR Accession Number 0000754811-95-000002).
10.7 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 Registrant'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.754811-97-000004).
10.8 United Services Advisors, Inc. 1989 Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 4(a) to the Registrant'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. 754811-97-000004).
10.9 U.S. Global Investors, Inc. 1997 Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement No. 333-25699 filed on Form S-8 with the
Commission on April 23, 1997 (EDGAR Accession No. 7548111-97-000003).
10.10Custodian Agreement between Registrant and Brown Brothers Harriman &
Co. dated November 1, 1997, incorporated by reference from
Post-Effective Amendment No. 82 filed September 2, 1998 (EDGAR
Accession No. 0000101507-98-000031).
10.11Custodian Agreement dated November 1, 1998, between U.S. Global
Accolade Funds and Brown Brothers Harriman & Co. of Massachusetts
incorporated by reference to Post-Effective Amendment No. 13 dated
January 29, 1998 (EDGAR Accession No. 0000902042-98-000006).
10.12Distribution Agreement by and between USGB and U.S. Global Accolade
Funds dated September 3, 1998, incorporated by reference to Exhibit
10.12 to Registrant's Form 10-K for fiscal year ended June 30, 1998
(EDGAR Accession Number 0000754811-98-000009).
10.13Distribution Agreement by and between USGB and U.S. Global Investors
Funds dated September 3, 1998, incorporated by reference to Exhibit
10.13 to Registrant's Form 10-K for fiscal year ended June 30, 1998
(EDGAR Accession Number 0000754811-98-000009).
11 Statement re: Computation of Per Share Earnings, filed herein.
13 Annual Report to Shareholders, filed herein.
21 List of Subsidiaries of the Registrant, filed herein.
23.1 Consent of Independent Accountant, Ernst & Young LLP, filed herein.
23.2 Consent of Independent Accountant, PricewaterhouseCoopers LLP, filed
herein.
23.3 Consent of Independent Accountant, PricewaterhouseCoopers, filed
herein.
24.1 Power of Attorney, incorporated by reference to Exhibit 24.1 to
Registrant's Form 10-K for fiscal year ended June 30, 1998 (EDGAR
Accession Number 0000754811-98-000009). 24.2 Power of Attorney,
incorporated by reference to Exhibit 24.2 to Registrant's Form 10-K
for fiscal year ended June 30, 1998 (EDGAR Accession Number
0000754811-98-000009).
27 Financial Data Schedule, filed herein.
(b) Reports on Form 8-K
None.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 16
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/ Susan B. McGee
______________________________
SUSAN B. MC GEE
Date: September 28, 1999 President, General Counsel
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 S. Holmes
- ------------------------------
FRANK E. HOLMES Chairman of the September 28, 1999
Board of Directors
Chief Executive Officer
* /s/ Thomas F. Lydon, Jr.
- ------------------------------
THOMAS F. LYDON, JR. Director September 28, 1999
* /s/ J. Stephen Penner
- ------------------------------
J. STEPHEN PENNER Director September 28, 1999
* /s/ Jerold H. Rubinstein
- ------------------------------
JEROLD H. RUBINSTEIN Director September 28, 1999
* /s/ Roy D. Terracina
- ------------------------------
ROY D. TERRACINA Director September 28, 1999
/s/ David J. Clark
- ------------------------------
DAVID J. CLARK Chief Financial Officer September 28, 1999
Chief Operating Officer
/s/ J. Michael Edwards
- ------------------------------
J. MICHAEL EDWARDS Chief Accounting Officer September 28, 1999
*BY: /s/ Susan B. McGee
- ------------------------------
SUSAN B. MCGEE
Attorney -in-Fact under Powers of
Attorney dated October 21, 1997, and
September 18, 1998
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 17
EXHIBIT 11 -- SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Net income (loss) $ (1,852,806) $ (148,619) $ 284,149
BASIC
Weighted average number shares outstanding
during the year: 6,562,140 6,617,153 6,606,211
Basic income (loss) per share:
Net income (loss) $ (0.28) $ (0.02) $ 0.04
============ =========== ============
DILUTED
Weighted average number of shares outstanding
during the year: 6,562,140 6,617,153 6,606,211
Effect of dilutive securities:
Common stock equivalent shares (determined
using the "treasury stock" method)
representing shares issuable upon exercise
of common stock options 1,704 52,210 58,113
------------ ----------- ------------
Weighted average number of shares used
in calculation of diluted earnings
per share 6,563,844 6,669,363 6,664,324
============ =========== ============
Diluted income (loss) per share:
Net income (loss) $ (0.28) $ (0.02) $ 0.04
============ =========== ============
</TABLE>
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 18
EXHIBIT 13 -- ANNUAL REPORT
THE COMPANY
U.S. Global Investors, Inc., a Texas corporation organized in 1968 (Company or
U.S. Global), and its wholly owned subsidiaries are in the mutual fund
management business. As part of the mutual fund management business, the Company
provides: (1) investment advisory services to institutions (namely, mutual
funds) and other persons; (2) transfer agency and record keeping services; (3)
mailing services; (4) custodial and administrative services, through its wholly
owned trust company and administrator for IRAs and other types of retirement
plans; and (5) distribution services, through its wholly owned broker/dealer, to
mutual funds advised by the Company. The provision of investment advisory,
transfer agent, fund distribution, administrative and custodial services and
investment income are the primary sources of the Company's revenue.
The Company is a registered investment adviser under the Investment Advisers Act
of 1940 and is principally engaged in the business of providing investment
advisory and other services to U.S. Global Investors Funds (USGIF) and U.S.
Global Accolade Funds (USGAF), both Massachusetts business trusts (collectively,
the Trusts or Funds). USGIF and USGAF are investment companies offering shares
of eleven and three mutual funds, respectively, on a no-load basis.
The Company organized U.S. Global Investors (Guernsey) Limited (USGG) in August
1993 for the purpose of acting as investment adviser for investment companies
whose shares are offered to non-U.S. citizens. USGG has delegated its
administrative duties to Butterfield Fund Managers (Guernsey) Limited and its
investment advisory duties to U.S. Global.
U.S. Global has formed U.S. Global Brokerage, Inc. (USGB), a broker/dealer
registered with the National Association of Securities Dealers, Inc. (NASD) and
the appropriate state regulatory agencies to provide distribution services to
the Company's mutual fund clients.
U.S. Global also formed U.S. Global Administrators, Inc. (USGA) in October 1998
to provide qualified plan administration services for 401(k) clients.
In addition to providing mutual fund management services to its clients, the
Company utilizes a diversified venture capital approach in trading for its own
account in an effort to add growth and value to its cash position. Typical
investments include, among other things, early stage or start-up businesses
seeking initial financing as well as more mature businesses in need of capital
for expansion, acquisitions, management buyouts, or recapitalizations. In
addition, the Company may utilize investment techniques such as "private
placement arbitrage," which is out of the scope of clients. This technique
involves the contemporaneous purchase of a quantity of an issuer's securities at
a discount in a private placement and a short sale of the same, or substantially
the same, security in the public market. To assure no conflicts, these
activities are reviewed by Company compliance personnel and reported to
investment advisory clients.
MUTUAL FUND MANAGEMENT BUSINESS
INVESTMENT MANAGEMENT SERVICES. The Company furnishes an investment program for
each of the mutual funds it manages and determines, subject to the overall
supervision by the board 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 and also provides the services
of executive and clerical personnel for administering the affairs of the mutual
funds. U.S. Global and its affiliates compensate all personnel, officers,
directors and interested trustees of the funds if such persons are also
employees of the Company or its affiliates. However, the funds are required to
reimburse the Company for a portion of the compensation of the Company's
employees who perform certain state and federal securities law regulatory
compliance
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 19
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 board of
trustees of USGIF and of USGAF will consider renewal of the applicable
agreements in February and March 2000, respectively. Management anticipates that
the Advisory Agreements will be renewed.
Investment company average net assets under management (in millions) at fiscal
year end for the past five years were:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
USGIF Money Market $ 979 $ 919 $ 811 $ 734 $ 747
USGIF Gold Related 170 250 425 481 482
USGIF Other 112 94 145
110 92
--- --
USGIF Total 1,258 1,290 1,330 1,361 1,321
USGAF Total 146 119
------------ -------------- -------------- -------------
130 48 9
--- -- --
Total Assets Under Management $1,389 $1,436 $1,449 $1,409 $1,330
</TABLE>
Under the Advisory Agreements, the Company receives an advisory fee for each
mutual fund computed and accrued daily based upon the net assets represented by
the particular fund on that day. The fees range from 0.375 percent to 1.25
percent of average net assets and are paid monthly.
As is set forth in detail in Note 3 to the Consolidated Financial Statements
included in this Annual Report, 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.
Investment advisory fees (in thousands, net of expenses paid by the Company or
voluntary waivers) for the past five fiscal years were approximately:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
USGIF Money Market $ 886 $ 929 $ 826 $ 835 $ 895
USGIF Gold Related 1,596 2,431 3,835 4,185 4,089
USGIF Other 674 790 656 475 485
-----------------------------------------------------------------------------------
USGIF Total 3,156 4,150 5,317 5,495 5,469
USGAF Total 1,319 1,461 1,072 409 13
------------------------------------------------------------------------------------
Total $4,475 $5,611 $6,389 $ 5,904 $5,482
------------------------------------------------------------------------------------
</TABLE>
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, and provides transfer agency, lockbox and
printing services to investment company clients. The transfer agency utilizes a
third-party external system providing the Company's fund shareholder
communication network with computer equipment and software designed to meet the
operating requirements of a mutual fund transfer agency.
The transfer agency's duties encompass: (1) acting as servicing agent in
connection with dividend and distribution functions; (2) performing shareholder
account and administrative agent functions in connection with the issuance,
transfer and redemption or repurchase of shares; (3) maintaining such records as
are necessary to document transactions in the funds' shares; (4) acting as
servicing agent in connection with mailing of shareholder communications,
including reports to shareholders, dividend and distribution notices, and proxy
materials for shareholder meetings; and (5) investigating and answering all
shareholder account inquiries.
The transfer agency agreements provide that USSI will receive, as compensation
for services rendered as transfer agent, an annual fee per account, and will be
reimbursed out-of-pocket expenses. In connection with obtaining/providing
administrative services to the beneficial owners of fund shares through
institutions which provide such services and
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 20
maintain an omnibus account with USSI, each fund pays a monthly fee based on the
number of accounts and the value of the shares of the fund held in accounts at
the institution which payment shall not exceed the per account charge on an
annual basis.
The number of shareholder accounts at fiscal year end were 116,831; 117,363;
120,900; 120,477; and 126,199 in 1999, 1998, 1997, 1996, and 1995, respectively.
For the five fiscal years ended June 30, 1999, 1998, 1997, 1996, and 1995, total
transfer agency fees (net of waivers) were approximately $3.2, $3.3, $3.3, $3.3,
and $3.2 million, respectively.
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 by the boards of trustees of USGIF and of USGAF for renewal during
January and March 2000, respectively, and management anticipates that the
agreements will be renewed.
USSI formerly maintained the books and records of each trust and of each fund of
each trust, including calculations of the daily net asset value per share. In
1997, the Company decided to outsource such services to Brown Brothers Harriman
& Co. (BBH). The conversion to BBH was completed during the second quarter of
fiscal year 1998.
U.S. Global will forego accounting fees associated with this function, but has
experienced direct cost reductions for personnel and equipment. For the five
years ended June 30, 1999, 1998, 1997, 1996, and 1995, bookkeeping and
accounting fees net of waivers were approximately $0, $400,000; $731,000;
$524,000; and $420,000, respectively.
BROKERAGE SERVICES. The Company has registered its wholly owned subsidiary, U.S.
Global Brokerage, Inc. (USGB), with the NASD, the Securities and Exchange
Commission (SEC) and appropriate state regulatory authorities as a
limited-purpose broker/dealer for the purpose of distributing USGIF and USGAF
fund shares. Effective September 3, 1998, USGB became the distributor for USGIF
and USGAF fund shares. To date, the Company has capitalized USGB with
approximately $150,000 to cover the costs associated with this registration.
MAILING SERVICES. A&B Mailers, Inc., a wholly owned subsidiary of the Company,
provides mail handling services to various persons. 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. Each service is priced separately. For the five years ended June 30,
1999, 1998, 1997, 1996, and 1995, A&B Mailers' revenues, after intercompany
eliminating entries, were approximately $293,000, $306,000; $282,000; $231,000;
and $170,000, respectively.
TRUST COMPANY SERVICES. Security Trust and Financial Company (STFC), a wholly
owned state chartered trust company, provides custodial services for IRA and
other retirement plans administered by U.S. Global. STFC also actively markets
401(k) and other retirement plans. The custodial fees are generally paid to STFC
at year-end upon separate invoice to the customer, not the fund. For the five
years ended June 30, 1999, 1998, 1997, 1996, and 1995, custodial fee revenues
were approximately $465,000, $441,000; $530,000; $545,000; and $503,000,
respectively.
