Summary of U S GLOBAL INVESTORS INC

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
U.S. Global has made forward-looking statements concerning the Company's performance, financial condition, and operations in this report. The Company from time to time may also make forward-looking statements in its public filings and press releases. Such forward-looking statements are subject to various known and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company's control, including: (i) the volatile and competitive nature of the investment management industry, (ii) changes in domestic and foreign economic conditions, (iii) the effect of government regulation on the Company's business, and (iv) market, credit, and liquidity risks associated with the Company's investment management activities. Due to such risks, uncertainties, and other factors, the Company cautions each person receiving such forward-looking information not to place undue reliance on such statements. All such forward-looking statements are current only as of the date on which such statements were made.
Recent Trends and Continuing Disruptions in Worldwide Financial Markets Due to the consequences of the meltdown in the subprime mortgage market beginning in 2007, the worldwide financial markets have encountered intense volatility due to uncertainty and disruption within the credit markets. This disruption moved into 2008 causing global equities to decline worldwide. The Company's investment advisory fees and operating revenue primarily depend on the value of our assets under management, and continued global market fluctuations impact the funds' asset levels, thereby affecting income and results of operations.
This global strain has resulted in a seizing of the international credit markets resulting in unprecedented worldwide governmental actions. For instance, on September 7, 2008, the U.S. Government moved to guarantee the outstanding debt of Fannie Mae and Freddie Mac. On September 19, 2008, the U.S. Treasury Department (the "Treasury") announced a temporary guarantee program (Temporary Guarantee Program for Money Market Funds) for publicly available money market funds which elected to participate in the program.
Furthermore, on October 3, 2008, the U.S. Congress enacted the Emergency Economic Stabilization Act of 2008, which sanctioned the Treasury Secretary to create the Troubled Assets Relief Program and authorize the purchase of up to $700 billion of troubled assets. Despite these aggressive governmental programs and actions, the global financial markets continue to remain extremely volatile. This unsettled financial environment has had an impact on the Company's assets under management. Total assets under management at June 30, 2008, were $5.753 billion versus $3.330 billion at September 30, 2008, and $1.981 billion at December 31, 2008. Total assets under management at December 31, 2008, were $1.981 billion versus $5.704 billion at December 31, 2007.
BUSINESS SEGMENTS
The Company, with principal operations located in San Antonio, Texas, manages two business segments: (1) the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors; and (2) the Company invests for its own account in an effort to add growth and value to its cash position. Although the Company generates the majority of its revenues from its investment advisory segment, the Company holds a significant amount of its total assets in investments. The following is a brief discussion of the Company's two business segments. Investment Management Products and Services The Company generates substantially all of its operating revenues from managing and servicing USGIF and other advisory clients. These revenues are largely dependent on the total value and composition of assets under its management. Fluctuations in the markets and investor sentiment directly impact the funds' asset levels, thereby affecting income and results of operations.
The Company continues to provide advisory services for two offshore clients and receives monthly advisory fees based on the net asset values of the clients and performance fees, if any, based on the overall increase in net asset values. The Company recorded fees from these clients totaling $141,278 and $271,557 for the six months ended December 31, 2008, and December 31, 2007, respectively. The performance fees for these clients are calculated and recorded quarterly in accordance with the terms of the advisory agreements. These fees may fluctuate significantly from year to year based on factors that may be out of the Company's control.
At December 31, 2008, total assets under management as of period end, including both SEC-registered funds and offshore clients, were $1.981 billion versus $5.704 billion at December 31, 2007. During the six months ended December 31, 2008, average assets

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U.S. Global Investors, Inc.
December 31, 2008, Quarterly Report on Form 10-Q Page 13 of 23

under management were $3.105 billion versus $5.329 billion for the same period ended December 31, 2007. This decrease was primarily due to a decrease in the natural resources and foreign equity funds under management. Total assets under management at June 30, 2008, were $5.753 billion versus $1.981 billion at December 31, 2008.
Investment Activities
Management believes it can more effectively manage the Company's cash position by broadening the types of investments used in cash management and continues to believe that such activities are in the best interest of the Company. Company compliance and operational personnel review and monitor these activities, and various reports are provided to investment advisory clients. Investment income (loss) from the Company's investments includes:
• realized gains and losses on sales of securities;

• unrealized gains and losses on trading securities;

• realized foreign currency gains and losses;

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

• dividend and interest income.

This source of revenue does not remain consistent and is dependent on market fluctuations, the Company's ability to participate in investment opportunities, and timing of transactions.
As of December 31, 2008, the Company held investments with a market value of approximately $4.7 million and a cost basis of approximately $6.8 million. The market value of these investments is approximately 12.7 percent of the Company's total assets. The Company currently has no investments in debt securities or mortgage-backed securities.
During the quarter ended December 31, 2008, other-than-temporary impairments of $2.457 million were realized on corporate investments classified as available-for-sale relating primarily to two holdings. The impairment is the difference between the investments' cost basis of $2.977 million and their fair value of $520,201. The fair value of the investments at December 31, 2008, will become the new cost basis, which will not be adjusted for any subsequent recoveries in fair value.
The following summarizes investment income (loss) reflected in earnings for the periods discussed:

                                                                          Six Months Ended December 31,
                                                                             2008                  2007

Investment Income (Loss)
Realized gains (losses) on sales of available-for-sale securities      $              -              34,522
Realized gains (losses) on sales of trading securities                                -            (262,507 )
Unrealized gains (losses) on trading securities                              (2,836,646 )           555,402
Realized foreign currency losses                                                (48,795 )               183
Other-than-temporary declines in available-for-sale securities               (2,456,618 )                 -
Dividend and interest income                                                    281,035             820,943

Total Investment Income (Loss)                                         $     (5,061,024 )       $ 1,148,543




                                                                          Three Months Ended December 31,
                                                                              2008                   2007

Investment Income (Loss)
Realized gains (losses) on sales of available-for-sale securities      $                -              34,522
Realized gains (losses) on sales of trading securities                                  -            (262,507 )
Unrealized gains (losses) on trading securities                                  (596,890 )            58,457
Realized foreign currency losses                                                  (46,992 )               183
Other-than-temporary declines in available-for-sale securities                 (2,456,618 )                 -
Dividend and interest income                                                      107,830             555,920

Total Investment Income (Loss)                                         $       (2,992,670 )       $   386,575

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U.S. Global Investors, Inc.
December 31, 2008, Quarterly Report on Form 10-Q Page 14 of 23

RESULTS OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 2008, AND 2007 The Company posted a net after-tax loss of $3,528,309 ($0.23 loss per share) for the six months ended December 31, 2008, compared with a net after-tax income of $4,873,435 ($0.32 income per share) for the six months ended December 31, 2007. Revenues
Total consolidated revenues for the six months ended December 31, 2008, decreased $15,141,430, or 56 percent, compared with the six months ended December 31, 2007. This decrease was primarily attributable to the following:
• Investment advisory fees decreased by approximately $9,671,000 primarily as a result of decreased assets under management in the natural resources and emerging markets funds; and

• Investment income decreased by approximately $6,210,000 primarily as a result of declines in the market value of trading securities in the natural resources and emerging markets sectors as well as an other-than-temporary impairment as a result of declines in the market value of available-for-sale securities.

Expenses
Total consolidated expenses for the six months ended December 31, 2008, decreased $2,583,644, or 13 percent, compared with the six months ended December 31, 2007. This was largely attributable to the following:
• Subadvisory fees decreased by $2,638,000 due to decreased assets in the funds being subadvised and the change in subadvisory contracts discussed in Note 5;

• Employee compensation decreased by$1,404,000 primarily due to lower bonuses resulting from decreased assets under management as well as lower relative performance in certain of the funds;

• Platform fees decreased by $1,256,000 due to decreased assets under management; and

• These decreases in expenses were somewhat offset by an increase in general and administrative expenses of $2,717,000 primarily due to proxy-related costs associated with the merger of the USGIF and USGAF trusts.

RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 2008, AND 2007 The Company posted a net after-tax loss of $1,683,160 ($0.11 loss per share) for the three months ended December 31, 2008, compared with a net after-tax income of $2,464,603 ($0.16 income per share) for the three months ended December 31, 2007.
Revenues
Total consolidated revenues for the three months ended December 31, 2008, decreased $11,038,202, or 80 percent, compared with the six months ended December 31, 2007. This decrease was primarily attributable to the following:
• Investment advisory fees decreased by approximately $8,255,000 primarily as a result of decreased assets under management in the natural resources and emerging markets funds; and

• Investment income decreased by approximately $3,379,000 primarily as a result of declines in the market value of available-for-sale securities resulting in an other-than-temporary impairment.