ADMINISTRATIVE SERVICES. Effective July 1, 1999, U.S. Global Administrators,
Inc. (USGA), a wholly owned subsidiary of the Company, will provide qualified
plan administration services for existing clients. The administrative fees will
be paid to USGA on a monthly or quarterly basis by it clients.
EMPLOYEES
As of June 30, 1999, U.S. Global and its subsidiaries employed 84 full-time
employees and 3 part-time employees; as of June 30, 1998, it employed 81
full-time employees and 8 part-time employees. The Company considers its
relationship with its employees to be excellent.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 21
COMPETITION
The mutual fund industry is highly competitive. As of June 30, 1999, there were
approximately 9,000 registered open-end management investment companies of
varying sizes and investment policies whose shares were being offered to the
public. Generally, there are two types of mutual funds: "load" and "no-load." In
addition there are both no-load and load funds that have adopted 12b-1 plans
authorizing the payment of distribution costs of the funds out of fund assets,
such as USGAF. Load funds are typically sold through or sponsored by brokerage
firms, and a sales commission is charged on the amount of the investment.
No-load funds, such as USGIF's and USGAF's, however, may be purchased directly
from the particular mutual fund organization or through a distributor, and no
sales commissions are charged.
In addition to competition from other mutual fund managers and investment
advisers, the Company and the mutual fund industry are in competition with
various investment alternatives offered by insurance companies, banks,
securities dealers and other financial institutions. Many of these institutions
are able to engage in more liberal advertising than mutual funds and may offer
accounts at competitive interest rates, which are insured by federally chartered
corporations such as the Federal Deposit Insurance Corporation. Recent
regulatory pronouncements related to the Glass-Steagall Act, the statute that
has prohibited banks from engaging in various securities activities, are
enabling banks to compete with the Company in a variety of areas.
A number of mutual fund groups are significantly larger than the funds managed
by U.S. Global, offer a greater variety of investment objectives and have more
experience and greater resources to promote the sale of investments therein.
However, the Company believes it has the resources, products and personnel to
compete with these other mutual funds. Competition for sales of fund shares is
influenced by various factors, including investment objectives and performance,
advertising and sales promotional efforts, distribution channels and the types
and quality of services offered to fund shareholders.
Success in the investment advisory and mutual fund share distribution businesses
is substantially dependent on the funds' investment performance, the quality of
services provided to shareholders and the Company's efforts to effectively
market the performance. 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). Good performance also attracts private institutional
accounts to the Company. Conversely, relatively poor performance results in
decreased sales and increased redemptions of the funds' shares and the loss of
private accounts, with corresponding decreases in revenues to the Company.
SUPERVISION AND REGULATION
The Company, USSI, USGB, USGA and the investment companies it manages and
administers operate under certain laws, including federal and state securities
laws, governing their organization, registration, operation, legal, financial
and tax status. STFC operates under certain laws, including Texas banking laws,
governing its organization, registration, operation, legal, financial and tax
status. Among the penalties for violation of the laws and regulations applicable
to the Company and its subsidiaries are fines, imprisonment, injunctions,
revocation of registration and certain additional administrative sanctions. Any
determination that the Company or its management had violated applicable laws
and regulations could have a material adverse effect on the business of the
Company. Moreover, there is no assurance that changes to existing laws,
regulations or rulings promulgated by governmental entities having jurisdiction
over the Company and the funds will not have a material adverse effect on its
business.
U.S. Global is a registered investment adviser subject to regulation by the SEC
pursuant to the Investment Advisers Act of 1940, the Investment Company Act of
1940 and the Securities Exchange Act of 1934 (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.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 22
RELATIONSHIPS WITH THE FUNDS
The businesses of the Company are to a very significant degree dependent on
their associations and contractual relationships with the Trusts. In the event
the advisory or transfer agent services agreements with USGIF or USGAF were
canceled or not renewed pursuant to the terms thereof, the Company would be
substantially adversely affected. U.S. Global, USSI and STFC consider their
relationships with the Trusts to be good, and they have no reason to believe
that their management and service contracts will not be renewed in the future;
however, there is no assurance that the Trusts will choose to continue their
relationships with the Company, USSI, and STFC.
ANNUAL STATUS REPORT
PREPARING FOR THE FUTURE
During fiscal year 1999, U.S. Global Investors, Inc. (Company) focused on its
goals of improving fund performance, expanding distribution channels, and
streamlining Company operations. The Company generates its revenues from
managing and servicing mutual funds. While the Company's servicing revenues
remained level during fiscal year 1999, its investment management fees declined
because of reduced assets under management. In particular, gold assets,
following a decline in gold bullion, decreased approximately $81 million (34
percent) in fiscal year 1999 compared to 1998. The following graph illustrates
the correlation between the decline in management fees and that of the spot gold
prices. [GRAPHIC NOT INCLUDED]
Since 1990, the Company has worked to change its reputation as a "gold-only"
enterprise and thus insulate the management fees from extreme fluctuations in
highly cyclical markets. As a result of management's diversification strategy,
the gold assets have shifted from 66 percent of total assets managed in fiscal
year 1990 to less than 10 percent as of June 30, 1999. As of June 30, 1999, the
Company's money market funds now approximate 70 percent of total assets, with
equity and fixed income funds accounting for over 20 percent of total assets.
While money market funds tend to be low in terms of margins, they balance the
volatile cash flow from gold funds and help create a platform for cross-selling
to the other funds.
During fiscal year 1999, Frank E. Holmes, Chairman and CEO of U.S. Global
Investors, Inc., took over the position of Chief Investment Officer and is
spearheading the effort to carry out a very disciplined investment philosophy.
As a result, the Company has re-engineered its investment strategy to include a
stringent model combining a top-down macro analysis and a bottom-up stock
picking system. While many money managers use either a top-down or a bottom- up
investing discipline, the Company uses a combination of both and monitor the
purity of the screens on a monthly basis to provide appropriate feedback to the
portfolio team.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 23
[GRAPHIC OMITTED]
Regarding fund performance, the All American Equity Fund earned Morningstar's
highest rating of five stars out of 3,043 domestic equity funds for the 3-year
period ended June 30, 1999. The Bonnel Growth Fund has outperformed the Russell
2000 index since its inception in 1994. Also, the Company's U.S. Government
Securities Savings Fund maintained its ranking in the top ten for the
government-only money market fund category. The Company is also now seeing the
turnaround of markets in Asia and eastern Europe. The China Region Opportunity
Fund saw calendar year-to-date returns as of June 30, 1999, soar to 45 percent,
while the Regent Eastern European Fund saw returns of approximately 15 percent
for the same period.
The Company has also historically marketed and distributed its mutual fund
products directly to investors. To more aggressively market its mutual fund
products, the Company registered its broker/dealer subsidiary with the SEC and
the NASD during 1998. To further help the selling efforts of its investor
representatives, the Company has entered into a strategic alliance with an
experienced financial services firm to help expand the distribution of its
clients' funds through registered investment advisors and broker/dealers.
[GRAPHIC OMITTED]
Besides growing its business through marketing directly to investors and
focusing on financial intermediaries, the Company has recognized that one key to
developing new distribution channels is providing better and faster information
to its shareholders. To this end, the Company has redesigned its website with
new features to allow its shareholders to more effectively manage their
investments. Key activities now available to shareholders include on-line
account access, retirement planning worksheets, asset allocation models and
expanded information about mutual funds and retirement planning. In addition,
shareholders will soon be able to transfer funds between their accounts, make
purchases, download investment transactions, and perform certain on-line banking
features using the U.S. Treasury Securities Cash Fund. Due to its focus on this
distribution channel, the Company has seen the number of "site hits" increase
from approximately 130,000 per month in January 1999, to over 500,000 per month
as of August 1999.
The Company also recognizes that the 401(k) marketplace is another excellent
opportunity to expand the distribution of its funds. The Company formed U.S.
Global Administrators, Inc. (USGA) to provides qualified plan administration
services for the Company's wholly owned state chartered trust company, Security
Trust and Financial Company (STFC). STFC provides trustee and custodial services
for 401(k) plans, IRAs, and other retirement plans. The Company has enhanced its
technology in this area by upgrading the software to have state-of-the-art
technology to provide its 401(k) clients with superior service.
The Company is poised to benefit as a result of staying focused on its goals of
improving fund performance, building its non-gold asset base through multiple
distribution networks, while containing costs by streamlining its operations
through the introduction of new technology.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 24
RESULTS OF OPERATIONS
The worldwide deflationary pressures on various commodity prices, such as gold
and oil, negatively affected the Company's short-term earnings. Average
gold-related assets have decreased $94.4 million (36 percent) in fiscal year
1999 compared with 1998, thus reducing related management fees by approximately
$835,000. It is important to note that despite the negative impact of these
highly cyclical markets, the mutual funds managed by the Company experienced
overall net investor purchases during fiscal year 1999 of slightly over $3.0
million. While average non- gold related assets did increase by $43.8 million
during this same period, non-gold assets are a lower margin product; however,
the asset fluctuations are less volatile. The Company also recorded net losses
of approximately $743,000 relating to its equity share in the U.S. Global
Strategies Fund Limited (Guernsey Fund). As a result of the decline in
management fees and the net losses of the Guernsey Fund, the Company posted net
after-tax loss of $1.9 million ($0.28 per share) for fiscal year 1999. In
September 1999, the Company closed the Guernsey Fund.
The Company had negative earnings before interest, taxes, depreciation and
amortization (EBITDA) of approximately $660,000. This was the result of a number
of negative factors outside of management's control as noted above. Management
has responded by reducing certain operating expenses in order to generate
positive cash flows going
forward.
The table below summarizes the Company's operations including, for the periods
showed, the increase (or decrease) from the previous period, and key revenue and
expense items as percentages of total revenues.
<TABLE>
<CAPTION>
PERIOD-TO-PERIOD CHANGE
1999 1998 PERCENTAGE OF TOTAL REVENUES
----------------------------
COMPARED COMPARED YEAR ENDED JUNE 30,
1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Revenues:
Investment Advisory Fee -21.9% -13.6% 50.1 % 57.7% 47.7%
Transfer Agent Fee -3.7% -0.3% 35.5% 33.2% 23.8%
Accounting Fee -100.0% -45.3% 0.0% 4.0% 5.2%
Exchange Fee -28.5% -28.2% 1.4% 1.8% 1.8%
Custodial Fee 5.4% -16.8% 5.2% 4.4% 3.8%
Investment Income -184.0% -140.5% 3.9 % -4.2% 7.4%
Gains on Changes of
Interest in Affiliate -100.0% -263.5% -0.0% -0.2% 0.1%
Government Securities
Income -100.0% -97.2% 0.0% 0.3% 7.6%
Other 17.0% -16.2% 4.0% 3.1% 2.6%
-------- ------- -------- -------- --------
Total Revenues -10.0% -28.5% 100.0% 100.0% 100.0%
-------- ------- ------ ------ ------
Expenses:
Salaries, Wages & Benefits 11.1% -20.1% 56.8% 46.0% 41.2%
Marketing and Distribution -37.2% -35.6% 8.2 % 11.8% 13.1%
Other General and
Administrative -1.4% -13.0% 38.4% 35.0% 28.8%
Interest and Finance 3.6% -6.9% 1.4% 1.2% 0.9%
Depreciation and
Amortization 7.7% -5.0% 5.5% 4.6% 3.4%
Government Securities
Expenses 0.0% -100.0% 0.0% 0.0% 7.7%
---- ------- ----- ----- ----
Total Expenses 0.7% -25.9% 110.3% 98.6% 95.1%
----- ------ ------ ----- -----
</TABLE>
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 25
REVENUES
The Company's principal business is managing, creating and marketing mutual
funds. Its primary sources of revenue from operations are investment advisory
fees and transfer agency fees. The Company's investment management fee revenue
is based on a percentage of average net assets under management; the transfer
agency fee revenue is based on the number of shareholder accounts being
serviced. Therefore, fluctuations in financial markets and the market value of
funds influence revenues and results of operations.
Assets under management for USGIF for the fiscal years ended June 30, 1999,
1998, and 1997 have averaged $1.26 billion, $1.29 billion, and $1.33 billion,
respectively. Additionally, assets under management for the USGAF averaged $130
million, $146 million, and $119 million for those same fiscal years,
respectively.
[GRAPHIC OMITTED]
Because of decreases in the net assets of high-margin, gold-related funds,
fiscal year 1999 net investment advisory fee revenues decreased by approximately
22 percent over fiscal year 1998. Also for the same reason, fiscal year 1998
investment advisory fees decreased by approximately 14 percent over fiscal year
1997. Shareholder accounts serviced for fiscal years ended June 30, 1999, 1998,
and 1997, were 116,831, 117,363, and 120,900, respectively. Management believes
investors are shifting from direct investment in the funds to omnibus accounts
through mutual fund trading facilities offered by broker/dealers such as Charles
Schwab and Fidelity.
EXPENSES
Total consolidated expenses for fiscal year 1999 increased by approximately 0.7
percent over fiscal year 1998. This slight increase was the direct result of
lower than usual legal fees recorded in 1998. Specifically, the Company reversed
approximately $750,000 in accrued legal expenses in 1998 due to the successful
appeal of a lawsuit brought against the Company in 1994. Total consolidated
expenses for fiscal year 1998 decreased by approximately 26 percent over fiscal
year 1997. This decrease was the direct result of: 1) approximately $2.3 million
less in general and administrative expenses, and 2) approximately $1.1 million
less in interest expense relating to the purchase of the Notes. Final payment on
the Notes was made in fiscal year 1997.
Exclusive of the reversal of legal expenses in fiscal year 1998, the company's
expenses decreased approximately $684,000, or 6 percent, for fiscal year 1999.
In addition, exclusive of the expenses attributable to the purchase and
financing of the Notes and the reversal of the accrued legal fees, expenses of
the Company decreased approximately 13 percent in fiscal year 1998 over fiscal
year 1997. As shown on the table at page 26, salaries, wages and benefits are
the largest component of Company expenses. In fiscal year 1999, salaries, wages
and benefits increased by 11 percent over 1998, and in fiscal year 1998 this
expense item decreased by 20 percent from fiscal year 1997. The increase in 1999
relates primarily to the Company filling certain key positions in the investment
management and legal departments within the company.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 26
Marketing and distribution expenses represented approximately 8 percent, 12
percent, and 13 percent of total revenues during fiscal years 1999, 1998, and
1997, respectively. The Company has anticipated that fiscal year 2000 marketing
and distribution expenditures will approximate fiscal year 1999 levels.
The aggregate amount of fees voluntarily reimbursed totaled $3,052,054,
$3,484,595, and $3,250,786, in 1999, 1998, and 1997, respectively, a decrease of
12 percent compared with fiscal year 1998. In this regard, the Company has
agreed to waive part of its fee revenues and/or pay for certain mutual funds
expenses to enhance the funds' competitive market position. 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 INCOME
The Company posted net after-tax loss of $1.9 million ($0.28 per share) for
fiscal year 1999, $0.15 million net after-tax loss ($0.02 per share) for fiscal
year 1998, and $0.28 million in earnings ($0.04 per share) for fiscal year 1997.
These results are due to fluctuations in 1) assets under management, 2) net
equity loss in the Guernsey Fund, and 3) gains or losses recorded from
investment activities.
Total consolidated revenues for fiscal year 1999 decreased approximately 10
percent over fiscal year 1998, primarily due to a 22 percent decrease in net
investment advisory fees and the elimination of accounting fees. Total
consolidated revenues for fiscal year 1998 decreased approximately 29 percent
over fiscal year 1997, primarily due to a 141 percent decrease in investment
income and the elimination of interest income and accretion of certain U.S.
Government agency notes (Notes) recorded by the Company.
Total consolidated expenses for fiscal year 1999 increased by less than 1.0
percent over fiscal year 1998. This slight increase was the direct result of
lower than usual legal fees recorded in 1998. Specifically, the Company reversed
approximately $750,000 in legal expenses in 1998 due to the successful appeal of
a lawsuit brought against the Company in 1994. Exclusive of the reversal of
legal expenses in fiscal year 1998, the company's consolidated expenses
decreased approximately $684,000, or 6 percent, for fiscal year 1999. Total
consolidated expenses for fiscal year 1998 decreased by approximately 26 percent
over fiscal year 1997. This decrease was the direct result of: 1) approximately
$2.3 million less in general and administrative expenses, and 2) approximately
$1.1 million less in interest expense relating to the purchase of certain Notes.
Final payment on the Notes was made in fiscal year 1997.
BUSINESS SEGMENTS
The Company operates principally in two business segments: providing mutual fund
investment management services to its clients, and utilizing a diversified
venture capital approach in trading for its own account in an effort to add
growth and value to its cash position. The Company conducts operations in two
principal geographic areas: the United States and Europe. Revenues by geographic
area include fees charged to customers, and revenues from venture capital
activities (See Note 16). The table below summarizes operating income and net
income by each segment for each of the previous three years:
YEAR ENDED JUNE 30,
-------------------------------------
1999 1998 1997
----------- --------- ---------
Investment management services ........ $(1,123,579) $ 730,125 $(238,652)
Venture capital ....................... 197,143 (569,173) 918,344
----------- --------- ---------
Income (loss) before income taxes
and equity interest ................. $ (926,436) $ 160,952 $ 679,692
Net income (loss) ..................... $(1,852,806) $(148,619) $ 284,149
As discussed above, the decrease in both 1999 and 1998 net income (loss) was due
primarily to decreases in investment advisory fees as a result of a decline in
the net assets of high-margin, gold-related funds. Fiscal year 1999 net
investment advisory fee revenues decreased by approximately 22 percent over
fiscal year 1998, as well as fiscal year 1998 investment advisory fees decreased
by approximately 14 percent over fiscal year 1997.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 27
INVESTMENT ACTIVITIES7
Investment income, which includes realized and unrealized gains and losses on
trading securities and dividend and interest income, was approximately 4
percent, -4 percent, and 7 percent, respectively, of the Company's revenue in
fiscal years 1999, 1998, and 1997. 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 1999, 1998, and 1997, the Company had realized gains (losses) of
approximately $238,000, ($349,000) and $934,000, respectively. The Company
expects such revenues will continue to fluctuate in the future; fluctuations in
the market value will affect the size of such amounts of the Company's
investments.
MARKET RISK DISCLOSURES
The Company's balance sheet includes assets whose fair value is subject to
market risks. As of June 30, 1999 and 1998, the Company held approximately $1.5
and $1.6 million, respectively, in investments other than USGIF money market
mutual fund shares.
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. The Company also uses other investment techniques such as
private placement arbitrage. This involves the contemporaneous purchase of a
quantity of an issuer's securities at a discount in a private placement and a
short sale of the same, or substantially the same, security in the public
market.
Due to the Company's investments in equity securities, equity price fluctuations
represent a market risk factor affecting the Company's consolidated financial
position. The carrying values of investments subject to equity price risks are
based on quoted market prices or management's estimate of fair value as of the
balance sheet date. Market prices fluctuate and the amount realized in the
subsequent sale of an investment may differ significantly from the reported
market value. Company compliance personnel review the Company's investment
activities and report to investment advisory clients.
The table below summarizes the Company's equity price risks as of June 30, 1999,
and shows the effects of a hypothetical 25 percent increase and a 25 percent
decrease in market prices. A comparison of quarter-end stock prices on the
individual stocks within the Company's equity portfolios over the three years
ending June 30, 1999, showed that the change from one quarter to the next was 25
percent or less approximately 90 percent of the time. 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.
ESTIMATED INCREASE
FAIR VALUE AFTER (DECREASE) IN
FAIR VALUE AT HYPOTHETICAL HYPOTHETICAL SHAREHOLDERS'
JUNE 30, 1999 PERCENTAGE CHANGE PRICE CHANGE EQUITY
------------- ----------------- ---------------- -------------
Trading
Securities .....$884,837 25% increase $1,106,046 $ 145,988
25% decrease $663,628 $(145,998)
Available-for-
sale ...........$370,840 25% increase $ 463,550 $ 61,189
25% decrease $ 278,130 $ (61,189)
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, 1999, the Company has net operating losses
(NOLs) of approximately $2.6 million, which will expire in fiscal 2007 and 2010,
charitable contribution carry-overs of approximately $385,000 expiring
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 28
between 1999 and 2001, and alternative minimum tax credits of $115,228 with
indefinite expirations. Certain changes in the Company's ownership may result in
a limitation on the amount of NOLs that could be utilized under Section 382 of
the Internal Revenue Code. If certain changes in the Company's ownership occur,
there could be an annual limitation on the amount of NOLs that could be
utilized.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax amount will not be realized. As such, management has
included a valuation allowance of approximately $921,000 at June 30, 1999,
providing for the utilization of NOLs, charitable contributions, and investment
tax credits against future taxable income.
SUBSEQUENT EVENTS
The Company's investment in the Guernsey Fund increased to approximately 64%,
and as a result recorded over $743,000 in equity losses during fiscal year 1999.
On August 11, 1999, the Directors of the Guernsey Fund agreed to close the fund
and redeem all outstanding shares. In accordance with the fund's Articles of
Association, the Company has suspended the determination of the net asset value
of the fund and is proceeding to liquidate the positions in the fund to redeem
shareholders. Management anticipates the liquidation to be completed during the
second quarter of fiscal year 2000.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
At year end, the Company had net working capital (current assets minus current
liabilities) of approximately $2.4 million and a current ratio of 3.1 to 1. With
approximately $1.0 million in cash and cash equivalents and more than $1.3
million in marketable securities the Company has adequate liquidity to meet its
current debt obligations. Total shareholders' equity was approximately $6.0
million, with cash, cash equivalents, and marketable securities comprising 27
percent of total assets. With the exception of operating expenses, the Company's
only material commitment is the mortgage on its corporate headquarters (a
long-term debt). The Company's cash flow is expected to be sufficient to cover
current expenses, including debt service.
The investment advisory contract and related contracts between the Company and
USGIF and USGAF were recently renewed and will expire on February 29, 2000, and
March 8, 2000, respectively. Management anticipates the trustees of both USGIF
and USGAF will renew the contracts.
The Company has a note payable to a bank which is secured by land, an office
building and related improvements. As of June 30, 1999, the balance on the note
was $1,169,367. The loan is currently amortizing over a twenty-year period with
payments of both principal and interest due monthly based on a fixed rate of
7.75 percent. The current monthly payment is $11,750, and matures July 2001.
Under this agreement, the Company must maintain certain financial covenants. Due
primarily to noncash charges as a result of its equity investment in the
Guernsey Fund, the Company is in violation of certain debt covenants; however,
the Company obtained a waiver of the covenants from the bank through June 30,
1999. The Company anticipates the bank will revise the present terms of the note
payable to restructure the debt covenants to maintain compliance in the future.
If the debt covenants are not revised, the Company believes it has the ability
to refinance the debt with another financial institution. Additionally, the
Company believes it has adequate cash, cash equivalents, and equity in the
underlying asset to retire the obligation if necessary.
Management believes current cash reserves, and financing obtained and/or
available, and cash flow from operations will be sufficient to meet foreseeable
cash needs or capital necessary for the above mentioned activities and allow the
Company to take advantage of investment opportunities whenever available.
CAPITAL STRUCTURE
The board of directors has approved a change in the capital structure which was
effected during the first quarter of fiscal year 2000. The transaction involved
the issuance of 1,000,000 shares of the Company's class C common (voting) stock
to Frank E. Holmes in exchange for services and the cancellation of existing
warrants to purchase 586,122 shares of class C common stock (held by Mr. Holmes
and F.E. Holmes Organization, Inc.) and the cancellation of an option to
purchase 400,000 shares of class C common stock (held by Mr. Holmes). The
1,000,000 shares issued by the Company will vest over a ten-year period
beginning July 1, 1998, and will be fully vested on June 30, 2008. These shares
are not publicly traded.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 29
YEAR 2000 DISCLOSURE
SUMMARY
The Company has been actively addressing the potential impact of the Year 2000
(Y2K) problems and has established a proactive approach to help ensure that the
Company's critical systems can operate before, during, and after the century
date rollover. The scope of the Company's Y2K project, including related costs,
is expected to total approximately $110,000. As the Company outsourced many
technology-based operations, there is a only a small base of proprietary code
that had to be analyzed and upgraded with respect to Y2K compliance. While the
Company has taken measures reasonably designed to prevent a negative impact
resulting from Y2K problems, there is no assurance that factors outside the
Company's control will not disrupt its operations.
STATE OF READINESS
The Company has taken steps to increase the awareness of its employees and
associated persons with respect to the Y2K problem and the current actions being
taken to address such problems. The Company has formed a Y2K team, which
includes senior management and experienced analysts and programmers, which meets
on a regular basis to carry out and monitor the Company's Y2K project.
As of June 30, 1999, the Company identified all of its mission-critical systems
and completed an inventory of all hardware, software, networks, and other
various processing platforms, and also customer and vendor interdependencies.