Expenses
Total consolidated expenses for the three months ended December 31, 2008, decreased $4,839,283, or 48 percent, compared with the three months ended December 31, 2007. This was largely attributable to the following:
• Subadvisory fees decreased by $2,064,000 due to decreased assets in the funds being subadvised and the change in subadvisory contracts discussed in Note 5;

• Platform fees decreased by $1,514,000 due to decreased assets under management; and

• Employee compensation decreased by $1,073,000 primarily due to lower bonuses resulting from decreased assets under management as well as lower relative performance in certain of the funds.

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U.S. Global Investors, Inc.
December 31, 2008, Quarterly Report on Form 10-Q Page 15 of 23

LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2008, the Company had net working capital (current assets minus current liabilities) of approximately $27.7 million and a current ratio (current assets divided by current liabilities) of 13.1 to 1. With approximately $22.2 million in cash and cash equivalents and approximately $4.7 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders' equity was approximately $34.6 million, with cash, cash equivalents, and marketable securities comprising 73 percent of total assets.
As of December 31, 2008, the Company has no long-term liabilities. The Company has access to a $1 million credit facility with a one-year maturity for working capital purposes. The credit agreement requires the Company to maintain certain quarterly financial covenants to access the line of credit. As of December 31, 2008, this credit facility remained unutilized by the Company.
Management believes current cash reserves, financing obtained and/or available, and potential cash flow from operations will be sufficient to meet foreseeable cash needs or capital necessary for the above-mentioned activities and allow the Company to take advantage of opportunities for growth whenever available. Market volatility may cause the price of the Company's publicly traded class A shares to fluctuate, which in turn may allow the Company an opportunity to buy back stock at favorable prices.
The investment advisory and related contracts between the Company and USGIF will expire September 30, 2009. Management anticipates the board of trustees of USGIF will renew the contracts. The Company provides advisory services to two offshore clients. The Company generally receives a monthly advisory fee and a quarterly performance fee, if any, based on agreed-upon performance measurements. The contracts between the Company and these offshore clients expire periodically, and management anticipates that its offshore clients will renew the contracts. The Company receives additional revenue from several sources including custodial fee revenues, revenues from mailroom operations, and investment income.

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U.S. Global Investors, Inc.
December 31, 2008, Quarterly Report on Form 10-Q Page 16 of 23

ACCOUNTING PRONOUNCEMENTS
The Company is subject to extensive and often complex, overlapping and frequently changing governmental regulation and accounting oversight. Moreover, financial reporting requirements, such as those listed below, and the processes, controls and procedures that have been put in place to address them, are comprehensive and complex. While management has focused considerable attention and resources on meeting these reporting requirements, interpretations by regulatory or accounting agencies that differ from those of the Company could negatively impact financial results.
In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements because the FASB had previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new fair value measurements. In February 2008, the FASB issued an FSP to defer the effective date of SFAS 157 for one year for nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis. Management adopted the provisions of SFAS 157 related to all financial assets and liabilities and nonfinancial assets and liabilities recognized or disclosed at fair value on a recurring basis on July 1, 2008. Management continues to evaluate the impact this statement will have on the Consolidated Financial Statements once its provisions are adopted for nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." SFAS 159 allows entities to voluntarily choose to measure many financial assets and liabilities at fair value. The election is made on an instrument-by-instrument basis and is irrevocable. Once the election is made for the instrument, all subsequent changes in fair value for that instrument must be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We have not elected to apply the provisions of SFAS 159 to any of our financial instruments; therefore, the adoption of SFAS 159 effective July 1, 2008, has not affected our financial position or results of operations. In June 2007, the Emerging Issues Task Force ("EITF") issued EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards," ("EITF 06-11"). Under the provisions of EITF 06-11, a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Accordingly, the Company adopted EITF 06-11 on July 1, 2008. The adoption of EITF 06-11 did not have a material effect on the Company's financial position or results of operations for the quarter ended December 31, 2008.
CRITICAL ACCOUNTING POLICIES
For a discussion of critical accounting policies that the Company follows, please refer to the notes to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2008.

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December 31, 2008, Quarterly Report on Form 10-Q Page 17 of 23