The Company completed an assessment of the systems inventoried to decide their
susceptibility to Y2K issues. This assessment included inquiries to service
providers, vendors, and manufacturers of all systems inventoried to determine
and document if such systems are Y2K compliant. The Company completed the
testing of its mission-critical systems and made the necessary upgrades to
ensure that all mission-critical systems and software are Y2K compliant.
BUDGET
As of June 30, 1999, the Company had incurred and expended approximately
$100,000 concerning its Y2K project. The Company estimates its total remaining
cost to approximate $12,000, which it will expend as incurred through the next
six months.
The Company's ability to complete its Y2K project by the dates projected and the
total costs incurred to accomplish those efforts are based on estimates that the
Company's management made in reliance on certain assumptions. The goal will be
to maximize the functionality and speed resolution of systems due to any Y2K
problems, with a minimal deployment of resources and minimal disruption in the
financial stability of the Company. Should the Company detect problems related
to mission critical systems, the Company may need to revise the budget
accordingly.
MASTER SCHEDULE
The Company has completed the inventory of its systems and assessed its
susceptibility to Y2K problems. The Company has completed the testing of its
mission-critical systems and has remediated any known defects.
CERTAIN RISKS AND CONTINGENCY PLAN
The Company designed the Company's contingency plan to mitigate the risks to
operations or its core business resulting from any failure to successfully
complete its Y2K project. The Company is dependent on third-party software and
vendor services. The Company believes that any risk from the Y2K transition will
result from its reliance on vendors to finish their own Y2K projects
successfully and on time. The Company does not ensure the compliance of such
vendors and suppliers. The Company has updated its contingency plan to include
alternatives that would be used in case of any business interruptions. The plan
is approximately 50 percent complete and will be tested and upgraded as needed
throughout the year.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 30
- --------------------------------------------------------------------------------
FORWARD-LOOKING INFORMATION
The Company has made forward-looking statements concerning the Company's
performance, financial condition, and operations in this quarterly report. The
Company from time to time may also make forward-looking statements in its public
filings and press releases. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and do not guarantee future
performance. Actual results could differ materially from those anticipated in
such forward-looking statements due to a number of factors, some of which are
beyond the Company's control, including (I) the volatile and competitive nature
of the investment management industry, (ii) changes in domestic and foreign
economic conditions, (iii) the effect of government regulation on the Company's
business, (iv) market, credit, and liquidity risks associated with the Company's
investment management activities, and (v) failure of the Company, its vendors,
or other third parties to achieve Y2K compliance. 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.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 31
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 the Annual Status Report -- that is, Management's discussion
and analysis of financial condition and results of operations, contained in this
Annual Report. The selected financial data as of June 30, 1995 through June 30,
1997 and the years then ended is derived from the Company's Consolidated
Financial Statements, which were audited by PricewaterhouseCoopers LLP,
independent accountants. The selected financial data as of June 30, 1998,
through June 30, 1999, and the year then ended is derived from the Company's
Consolidated Financial Statements, which were audited by Ernst & Young LLP,
independent accountants.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
SELECTED EARNINGS DATA 1999 1998 1997 1996 1995
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ................ $ 9,018,072 $ 10,039,602 $ 14,009,131 (2) $ 20,214,546 (2) $ 15,770,738
Expenses ................ 9,944,508 9,878,650 13,329,439 17,261,592 21,666,598
----------- ------------ ------------ ------------ -------------
Income (loss) before
minority interest,
equity interest, income
taxes and cumulative
effect of change in
accounting ............ (926,436) 160,952 679,692 (2) 2,952,954 (2) (5,895,860)
Income taxes ............ 183,329 (39,571) 331,976 1,013,517 (2,005,142)
Minority interest ....... -- -- -- (55,098) --
Equity in net loss
of joint venture ...... -- -- (196,535) -- --
Equity in income (loss)
of affiliate .......... (743,041) (349,142) 132,968 102,728 (2) --
Cumulative effect of
change in accounting .. -- -- -- -- 43,284
Net income (loss) ....... (1,852,806) (148,619) 284,149 1,987,067 (3,847,434)
Basic income (loss)
per share ............. (0.28) (0.02) 0.04 0.30 (0.64)
Working capital ......... 2,441,109 3,719,539 2,440,198 1,316,006 (106,863,206)
Total assets ............ 8,328,138 10,308,957 10,712,775 39,307,196 128,073,122
Long-term obligations ... 1,255,724 1,330,638 1,359,308 1,410,479 6,016,617
Shareholders' equity .... 5,912,238 7,941,859 7,966,407 8,544,072 8,661,223
- ------------------------------------
(1) Working capital includes amounts due to broker/dealers under reverse repurchase agreements related
to the Company's purchase of certain U.S. Government securities but does not include the
securities collateralizing the obligations. (See Note 6 to the Consolidated Financial Statements,
Item 8 of this Form 10-K.)
(2) Amounts included in revenues for fiscal years 1997 and 1996 include gains on changes of interest
in affiliate of $10,490 and $555,905, respectively. The gains (losses) for fiscal years 1999 and
1998 of $97,744 and ($17,146), respectively, are included in equity in income (loss) of affiliate.
</TABLE>
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 32
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of U. S. Global Investors, Inc.
We have audited the accompanying consolidated balance sheets of U.S. Global
Investors, Inc. and Subsidiaries (Company) as of June 30, 1999 and 1998, and the
related consolidated statements of operations and comprehensive loss,
shareholders' equity, and cash flows for the two year period ended June 30,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the financial statements of U.S.
Global Investors (Guernsey) Limited, a wholly owned subsidiary, which statements
reflect total assets of $1,213,339 as of June 30, 1998, and net loss of $432,453
for the year ended June 30, 1998. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for U.S. Global Investors (Guernsey) Limited, is based
solely on the report of the other auditors. The June 30, 1998 financial
statements of U.S. Global Strategies Fund Limited, in which the Company has a
23% interest, have been audited by other auditors whose report has been
furnished to us; insofar as our opinion on the consolidated financial statements
relates to data included for U.S. Global Strategies Fund Limited, it is based
solely on their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of U.S. Global Investors,
Inc. and Subsidiaries at June 30, 1999 and 1998, and the consolidated results of
their operations and their cash flows for the years ended June 30, 1999 and
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
San Antonio, Texas
September 28, 1999
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of U.S. Global Investors, Inc.
In our opinion, the consolidated statements of operations and comprehensive
loss, of shareholders' equity and of cash flows for the period ended June 30,
1997, (appearing on pages 38 through 41 of the U.S. Global Investors, Inc. 1999
Annual Report to Shareholders, which has been incorporated by reference in this
Form 10-K Annual Report) present fairly, in all material respects, the results
of operations and cash flows of U.S. Global Investors, Inc. and its subsidiaries
for the period ended June 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of U.S. Global Investors, Inc. for any period
subsequent to June 30, 1997.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Antonio, Texas
September 29, 1997
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 34
AUDITORS' REPORT TO THE MEMBERS OF U.S. GLOBAL INVESTORS (GUERNSEY) LIMITED
We have audited the financial statements on page 4 to 10 of U.S. Global
Investors (Guernsey) Limited.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 2 the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion
to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board in the United Kingdom. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation of the
financial statements, and of whether the accounting polices are appropriate to
the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatements, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 30th of June, 1998 and of its profit for the year
then ended and have been properly prepared in accordance with the Companies
(Guernsey) Law, 1994.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers,
Chartered Accountants,
P.O. Box 321,
National Westminster House,
Le Truchot,
St Peter Port,
Guernsey, GY1 4ND
Channel Islands.
Date: 28th September, 1998
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 35
AUDITORS' REPORT TO THE SHAREHOLDERS OF U.S. GLOBAL STRATEGIES FUND LIMITED
We have audited the financial statements on pages 20 to 30 of U.S. Global
Strategies Fund Limited.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 3 the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion
to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board in the United Kingdom. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation of the
financial statements, and of whether the accounting policies are appropriate to
the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatements, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 30th June, 1998 and of its net revenue for the
year then ended and have been properly prepared in accordance with The
Protection of Investors (Bailiwick of Guernsey) Law, 1987 and The Companies
(Guernsey) Law, 1994.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers,
Chartered Accountants,
P.O. Box 321,
National Westminister House,
Le Truchot,
St Peter Port,
Guernsey, GY1 4ND
Channel Islands
Date: 28th September, 1998
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 36
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30,
----------------------------
1999 1998
----------- -----------
CURRENT ASSETS
Cash and cash equivalents ................ $ 1,025,247 $ 1,391,867
Trading securities, at fair value ........ 884,837 901,647
Receivables:
Mutual funds .......................... 794,562 788,019
Custodial fees ........................ 203,823 189,715
Employees ............................. 50,464 83,725
Receivable from brokers ............... 19,628 16,690
Residual equity interest .............. -- 675,613
Other ................................. 96,667 106,696
Prepaid expenses ......................... 384,506 466,733
Deferred tax asset ....................... 141,551 135,294
----------- -----------
TOTAL CURRENT ASSETS ................ 3,601,285 4,755,999
----------- -----------
NET PROPERTY AND EQUIPMENT ................... 2,426,592 2,596,091
----------- -----------
OTHER ASSETS
Restricted investments ................... 255,000 271,166
Long-term receivables .................... -- 218,212
Long-term deferred tax asset ............. 878,091 1,068,092
Investment securities
available-for-sale,
at fair value .......................... 370,840 472,240
Equity investment in affiliate ........... 749,739 866,288
Other .................................... 46,591 60,869
----------- -----------
TOTAL OTHER ASSETS ................ 2,300,261 2,956,867
----------- -----------
$ 8,328,138 $10,308,957
=========== ===========
The accompanying notes are an integral part of this statement.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 37
Consolidated Balance Sheets (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE 30,
----------------------------
1999 1998
------------ -------------
CURRENT LIABILITIES
Accounts payable ......................... $ 346,504 $ 275 963
Accrued compensation and
related costs .......................... 274,667 226,324
Current portion of notes payable ......... 68,988 63,525
Current portion of annuity
and contractual obligation ............. 18,000 18,000
Accrued legal fees ....................... 27,840 33,855
Other accrued expenses ................... 424,177 418,793
------------ -------------
TOTAL CURRENT LIABILITIES ................ 1,160,176 1,036,460
----------- ------------
NON-CURRENT LIABILITIES
Notes payable - net of
current portion ........................ 1,126,066 1,193,599
Annuity and contractual
obligations ............................ 129,658 137,039
------------ ----------
TOTAL NON-CURRENT LIABILITIES ............ 1,255,724 1,330,638
----------- ------------
TOTAL LIABILITIES ........................ 2,415,900 2,367,098
------------ ------------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Common stock (class A) --
$0.05 par value; non-voting;
authorized, 7,000,000 shares;
6,299,474 and 6,299,444 issued
and outstanding in 1999 and 1998,
respectively. .......................... 314,974 314,972
Common stock (class C) (formerly
class A)-- $.05 par value;
authorized 1,750,000 shares;
496,800 and 496,830 issued and
outstanding in 1999 and 1998,
respectively ........................... 24,840 24,842
Additional paid-in-capital ............... 10,586,628 10,591,708
Treasury stock, class A shares at cost;
288,029 and 183,236 shares held in 1999
and 1998, respectively ................. (648,830) (476,289)
Accumulated other comprehensive loss ..... (74,938) (75,744)
Retained deficit ......................... (4,290,436) (2,437,630)
------------- ------------
TOTAL SHAREHOLDERS' EQUITY ............... 5,912,238 7,941,859
------------- -------------
$ 8,328,138 $10,308,957
============ ===========
The accompanying notes are an integral part of this statement.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 38
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEAR ENDED JUNE 30,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
REVENUE
Investment advisory
fee ...................... $ 4,513,844 $ 5,778,042 $ 6,686,769
Transfer agent fee ......... 3,201,675 3,325,513 3,336,376
Accounting fee ............. -- 399,996 730,625
Exchange fee ............... 127,305 178,115 248,112
Custodial fees ............. 464,666 440,884 530,030
Investment income (loss) ... 352,205 (419,096) 1,033,982
Mailroom operations ........ 293,043 306,304 282,267
Government security
income ................... -- -- 1,067,050
Gains on changes of
interest in affiliate -- -- 10,490
Other ...................... 65,334 29,844 83,430
------------ ------------ ------------
9,018,072 10,039,602 14,009,131
------------ ------------ ------------
EXPENSES
General and
administrative ........... 9,324,979 9,298,734 11,636,195
Depreciation and
amortization ............. 492,581 457,386 481,510
Interest expense-note
payable and other ........ 126,948 122,530 131,633
Interest expense-
securities sold under
agreement to
repurchase ............... -- -- 1,007,099
Interest expense-
subordinated
debenture to a
related party ............ -- -- 73,002
------------ ------------ ------------
9,944,508 9,878,650 13,329,439
------------ ------------ ------------
(LOSS) INCOME BEFORE
MINORITY INTEREST,
EQUITY INTEREST AND
INCOME TAXES ................. (926,436) 160,952 679,692
------------ ------------ ------------
Equity in Net Loss of Joint
Venture ...................... -- -- (196,535)
Equity In Net (Loss) Income
of Affiliate ................. (743,041) (349,142) 132,968
------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME
TAXES ........................ (1,669,477) (188,190) 616,125
PROVISION (BENEFIT) FOR FEDERAL
INCOME TAXES
Deferred ................... 183,329 (39,571) 331,976
------------ ------------ ------------
183,329 (39,571) 331,976
------------ ------------ ------------
NET (LOSS) INCOME .............. (1,852,806) (148,619) 284,149
Other comprehensive income
(loss), net of tax:
Unrealized gains (losses)
on available-for-sale
securities .............. 806 81,441 (878,946)
------------ ------------ ------------
COMPREHENSIVE LOSS ............. $ (1,852,000) $ (67,178) $ (594,797)
============ ============ ============
BASIC AND DILUTED (LOSS) INCOME
PER SHARE: ................... $ (0.28) $ (0.02) $ 0.04
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
OUTSTANDING SHARES:
Basic ...................... 6,562,140 6,617,153 6,606,211
Diluted .................... 6,563,844 6,669,363 6,664,324
The accompanying notes are an integral part of this statement.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 39
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON COMMON ADDITIONAL COMPREHENSIVE
STOCK STOCK PAID-IN EARNINGS TREASURY INCOME
(CLASS A) (CLASS C) CAPITAL (DEFICIT) STOCK (LOSS) TOTAL
-------- ------- ----------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996
[6,219,422 shares of
Preferred stock; 564,352
shares of Common stock
(Class A)] .............................$310,971 $28,218 $10,586,666 ($2,573,160) ($530,384) $ 721,761 $8,544,072
Purchase of 141,250 shares
of Common Stock Class A) ................ -- -- -- -- (337,282) -- (337,282)
Reissuance of 154,148
shares of Common Stock
(Class A) ............................... -- -- (6,732) -- 352,896 -- 346,164
Exercise of 5,500 Stock
Options ................................. 275 -- 7,975 -- -- -- 8,250
Conversion of 2,152
shares of Common stock
(Class C) to Common
Stock (Class A) ......................... 108 (108) -- -- -- -- 0
Unrealized gain (loss)
on securities
available-for-sale
(net of tax) ........................ -- -- -- -- -- (749,692) (749,692)
Equity in unrealized gain
(loss) on available-for
- -sale securities of affiliated
company (net of tax) ................ -- -- -- -- -- (129,254) (129,254)
Net Earnings ........................ -- -- -- 284,149 -- -- 284,149
-------- ------- ----------- ----------- --------- -------- ----------
Balance at June 30, 1997
[6,277,074 shares of
Class A (formerly preferred
stock); 562,200
shares of Class C (formerly
Class A)] ........................... $311,354 $28,110 $10,587,909 ($2,289,011) ($514,770) ($157,185) $7,966,407
Purchase of 29,525 shares
of Common Stock (Class A) ........... -- -- -- -- (67,856) -- (67,856)
Reissuance of 32,972 shares
of Common Stock (Class A) ........... -- -- (8,271) -- 106,337 -- 98,066
Exercise of 7,000 Stock Options ..... 350 -- 12,070 -- -- -- 12,420
Conversion of 63,370 shares
of Common stock (Class C)
to Common Stock (Class A) ........... 3,269 (3,269) -- -- -- -- 0
Unrealized gain (loss) on
securities available-for
- -sale (net of tax) .................. -- -- -- -- -- 152,544 152,544
Equity in Unrealized gain
(loss) on available-for-sale
securities of affiliated
company (net of tax) ................ -- -- -- -- -- (71,103) (71,103)
Net Earnings ........................ -- -- -- (148,619) -- -- (148,619)
-------- ------- ----------- ----------- --------- -------- ----------
Balance at June 30, 1998
[6,299,444 shares of
Class A (formerly preferred
stock); 496,830 shares of
Class C (formerly Class A)] ......... $314,972 $24,842 $10,591,708 ($2,437,630) ($476,289) ($75,744) $7,941,859
Purchase of 133,685 shares
of Common Stock (Class A) ........... -- -- -- -- (230,113) -- (230,113)
Reissuance of 28,892 shares
of Common Stock (Class A) ........... -- -- (5,080) -- 57,572 -- 52,492
Conversion of 30 shares of
Common stock (Class C) to
Common Stock (Class A) .............. 2 (2) -- -- -- -- 0
Unrealized gain (loss) on
securities available-for-sale
(net of tax) ........................ -- -- -- -- -- 806 806
Net Earnings ........................ -- -- -- (1,852,806) -- (1,852,806)
-------- ------- ----------- ----------- --------- -------- ----------
Balance at June 30, 1999
[6,299,474 shares of
Class A (formerly preferred
stock); 496,800 shares of
Class C (formerly Class A)] ......... $314,974 $24,840 $10,586,628 ($4,290,436) ($648,830) ($74,938) $5,912,238
======== ======= =========== =========== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 40
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED JUNE 30,
------------------------------------------
1999 1998 1997
----------- ----------- ------------
CASH FLOW FROM OPERATING
ACTIVITIES:
Net (loss) income ............ $(1,852,806) $ (148,619) $ 284,149
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization ........... 492,581 457,386 481,510
Government security
accretion .............. -- -- (306,926)
Net (gain) loss on sales
of securities .......... (238,394) 348,579 (934,123)
Gain on disposal of
equipment .............. (75) (1,266) (64)
(Gain) loss on changes
of interest in
affiliate ............. (97,744) 17,146 (10,490)
Provision for deferred
taxes ................. 183,329 (39,571) 331,976
Changes in assets and
liabilities, impacting
cash from operations:
Restricted investments ... 16,166 371,362 (148)
Accounts receivable ...... 913,527 172,223 364,558
Prepaid expenses and
other .................. 938,405 579,710 (134,789)
Trading securities ....... 377,260 (41,271) 2,034,637
Accounts payable ......... 70,541 (91,200) 91,047
Accrued expenses ......... 47,712 (269,364) (96,276)
----------- ----------- ------------
Total adjustments ........ 2,703,308 1,503,734 1,820,912
----------- ----------- ------------
NET CASH PROVIDED BY OPERATIONS ... 850,502 1,355,115 2,105,061
----------- ----------- ------------
CASH FLOW FROM INVESTING
ACTIVITIES:
Purchase of furniture and
equipment .................. (323,069) (469,633) (392,436)
Proceeds on sale of
equipment .................. 75 1,240 800
Purchase of available-for-
sale securities ............ (97,056) (383,630) (399,472)
Investment in equity
affiliate .................. (550,000) -- --
Proceeds on sale of
available-for-sale
securities ................. -- 212,830 --
Proceeds on sale of
government securities
held-to-maturity ........... -- -- 26,725,000
----------- ----------- ------------
NET CASH (USED IN) PROVIDED
BY INVESTING ACTIVITIES ......... (970,050) (693,193) 25,933,892
----------- ----------- ------------
CASH FLOW FROM FINANCING
ACTIVITIES:
Payments on annuity .......... (7,381) (6,883) (6,420)
Payments on note payable
to bank .................... (62,070) (50,762) (41,547)
Proceeds from capital lease .. -- -- 25,330
Principal payments on
capital lease obligation ... -- (8,661) (40,070)
Net proceeds from securities
sold under agreement
to repurchase .............. -- -- 420,844
Payments on subordinated
debenture to related party . -- -- (1,533,131)
Net payments on securities
sold under agreement
to repurchase .............. -- -- (26,825,219)
Proceeds from issuance or
exercise of preferred stock,
warrants, and options ...... -- 12,420 8,250
Treasury Stock reissued ...... 52,492 75,565 346,163
Purchase of Treasury Stock ... (230,113) (67,856) (337,282)
----------- ----------- ------------
NET CASH USED IN FINANCING
ACTIVITIES ...................... (247,072) (46,176) (27,983,082)
----------- ----------- ------------
The accompanying notes are an integral part of this statement.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 41
Consolidated Statements of Cash Flow (Continued)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
---------------- -------------------------------
<S> <C> <C> <C>
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS (366,620) 669,746 55,871
BEGINNING CASH AND CASH
EQUIVALENTS 1,391,867 722,121 666,250
----------- ------------ -------------
ENDING CASH AND CASH
EQUIVALENTS $1,025,247 $1,391,867 $ 722,121
========== ========== ============
SCHEDULE OF NON-CASH
INVESTING AND
FINANCING ACTIVITIES:
Purchase of equipment
under capital lease $ -- $ -- $ 25,330
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Cash paid for interest $ 126,948 $ 122,530 $1,283,891
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 42
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 which 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.
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), manages the portfolio of an offshore fund, U.S. Global
Strategies Fund Limited (Guernsey Fund) (See Note 18).
U.S. Global has also formed a company, U.S. Global Brokerage, Inc. (USGB),
formerly United Services Brokerage, Inc., originally incorporated in Texas on
April 24, 1994. USGB was registered as a broker/dealer with the National
Association of Securities Dealers, Inc. and the appropriate state regulatory
agencies so that it may provide distribution services for USGIF and USGAF mutual
fund shares. The Company has also formed U.S. Global Administrators, Inc.
(USGA), incorporated in Texas on October 23, 1998, to provide qualified plan
administration services for existing clients. Through its wholly owned
subsidiary, Security Trust & Financial Company (STFC), it also serves as
custodian for retirement accounts invested in USGIF, USGAF, and other mutual
funds.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, United Shareholder
Services, Inc. (USSI), STFC, A&B Mailers, Inc. (A&B), USGG, USGB, and USGA.
Although the Company held a 64 percent and 23 percent interest in the Guernsey
Fund at June 30, 1999, and 1998, respectively, due to the Guernsey Fund being
liquidated during fiscal year 2000, the Company believes its' investment to be
temporary. As such it has continued to account for its investment using the
equity method of accounting, The fair value of the Company's investment at June
30, 1999, and 1998, was $749,739 and $866,288, respectively.
The Guernsey Fund issued 18,188 net additional shares for cash amounting to
$5,616,825 to investors other than the Company during fiscal 1997. The Company
accounts for changes in interest of its investment in the Guernsey Fund by
charging or crediting income for the effects of such transactions when
consummated. The Company recorded $10,490 in gains on such transactions during
fiscal 1997, which is included as a separate line in the accompanying income
statement. Deferred income taxes have been provided on these gains.
All significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts have been reclassified for comparative purposes.
CASH AND CASH EQUIVALENTS. Cash consists of cash on hand and cash equivalents
with original maturities of three months or less. Cash and cash equivalents at
June 30, 1999, and at June 30, 1998 include $892,778 and $1,280,321,
respectively, in USGIF money market mutual funds (see Note 18). This investment
is valued at amortized cost which approximates market. Restricted cash of
$255,000 and $270,000, at June 30, 1999, and 1998, respectively, is included in
restricted investments (see Notes 9).
FIXED ASSETS. Fixed assets are recorded at cost. Depreciation for owned fixed
assets and capital leases 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; capitalized leased phone equipment
is depreciated over 5 years; and the
building is depreciated over 31.5 years.
REVENUE RECOGNITION. Investment advisory fees, transfer agency fees, accounting
fees, custodian fees and all other fees earned by the Company are recorded as
income during the period in which services are performed.
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 asset be reduced
by a valuation allowance in cases where it is more likely than not that the
deferred tax assets will not be realized.
EARNINGS PER SHARE. Basic and diluted earnings per share are based on the
weighted average number of shares of class A, class B, and class C common stock
outstanding during the year. All classes of common are considered equivalent
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 43
in the calculation of earnings per share since each share has essentially
equivalent interests in the income of the Company. Warrants and options are
included to the extent they are dilutive.
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) (see Note 2).
Under SFAS 115, the Company classifies its investments in equity and debt
securities into three categories. Management determines the appropriate
classification of securities at the time of purchase and reevaluates such
designation as of each reporting period date.
Securities that are purchased and held principally for the purpose of selling
them in the near term are classified as trading securities and reported at fair
value. Unrealized gains and losses on these securities are included in
earnings.
Investments not classified as trading securities nor as held-to-maturity
securities are classified as available-for-sale securities and reported at fair
value. Unrealized gains and losses on these securities are excluded from
earnings and reported, net of tax, as a separate component of shareholders'
equity and are recorded in earnings on trade date. Realized gains (losses) from
security transactions are calculated on the first-in/first-out cost basis and
are recorded in earnings on trade date. For those securities with declines in
fair value which are considered other than temporary, the cost basis of the
security is written down as a new cost basis, and the amount of the write down
is included in earnings.
ADVERTISING. The Company expenses advertising and sales promotion costs as they
are incurred. Total advertising and sales promotion expenditures were
approximately $741,000, $820,000, and $1,523,000 in 1999, 1998, and 1997,
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. 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 require the Company to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from these estimates.
ACCOUNTING PRONOUNCEMENTS. In July 1998, the Company adopted FASB Statement No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards
for reporting and display of comprehensive income and its components; however,
the statement had no impact on the Company's net income or shareholders' equity.
This statement requires unrealized gains and losses on the Company's
available-for-sale securities, which previously were recorded as a separate
component of shareholders' equity, be included in other accumulated
comprehensive income or loss. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS 131). SFAS 131 establishes
standards for reporting information in the annual financial statements about a
public entity's operating segments and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. SFAS 131 also establishes standards for related
disclosures regarding products and services, geographic areas, and major
customers. The Company adopted SFAS 131 during fiscal year 1999 and has included
the necessary disclosures. These disclosure requirements did not impact the
Company's financial position or operating results.
In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS 132). SFAS 132
standardized the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, and requires additional information on
changes in the benefit obligations and fair values of plan assets that will
facilitate financial analysis. As the Company does not offer pension
or other postretirement benefits, this Statement did not impact the Company.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 44
NOTE 2. INVESTMENTS
The cost and market value of investments classified as trading are as follows:
DATE COST MARKET VALUE
------------- ---------- ------------
June 30, 1999 $1,197,233 $884,837
June 30, 1998 $1,173,011 $901,647
June 30, 1997 $ 772,630 $721,954
The net change in the unrealized holding losses on trading securities held at
June 30, 1999, that has been included in earnings for the period was $41,251,
$220,468, and $15,778, for the period ended June 30, 1999, 1998, and 1997,
respectively.
The cost of investments in securities, which are classified as
available-for-sale, which may not be readily marketable at June 30, 1999, was
$484,382. These investments are reflected as non-current assets on the June 30,
1999 consolidated balance sheet at their fair value at June 30, 1999 of $370,840
with $74,938, net of tax, in unrealized losses being recorded as a component of
shareholders' equity. These investments are in private placements which are
restricted for sale as of June 30, 1999. It is anticipated the securities
obtained in these private placements will become free trading within one year.
During fiscal year 1999, the Company recorded realized gains of $238,394 and
recorded unrealized gains of $344,394 on securities which were transferred from
the available-for-sale category to the trading category upon becoming free
trading.
The cost of investments in securities, which were classified as
available-for-sale, which were not readily marketable at June 30, 1998, was
$509,382. These investments were reflected as non-current assets on the June 30,
1998 consolidated balance sheet. These investments were in private placements
which were restricted for sale as of June 30, 1998. The fair value of the
investments classified as non-current available-for-sale securities at June 30,
1998, was $472,240 with $24,514, net of tax, in unrealized losses recorded as a
component of shareholders' equity. During fiscal year 1998, the Company recorded
in income realized losses of $349,579 and recorded unrealized gains of
approximately $103,205 on securities which were transferred from the
available-for-sale category to the trading category upon becoming free trading.
The Company reduced the carrying value of investments held as available-for-
sale by approximately $350,000 for certain investments with declines in fair
value which were considered other than temporary.
During fiscal year 1997, the Company recorded in income realized gains of
$218,860 and unrealized gains of approximately $100,000 on securities which were
transferred from the available-for-sale category to the trading category upon
becoming free trading.
NOTE 3. INVESTMENT MANAGEMENT, TRANSFER AGENT AND OTHER FEES
The Company serves as investment adviser to USGIF, USGAF and the Guernsey Fund
and receives a fee based on a specified percentage of net assets under
management. The Company also serves as transfer agent to USGIF and USGAF and
receives a fee based on the number of shareholder accounts. The Company also
provides in-house legal services to USGIF and USGAF. During the second quarter
of fiscal year 1998, the Company outsourced the bookkeeping and accounting
functions performed by USSI. The Company also receives exchange, maintenance,
closing and small account fees directly from USGIF and USGAF shareholders. Fees
for providing services to USGIF and USGAF continue to be the Company's primary
revenue source.
The Company receives additional revenue from several sources including: STFC
custodian and administrative fee revenues, gains on marketable securities
transactions, revenues from miscellaneous transfer agency activities including
lockbox functions as well as mailroom operations (A&B).
The Company has voluntarily waived or lowered its advisory fees and is bearing
expenses on several funds within USGIF and USGAF through June 30, 2000, or such
later date as the Company determines. The aggregate amount of fees voluntarily
reimbursed totaled $3,052,054, $3,484,595, and $3,250,786, in 1999, 1998, and
1997, respectively.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 45
The following funds accounted for more than 10 percent of revenue [excluding
government security income (Note 6)] in the years indicated:
YEAR ENDED JUNE 30,
------------------
1999 1998 1997
---- ---- ----
Gold Shares Fund 12% 15% 17%
World Gold Fund 18% 22% 24%
U.S. Treasury Securities Cash Fund 13% 13% 9%
Bonnel Growth Fund 13% 13% 9%
The investment advisory contract and related contracts between the Company and
USGIF expire in February 2000, and the contracts between the Company and USGAF
expire in March 2000. 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,
--------------------------
1999 1998
----------- -----------
Building improvements $ 186,549 $ 184,549
Capitalized leased equipment 519,768 519,768
Furniture and equipment 5,350,812 5,034,174
Building and land 2,203,757 2,203,757
----------- -----------
8,260,886 7,942,248
Accumulated depreciation and amortization (5,834,294) (5,346,157)
----------- -----------
Net property and equipment $ 2,426,592 $ 2,596,091
=========== ===========
At June 30, 1999 and 1998, capitalized leased equipment was fully amortized.
Amortization expense for capitalized leased equipment was $8,808, for the fiscal
year ended June 30, 1997. There are no minimum lease payments required by
obligations under capital leases for fiscal year 2000. The building and land is
pledged as collateral for the financing used to acquire the building.
NOTE 5. RESIDUAL EQUITY INTEREST
In June 1992 the Company made its final payment to the Settlement Pool
established under the June 1988 Settlement Agreement relating to the original
Prospector Fund (now operating as the Global Resources Fund); and the Settlement
Pool made the final payout to "Eligible Shareholders" thereof in June 1992.
Under the 1988 Settlement Agreement, any amounts payable to "Eligible
Shareholders" who could not be located, together with interest thereon, would be
held for six years after the final payout against the claims of those
shareholders. At the end of six years, such amounts would be made available to
all persons claiming subrogation. The Company had first right of subrogation to
the amounts. Accordingly, the Company increased the residual equity interest to
$675,613, and recorded it as a current receivable at June 30, 1998, thus
positively affecting earnings by reducing general and administrative expenses by
approximately $457,000 for fiscal year 1998. The amount of cash subsequently
received in July 1998 equaled the current receivable recorded at June 30, 1998.
NOTE 6. GOVERNMENT SECURITIES
The U.S. Government Securities Savings Fund ("USG"), a USGIF fund, from its
inception had invested in, among other types of Government securities, certain
Government agency notes whose interest rates reset monthly based on a
cost-of-funds index ("Notes"). This reset feature lags changes in short-term
interest rates. During fiscal year 1995, the market value of the Notes was
adversely affected. To reduce USG's exposure to said Notes and in order to
maintain a $1.00 per share net asset value, U.S. Global arranged, in the first
quarter of fiscal year 1995, for USG to sell $40 million par amount of Notes at
USG's amortized cost of approximately $39,777,000 plus accrued interest to
Marleau, Lemire Inc.("ML"). Thereafter in fiscal year 1995, U.S. Global
purchased directly from the fund $90,525,000 par amount of Notes at USG's
amortized cost of approximately $90,337,000 plus accrued interest. Additionally,
in connection with such decision, U.S. Global purchased the Notes from ML for
approximately $39,777,000 plus accrued interest during the first quarter of
fiscal year 1995. U.S. Global financed the original acquisition of the Notes,
including purchased accrued interest, as follows: 1) approximately $120.9
million was provided by third party broker/dealers under reverse repurchase
agreements; 2) U.S. Global issued a $6.0 million 8 percent subordinated
debenture to ML; and 3) U.S. Global utilized approximately $3,563,000 of its own
cash.
The Notes were classified as available-for-sale securities during fiscal year
1997 and recorded at fair value with any unrealized gain or loss excluded from
earnings and reported, net of tax, as a separate component of shareholders'
equity. In addition to periodic receipts of interest income, U.S. Global
recognized $306,926 in non-cash income during the fiscal year 1997 related to
the amortization of the difference between fair value at the time of purchase
and the par amount of the securities.
The Company sold the Notes with a par value of $103,800,000 during the fiscal
years 1996 and 1995 for a net realized gain of $1,130,414. The remaining Notes
acquired by U.S. Global matured during fiscal year 1997 at their aggregate
$26,725,000 par amount and the Company made the final payments on the reverse
repurchase agreements and the subordinated debenture.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 46
NOTE 7. INVESTMENT IN JOINT VENTURE
During the fiscal year 1995, U.S. Global and ML, a Canadian brokerage firm,
entered into a joint venture agreement whereby U.S. Global and ML agreed to
undertake to offer mutual funds in Canada. The joint venture became operational
during August 1996, and the Company, utilizing the equity method of accounting,
recorded a net loss of $196,535 during fiscal year 1997. In June 1997, the
Company sold its remaining interest in the joint venture for approximately
$134,000 to the joint venture management group which resulted in a net charge to
income of approximately $100,000.
NOTE 8. NOTE PAYABLE AND LINE OF CREDIT
The Company has a note payable to a bank which is secured by land, an office
building and related improvements. As of June 30, 1999, the balance on the note
was $1,169,367. The loan is currently amortizing over a twenty-year period with
payments of both principal and interest due monthly based on a fixed rate of
7.75 percent. The current monthly payment is $11,750, and matures July 2001.
Under this agreement, the Company must maintain certain financial covenants. Due
primarily to noncash charges as a result of its equity investment in the
Guernsey Fund, the Company is in violation of certain debt covenants; however,
the Company obtained a waiver of the covenants from the bank through June 30,
1999. The Company anticipates the bank will revise the present terms of the note
payable to restructure the debt covenants to maintain compliance in the future.
If the debt covenants are not revised, the Company believes it has the ability
to refinance the debt with another financial institution. Additionally, the
Company believes it 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 notes
payable outstanding at June 30, 1999, are as follows:
FISCAL YEAR AMOUNT
----------- -----------
2000 $ 68,988
2001 1,126,066
Thereafter 0
Total $1,195,054
During the current fiscal year, the Company did not renew a $1 million line of
credit (LOC) as the Company has had adequate working capital to meet operating
needs.
NOTE 9. ANNUITY AND CONTRACTUAL OBLIGATIONS
On February 6, 1989, the Company entered into an agreement with Clark Aylsworth
(Aylsworth) related to his retirement on December 31, 1988. This agreement
provided for the payment to Aylsworth of a monthly annuity of $1,500 for the
remainder of his life or his wife's life, if he predeceases her. The Company has
recorded an obligation
related to this agreement.
On December 30, 1990, the Company entered into a non-compete/non-interference
agreement, an executory contract, pursuant to which it pays the Aylsworths
$4,500 monthly, such amount to continue for the longer of Aylsworth's or his
wife's life. The Company determined that the executory contract should be
expensed as payments are made. The Company placed cash in escrow to cover the
Company's obligation to the Aylsworths if the Company defaults. The escrowed
amount decreases $15,000 annually and amounted to $255,000 at June 30, 1999.
NOTE 10. BENEFIT PLANS
The Company has a contributory profit-sharing plan in which all qualified
employees who have completed one year of employment as of June 30 with the
Company are included. The amount of the annual contribution, which may not
exceed 15 percent of earnings before income taxes, is approved by the Company's
board of directors. At June 30, 1999, and June 30, 1998, the Company has not
accrued a contribution for the fiscal years 1999 and 1998. The Company has
recorded expense related to the profit sharing plan of $90,512 for fiscal year
1997.
The Company also has a savings and investment plan qualified under Section
401(k) of the Internal Revenue Code. The Company makes contributions on behalf
of eligible employees to fund this plan. In connection with this 401(k) Plan,
participants can voluntarily contribute up to 15 percent of their compensation
to this plan, and the Company will match 50 percent of their contribution up to
4 percent. At June 30, 1999, and June 30, 1998, the Company has accrued
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 47
$44,723 and $38,123, respectively, for this matching contribution. The Company
has recorded expense related to the 401(k) plan of $38,674; $45,143; $50,158;
for fiscal year 1999, 1998, and 1997, 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. At June 30, 1999, the Company has accrued an
amount representing the Company's estimate of incurred but not reported claims.
NOTE 11. SHAREHOLDERS' EQUITY
During June of 1996 the Company reclassified its class A common stock as class C
common stock and reclassified its preferred stock as class A common stock with
no change in existing rights, privileges, or preferences of each respective
class. Class B common stock remains unchanged. The descriptions in this note
have been changed to reflect these
reclassifications.
In a private placement on October 27, 1989, Frank E. Holmes and the F.E. Holmes
Organization, Inc. acquired control of the Company by purchasing for $2,200,000,
550,000 shares of the Company's class C common stock and warrants to acquire an
additional 550,000 shares of class C common stock at $4.00 per share. These
warrants include a provision for adjustment to the number of warrants and
exercise price in the event additional securities are issued at an amount below
the exercise price of such outstanding warrants. At June 30, 1994, there were
outstanding class C common stock warrants to purchase 586,122 shares at $3.75
per share expiring October 1994. Effective August 11, 1994, such warrants were
canceled and new agreements were approved providing for warrants to acquire
586,122 shares of common stock at the August 11, 1994, market price of $4.00 per
share expiring October 1999. These warrants were outstanding as of June 30,
1999.
In December 1991, the Company issued to Mr. Holmes options to purchase 400,000
shares of class C common stock at $2.625 per share which equaled or exceeded the
fair value of the stock on the date of grant. These options vested six-months
after the issuance date and expire on December 6, 2001. During fiscal year 1992,
the board of directors approved the issuance of 100,000 shares of class A common
stock to F.E. Holmes Organization, Inc. in exchange for 100,000 shares of its
class C common stock. At June 30, 1999, Mr. Holmes owned approximately 79
percent of the outstanding shares of the Company's class C common stock, which
is the only class of the Company's stock having voting rights.
During the fiscal year 1999, the Board of Directors of the Company approved the
issuance of one million 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 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. These 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 will be
valued at $.50 per share. The agreement was executed on August 10, 1999.
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 percent of the total combined voting power of all classes of the
Company's stock and up to ten years for other employees. Options issued under
the 1985 Plan vest six months from the grant date or 20 percent on the first,
second, third, fourth and fifth anniversaries of the grant date. 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, 1999, options covering 88,000 shares have been exercised
and options covering 50,500 shares have expired. The 1985 plan expired December
31, 1994; as a consequence, there will be no further option grants under the
1985 plan.
In November 1989, the board of directors adopted the 1989 Non-Qualified Stock
Option Plan (1989 Plan), amended in December 1991, which provides for the
granting of options to purchase 800,000 shares of the Company's class A common
stock to directors, officers and employees of the Company and its subsidiaries.
Since adoption of the 1989 Plan, options have been granted at prices ranging
from $1.50 to $5.69 per share, which equaled or exceeded the fair market value
at date of grant. During fiscal year 1997, options covering 30,000 shares were
granted at an exercise price
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 48
of $2.00 per share. Options issued under the 1989 Plan vest six months from the
grant date or 20 percent on the first, second, third, fourth and fifth
anniversaries of the grant date. As of June 30, 1999, options covering 393,000
shares have been exercised under this plan and options covering 120,900 shares
have expired.
In April 1997, the board of directors adopted the 1997 Non-Qualified Stock
Option Plan (1997 Plan) which provides for the granting of stock appreciation
rights (SARs) and/or options to purchase 200,000 shares of the Company's class A
common stock to directors, officers and employees of the Company and its
subsidiaries. During the fiscal year 1997, options covering 148,500 shares were
granted at exercise prices ranging from $1.82 to $2.00 per share. During the
fiscal year 1999, options covering 20,000 shares were granted at an exercise
price of $1.56 per share. As of June 30, 1999, options covering 6,000 shares
have been exercised under this plan and options covering 14,500 shares have
expired.
On a per share basis, the holders of the class C common stock and the non-voting
class A common stock participate equally in dividends as declared by the
Company's board of directors, with the exception that any dividends declared
must first be paid to the holders of the class A stock to the extent of 5
percent of the Company's after-tax prior year net earnings.
The holders of the class A stock have a liquidation preference equal to the par
value of $.05 per share. Certain class C common stock is exchangeable on a
one-for-one basis for class A stock.
Stock option transactions under the various stock option plans are summarized
below:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ------
Granted 178,500 $ 1.90
Canceled 33,500 $ 2.67
Exercised 5,500 $ 1.50
--------- ------
Outstanding June 30, 1997 1,058,800 $ 2.53
Granted -- --
Canceled 80,200 $ 3.96
Exercised 7,000 $ 1.94
--------- ------
Outstanding June 30, 1998 971,600 $ 2.41
Granted 20,000 $ 1.56
Canceled 38,800 $ 2.48
Exercised -- --
--------- ------
Outstanding June 30, 1999 952,800 $ 2.40
========= ======
As of June 30, 1999, 1998, and 1997, exercisable stock options totaled 948,020,
958,580, and 1,027,140, shares and had weighted average exercise prices of
$2.39, $2.41, and $2.51, 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 in fiscal year 1999
and 1997 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 $13,121, $2,567, and $134,532 in fiscal years 1999, 1998, and
1997, respectively, and the pro forma net income and income per share would have
been as follows:
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 49
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------
1999 1998 1997
------------ ---------- ---------
Pro forma net income (loss) ($ 1,865,927) ($ 151,186) $ 149,615
Pro forma income per share:
Basic and diluted ($ 0.28) ($ 0.02) $ 0.02
The weighted average fair value of options granted during the fiscal years ended
June 30, 1999, and 1997 was $0.85 and $1.10, respectively. Because SFAS 123 is
applicable only to options granted in fiscal years beginning subsequent to
December 15, 1994, its pro forma effect will not be fully reflected until fiscal
2001 due to vesting requirements.
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period. The fair value of these
options was estimated at the date of the grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:
FISCAL YEAR ENDED JUNE 30,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
Expected volatility 0.42-- 0.55 0.50-- 0.55 0.50-- 0.55
Expected dividend yield -- -- --
Expected life (term) 8 Years 8 Years 8 Years
Risk-free interest rate 4.41%--5.47% 5.07%--5.47% 5.07%--5.47%
Class A and class C common stock options outstanding and exercisable at June 30,
1999, were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTEDWEIGHTED WEIGHTED
AVERAGEAVERAGE AVERAGE
DATE OF OPTION NUMBERREMAINING OPTION NUMBER OPTION
GRANT PRICE OUTSTANDINGLIFE IN YEARSPRICEEXERCISABLEPRICE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1985 PLAN 11/07/89 $1.65 35,000 0.35 $1.65 35,000 $1.65
CLASS A 11/07/89 $1.50 22,500 0.35 $1.50 22,500 $1.50
09/13/93 $4.25 0 n/a $4.25 0 $4.25
10/05/94 $4.50 0 n/a $4.50 0 $4.50
12/15/94 $2.63 6,500 5.46 $2.63 5,200 $2.63
----- ----- ---- ----- ------ -----
$1.50-- $2.6364,000 0.87 $1.70 62,700 $1.68
1989 PLAN 11/07/89 $1.50 0 n/a $1.50 0 $1.50
CLASS A 11/13/89 $2.25 90,000 0.37 $2.25 90,000 $2.25
12/06/91 $2.63 200,100 2.43 $2.63 200,100 $2.63
08/24/92 $3.00 0 n/a $3.00 0 $3.00
02/14/94 $5.69 0 n/a $5.69 0 $5.69
05/16/94 $4.75 2,000 4.87 $4.75 2,000 $4.75
12/15/94 $2.63 0 n/a $2.63 0 $2.63
02/24/95 $3.38 0 n/a $3.38 0 $3.38
09/05/95 $2.63 7,500 6.18 $2.63 4,500 $2.63
11/07/95 $2.19 1,200 6.35 $2.19 720 $2.19
05/24/96 $3.06 10,000 6.90 $3.06 10,000 $3.06
06/04/97 $2.00 30,000 7.93 $2.00 30,000 $2.00
----- ------ ---- ----- ------ -----
$1.50-- $4.75340,800 2.61 $2.49 337,320 $2.49
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 50
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTEDWEIGHTED WEIGHTED
AVERAGEAVERAGE AVERAGE
DATE OF OPTION NUMBERREMAINING OPTION NUMBER OPTION
GRANT PRICE OUTSTANDINGLIFE IN YEARSPRICEEXERCISABLEPRICE
1997 PLAN 06/04/97 $1.82 78,000 7.93 $1.82 78,000 $1.82
CLASS A 06/04/97 $2.00 50,000 7.93 $2.00 50,000 $2.00
12/09/98 $1.56 20,000 9.44 $1.56 20,000 $1.56
----- ------ ---- ----- ------ -----
$1.56-- $2.00148,000 8.93 $1.85 148,000 $1.85
CLASS C 12/06/91 $2.63 400,000 2.43 $2.63 400,000 $2.63
----- ------- ---- ----- ------- -----
ALL PLANS 11/89
thru
12/98 $1.50-- $5.69 952,800 3.28 $2.41 948,020 $2.41
============= ======= ==== ===== ======= =====
</TABLE>
During the fiscal years ended June 30, 1999, and June 30, 1998, the Company
purchased 133,685 and 29,525 shares of its class A common stock at an average
price of $1.72 and $2.30 per share, respectively.
NOTE 12. INCOME TAXES
The reconciliation of income tax computed at the U.S. federal statutory rates to
income tax expense is:
YEAR ENDED JUNE 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
Tax expense (benefit) at statutory rate . $(563,373) $ 63,984 $ 209,483
Exercise of non-qualified stock options
treated as equity for financial
statements ............................ -- -- (2,412)
Non-deductible membership dues .......... 12,238 11,880 13,713
Non-deductible meals & entertainment .... 35,194 31,401 25,419
Valuation allowance ..................... 886,891 (31,986) 66,458
Other ................................... (187,621) 13,118 19,315
--------- --------- ---------
$ 183,329 $ (39,571) $ 331,976
========= ========= =========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's deferred
total assets and liabilities are as follows:
YEAR ENDED JUNE 30,
------------------------
1999 1998
---------- ----------
Book/tax differences in the balance sheet:
Trading securities ............................ $ 106,214 $ 92,577
Accumulated depreciation ........................... 148,169 93,730
Accrued expenses .............................. 35,335 42,717
Available-for-sale securities ................. 38,604 39,020
Reduction in cost basis of AFS securities ..... 177,466 177,466
Annuity obligations ........................... 50,204 52,713
Affiliated investment ......................... 217,542 11,253
---------- ----------
773,534 509,476
Tax carryovers:
Net operating loss (NOL) carryover ............ 886,891 465,143
Charitable contributions carryover ............ 130,879 113,539
Investment tax credit ......................... 34,472 34,472
Alternative minimum tax credits ............... 115,228 115,228
---------- ----------
1,167,470 728,382
Total gross deferred tax asset ..................... 1,941,004 1,237,858
---------- ----------
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 51
Available-for-sale securities ................ (38,604) (12,629)
Net unrealized holding loss (affiliated) ..... -- (26,391)
----------- -----------
Total gross deferred tax liability ........... (38,604) (39,020)
----------- -----------
Deferred tax asset ........................... 1,902,400 1,198,848
Valuation allowance .......................... (921,363) (34,472)
----------- -----------
Net deferred tax asset ....................... $ 981,037 $ 1,174,366
=========== ===========
For federal income tax purposes at June 30, 1999, the Company has NOLs of
approximately $2.6 million which will begin expiring in fiscal 2010, charitable
contribution carryovers of approximately $385,000 expiring 1999-2001, and
minimum tax credits of $115,228 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 $921,363 and $34,472 at June 30, 1999 and 1998,
respectively, providing for the utilization of NOLs, charitable contributions
and investment tax credits against future taxable income.
NOTE 13. LITIGATION ACCRUAL
As discussed in the Company's Form 10-K for fiscal year ended June 30, 1997,
Gerald C. Letch sued the Company in June 1994 in state district court in San
Antonio, Texas, for breach of contract based upon an alleged oral promise by a
Company officer (later deceased) to pay a finder's fee for introducing certain
parties to the Company. In November 1995, a judgment was entered in favor of
Letch, with total damages aggregating $296,637.
On November 12, 1997, the Fourth Court of Appeals reversed the trial court's
finding against the Company. Mr. Letch filed a motion for rehearing, which was
subsequently denied by the appellate court. In March 1998, Mr. Letch filed a
writ of appeal with the Texas Supreme Court, which was denied. Accordingly, the
Company has retired the bond posted in connection with the appeals and received
the proceeds from the restricted cash.
The Company accrued approximately $100,000 (management's best estimate of the
fees and expenses necessary to fund an appeal) and $300,000 (the approximate
amount of the judgment) which were both recorded in the Company's Consolidated
Statement of Operations in fiscal year 1996. Since the decision in favor of the
Company is final, the Company reversed the $300,000 accrued for the original
judgment, and thus positively affected earnings by reducing general and
administrative expenses for fiscal year 1998.
NOTE 14. EARNINGS PER SHARE
The following table sets forth the computation for basic and diluted earnings
per share (EPS):
YEAR ENDED JUNE 30,
----------------------------------------
1999 1998 1997
----------- ----------- ----------
Basic and diluted net income (loss) . $(1,852,806) $ (148,619) $ 284,149
Weighted average number of
outstanding shares:
Basic .......................... 6,562,140 6,617,153 6,606,211
Effect of dilutive securities:
Employee stock options ......... 1,704 52,210 58,113
----------- ----------- ----------
Potential dilutive common
shares ....................... 1,704 52,210 58,113
----------- ----------- ----------
Diluted ........................ 6,563,844 6,669,363 6,664,324
=========== =========== ==========
Earnings (loss) per share:
Basic .......................... $ (0.28) $ (0.02) $ 0.04
=========== =========== ==========
Diluted ........................ $ (0.28) $ (0.02) $ 0.04
=========== =========== ==========
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 52
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, 1999, 1998, and 1997, options for 910,800, 650,400, and 726,100
shares, respectively, were excluded from diluted EPS. Additionally, for the
years ended June 30, 1999, 1998, and 1997, there were 586,122 warrants
outstanding which had no dilutive effect and were excluded from diluted EPS.
NOTE 15. COMPREHENSIVE INCOME. In June 1997, the FASB issued Statement No. 130,
Reporting Comprehensive Income (SFAS 130) and Statement No. 131, Disclosures
about Segments of an Enterprise and Related Information (SFAS 131). SFAS 130
establishes standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company adopted SFAS 130 during fiscal
year 1999.
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
----------- --------- ---------
JUNE 30, 1999:
Unrealized gains (losses) on
securities:
Unrealized holding gains
arising period ............. $ (333,172) $ 113,278 $(219,894)
Less: reclassification
adjustment for gains
(losses) in net income ..... 334,394 (113,694) 220,700
----------- --------- ---------
Other comprehensive income
(loss) ........................ $ 1,222 $ (416) $ 806
=========== ========= =========
JUNE 30, 1998:
Unrealized gains (losses) on
securities:
Unrealized holding gains
arising period ............. $ 20,191 $ (6,865) $ 13,326
Less: reclassification
adjustment for gains
(losses) in net income ..... 103,205 (35,090) 68,115
----------- --------- ---------
Other comprehensive income
(loss) ........................ $ 123,396 $ (41,955) $ 81,441
=========== ========= =========
JUNE 30, 1997:
Unrealized gains (losses) on
securities:
Unrealized holding gains
arising period ............. $(1,453,737) $ 494,271 $(959,466)
Less: reclassification
adjustment for gains
(losses) in net income ..... 122,000 (41,480) 80,520
----------- --------- ---------
Other comprehensive income
(loss) ....................... $(1,331,737) $ 452,791 $(878,946)
=========== ========= =========
NOTE 16. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company adopted SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information" in 1999. SFAS 131 requires companies to present segment
information using the management approach. The management approach is based on
the way that management organizes the segments within a Company for making
operating decisions and assessing performance. The Company conducts operations
in two principal geographic areas: the United States and Europe. Revenues by
geographic area include fees charged to customers, and revenues from venture
capital activities. Identifiable assets are those assets used exclusively in the
operations, or investments held in each geographic area.
<TABLE>
<CAPTION>
UNITED
STATES EUROPE CONSOLIDATED
------------ ----------- ------------
YEAR ENDED JUNE 30, 1999:
<S> <C> <C> <C>
Net revenues ..................................... $ 8,726,540 $ 291,532 $ 9,018,072
Net income (loss) before income taxes ............ $ (1,728,111) $ 58,634 $ (1,669,477)
Gross identifiable assets at June 30, 1999 ....... $ 6,209,528 $ 1,281,942 $ 7,491,470
Deferred tax asset -- -- 1,019,642
Intersegment eliminations (10,000) (172,974) (182,974)
------------ ----------- ------------
Net identifiable assets at June 30, 1999 $ 6,199,528 $ 1,108,968 $ 8,328,138
============ =========== ============
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 53
YEAR ENDED JUNE 30, 1998:
Net revenues ..................................... $ 10,435,605 $ (396,003) $ 10,039,602
Net income (loss) before income taxes ............ $ 446,417 $ (634,607) $ (188,190)
Gross identifiable assets at June 30, 1998 ....... $ 8,072,712 $ 1,270,631 $ 9,343,343
Deferred tax asset -- -- 1,203,386
Intersegment eliminations ..................... (10,000) (227,772) (237,772)
------------ ----------- ------------
Net identifiable assets at June 30, 1998 ......... $ 8,062,712 $ 1,042,859 $ 10,308,957
============ =========== ============
YEAR ENDED JUNE 30, 1997:
Net revenues ..................................... $ 12,940,481 $ 1,068,650 $ 14,009,131
Net income (loss) before income taxes ............ $ (155,453) $ 771,578 $ 616,125
Gross identifiable assets at June 30, 1997 ....... $ 8,556,954 $ 1,689,780 $ 10,246,734
Deferred tax asset -- -- 1,205,770
Intersegment eliminations ..................... (10,000) (729,729) (739,729)
------------ ----------- ------------
Net identifiable assets at June 30, 1997 ........ $ 8,546,954 $ 960,051 $ 10,712,775
============ =========== ============
The Company operates principally in two business segments: providing mutual fund
investment management services to its clients, and utilizing a diversified
venture capital approach in trading for its own account in an effort to add
growth and value to its cash position. The following details total revenues and
income (loss) by business segment:
INVESTMENT
MANAGEMENT VENTURE
SERVICES CAPITAL CONSOLIDATED
------------ ----------- ------------
YEAR ENDED JUNE 30, 1999:
Net revenues ..................................... $ 8,820,929 $ 197,143 $ 9,018,072
============ =========== ============
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
------------
Net identifiable assets at June 30, 1999 ......... $ 8,328,138
============
YEAR ENDED JUNE 30, 1998:
Net revenues ..................................... $ 10,608,775 $ (569,173) $ 10,039,602
============ =========== ============
Income (loss) before income taxes and
equity interest .................................. $ 730,125 $ (569,173) $ 160,952
Equity in net loss of affiliate ............... -- (349,142) (349,142)
------------ ----------- ------------
Net income (loss) before income taxes ............ $ 730,125 $ (918,315) $ (188,190)
============ =========== ============
Depreciation and amortization .................... $ 457,224 $ 162 $ 457,386
============ =========== ============
Interest expense ................................. $ 122,530 $ -- $ 122,530
============ =========== ============
Capital expenditures ............................. $ 469,633 $ -- $ 469,633
============ =========== ============
Gross identifiable assets at June 30, 1998 ....... $ 6,848,706 $ 2,181,121 $ 9,029,827
Deferred tax asset ............................ 1,203,386
Accumulated other comprehensive loss .......... 75,744
------------
Net identifiable assets at June 30, 1998 ......... $ 10,308,957
============
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 54
YEAR ENDED JUNE 30, 1997:
Net revenues ..................................... $ 13,080,297 $ 928,834 $ 14,009,131
============ =========== ============
Income (loss) before income taxes and
equity interest .................................. $ (249,142) $ 928,834 $ 679,692
Equity in net loss of affiliate and joint
venture .................................... -- (63,567) (63,567)
------------ ----------- ------------
Net income (loss) before income taxes ............ $ (238,652) $ 865,267 $ 616,125
============ =========== ============
Depreciation and amortization .................... $ 481,348 $ 162 $ 481,510
============ =========== ============
Interest expense ................................. $ 1,211,594 $ 140 $ 1,211,734
============ =========== ============
Capital expenditures ............................. $ 392,436 $ -- $ 392,436
============ =========== ============
Gross identifiable assets at June 30, 1997 ....... $ 6,664,995 $ 2,684,825 $ 9,349,820
Deferred tax asset ............................ 1,205,770
Accumulated other comprehensive loss .......... 157,185
------------
Net identifiable assets at June 30, 1997 ......... $ 10,712,775
============
</TABLE>
NOTE 17. RELATED PARTY TRANSACTIONS
In addition to the Company's receivable from USGIF and USGAF relating to
investment management, transfer agency and other fees (see Note 3), the Company
had $892,778 and $1,280,321 invested in USGIF money market mutual funds at June
30, 1999, and 1998, respectively. Dividend income earned from these investments
in USGIF totaled $94,267, $98,450, and $83,317 for the years ended June 30,
1999, 1998, and 1997, respectively. Receivables from mutual funds represent
amounts due the Company, and its wholly owned subsidiaries, for investment
advisory fees, transfer agent fees, accounting fees, and exchange fees, net of
amounts payable to the mutual funds.
During fiscal year 1998, the Company purchased 4,378 shares for $200,000 of Xtra
Music Limited, of which Jerold H. Rubinstein, a director of the Company, has
controlling interest. Additionally, during fiscal year 1998, the Company paid
Bobby D. Duncan, a former director of the Company, approximately $60,000 in
consulting fees.
NOTE 18. SUBSEQUENT EVENTS
On August 11, 1999, the Directors of the Guernsey Fund agreed to close the fund
and redeem all outstanding participating shares. In accordance with the fund's
Articles of Association, the Company has suspended the determination of the net
asset value of the fund and is proceeding to liquidate the positions in the fund
to redeem shareholders.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 55
EXHIBIT 21 -- SUBSIDIARIES OF THE REGISTRANT, JURISDICTION OF INCORPORATION AND
PERCENTAGE OF OWNERSHIP
1. United Shareholder Services, Inc.; incorporated in Texas and wholly owned by
the Registrant
2. A & B Mailers, Inc.; incorporated in Texas and wholly owned by the Registrant
3. Securities Trust and Financial Company; incorporated in Texas and wholly
owned by the Registrant
4. U.S. Advisors (Guernsey) Limited; incorporated in Guernsey, Channel Islands
and wholly owned by the Registrant
5. U.S. Global Brokerage, Inc.; incorporated in Texas and wholly owned by the
Registrant.
6. U.S. Global Administrators, Inc.; incorporated in Texas and wholly owned by
the Registrant.
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 56
EXHIBIT 23.1 -- CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements(Form
S-8 No. 33-33012) pertaining to the 1989 Non-Qualified Stock Option Plan and the
1985 Incentive Stock Option Plan and (Form S-8 No. 333-25699) pertaining to the
1997 Non-Qualified Stock Option Plan of our report dated September 28, 1999,
with respect to the consolidated financial statemments of U.S. Global Investors,
Inc. and Subsidiaries incorporated by reference in the Annual Report (Form 10-K)
for the year ended June 30, 1999.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Antonio, Texas
September 28, 1999
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 57
EXHIBIT 23.2 -- CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-33012 and No. 333-25699) of U.S. Global
Investors, Inc. of our report dated September 29, 1997, relating to the
financial statements which appear in the ANNUAL REPORT TO SHAREHOLDERS, which is
incorporated in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
September 28, 1999
<PAGE>
U.S. Global Investors, Inc.
Annual Report on Form 10-K 1999 Page 58
EXHIBIT 23.3 -- CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-33012 and No. 333-25699) of U.S. Global
Investors, Inc. of our report dated September 28, 1998, appearing in the ANNUAL
REPORT TO SHAREHOLDERS which is incorporated in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
PO Box 321
National Westminister House
Le Truchot
St Peter Port
Guernsey
GY1 4ND
September 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial information extracted
from the consolidatd financial statements found in Part IV, Item 14, of the U.S.
Global Investors, Inc. Annual Report on Form 10-K for the fiscal year ended June
30, 1999, and is qualified in its entirety by refernce to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,025,247
<SECURITIES> 1,255,677
<RECEIVABLES> 1,621,144
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,601,285
<PP&E> 8,260,886
<DEPRECIATION> (5,834,294)
<TOTAL-ASSETS> 8,328,138
<CURRENT-LIABILITIES> 1,160,176
<BONDS> 0
0
0
<COMMON> 339,814
<OTHER-SE> 5,572,424
<TOTAL-LIABILITY-AND-EQUITY> 8,328,138
<SALES> 9,018,072
<TOTAL-REVENUES> 9,018,072
<CGS> 0
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<INTEREST-EXPENSE> 126,947
<INCOME-PRETAX> (1,669,477)
<INCOME-TAX> 183,329
<INCOME-CONTINUING> (1,852,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,852,806)
<EPS-BASIC> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
