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 continued into 2008 and 2009 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 ("AUM"), and continued global market fluctuations impact the funds' asset levels, thereby affecting income and results of operations.
This global strain 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 announced a temporary guarantee program 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 authorized 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. What began as a sub-prime mortgage default concern has swelled to practically every aspect of the global financial market. The equity markets suffered from a pullback in consumer spending, which led to weak performance in the global markets, increased unemployment, and significant declines in the values of assets owned by financial institutions. This worldwide disruption has spread to tangential areas including currencies and commodities, which directly impact the Company and the assets it manages.
Although there have been signs of improving credit and market conditions, continued fluctuations may have a negative impact on the Company's revenues and net income. This unsettled financial environment has had an impact on the Company's assets under management. Average total assets under management for the three-month period ending September 30, 2009, were $2.361 billion versus $4.474 billion for the three-month period ending September 30, 2008. Average total assets under management for the year ending June 30, 2009, were $2.533 billion versus $5.436 billion for the year ending June 30, 2008.
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. On November 6, 2008, effective immediately, the Company terminated its relationship with Endeavour Financial Corp. as the adviser to its equity portfolio. As investment adviser, the Company was paid a monthly advisory fee based on the net asset value of the portfolio and an annual performance fee, if any, based on a percentage of consolidated net income from operations in excess of a

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U.S. Global Investors, Inc. Page 13 of 22 September 30, 2009, Quarterly Report on Form 10-Q

predetermined percentage return on equity. The Company recorded fees totaling $0 and $554,480 for the three months ended September 30, 2009, and September 30, 2008, respectively.
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 $102,566 and $99,060 for the three months ended September 30, 2009, and September 30, 2008, 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. Frank Holmes, CEO, serves as a director of the offshore clients.
At September 30, 2009, total assets under management as of period end, including both SEC-registered funds and offshore clients, were $2.529 billion versus $3.330 billion at September 30, 2008. During the three months ended September 30, 2009, average assets under management were $2.361 billion versus $4.474 billion for the same period ended September 30, 2008. 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, 2009, were $2.222 billion versus $2.529 billion at September 30, 2009. 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 September 30, 2009, the Company held investments with a market value of approximately $8.0 million and a cost basis of approximately $8.3 million. The market value of these investments is approximately 21.0 percent of the Company's total assets. The Company currently has no investments in debt securities or mortgage-backed securities.
The following summarizes investment income (loss) reflected in earnings for the periods discussed:

                                                                       Three Months Ended September 30,
Investment Income (Loss)                                               2009                     2008
Unrealized gains (losses) on trading securities                   $      556,348         $        (2,239,756 )
Realized foreign currency gains (losses)                                   2,965                      (1,803 )
Dividend and interest income                                              40,140                     173,205

Total Investment Income (Loss)                                    $      599,453         $        (2,068,354 )

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U.S. Global Investors, Inc. Page 14 of 22 September 30, 2009, Quarterly Report on Form 10-Q

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2009, AND 2008 The Company posted net after-tax income of $1,396,507 ($0.09 income per share) for the three months ended September 30, 2009, compared with a net after-tax loss of $1,845,149 ($0.12 loss per share) for the three months ended September 30, 2008.
Revenues
Total consolidated revenues for the three months ended September 30, 2009, decreased $818,660, or 9.3 percent, compared with the three months ended September 30, 2008. This decrease was primarily attributable to the following:
• Investment advisory fees decreased by approximately $4,229,000 primarily as a result of decreased assets under management in the natural resources and international equity funds;

• Transfer agent fees decreased by approximately $890,000 primarily due to a decline in the number of accounts and transactions in USGIF;

• This decrease in revenue was somewhat offset by an increase in investment income of $2,668,000, primarily as a result in increases in the market value of trading securities; and

• An increase in distribution and administrative fees of $1,635,000 related to the new distribution and advisory agreements that became effective beginning October 1, 2008.

Expenses
Total consolidated expenses for the three months ended September 30, 2009, decreased $5,925,139, or 51.2 percent, compared with the three months ended September 30, 2008. This was largely attributable to the following:
• General and administrative expenses declined by $3,207,000 primarily due to proxy-related costs associated with the merger of the USGIF and USGAF trusts included in prior year costs;

• Subadvisory fees decreased by $1,609,000 due to decreased assets in the funds being subadvised and changes in the subadvisory contracts discussed in Note 5; and

• Platform fees decreased by $943,000 due to decreased assets under management.

LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2009, the Company had net working capital (current assets minus current liabilities) of approximately $27.8 million and a current ratio (current assets divided by current liabilities) of 13.3 to 1. With approximately $20.7 million in cash and cash equivalents and approximately $8.0 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders' equity was approximately $35.6 million, with cash, cash equivalents, and marketable securities comprising 75.7 percent of total assets.
As of September 30, 2009, 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 September 30, 2009, 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 were renewed effective October 1, 2009. The Company provides advisory services to two offshore clients for which the Company 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, mailroom operations, and investment income.

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U.S. Global Investors, Inc. Page 15 of 22 September 30, 2009, Quarterly Report on Form 10-Q

RECENT ACCOUNTING PRONOUNCEMENTS
The Company is subject to extensive and often complex 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.
Effective for interim and annual periods ending after June 15, 2009, the FASB established general standards of accounting for and disclosing events that occur after the balance sheet date but before financial statements are issued or are available to be issued as noted in ASC 855 Subsequent Events (formerly SFAS No. 165, Subsequent Events). In preparing the consolidated financial statements, the Company has reviewed, as determined necessary by the Company's management, events that have occurred after September 30, 2009, up until the issuance of the financial statements, which occurred on November 5, 2009.
In June 2009, the FASB removed the concept of a qualifying special-purpose entity and removed the exception from applying in consolidation of variable interest entities to qualifying special-purpose entities in ASC 860 Transfers and Servicing (formerly SFAS No. 166, Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140). This standard is effective for both interim and annual periods as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009. Management is in the process of determining the effect the adoption of this standard will have on the Company's Consolidated Financial Statements.
Effective for both interim and annual periods as of the beginning of each reporting entity's first annual report period beginning after November 15, 2009, enterprises are required to perform an analysis to determine whether the enterprise's variable interest or interests give it a controlling financial interest in a variable interest entity, in accordance with ASC 810 Consolidation (formerly SFAS No. 167, Amendments to FASB Interpretation No. 46(R)). Management is in the process of determining the effect the adoption of this standard will have on the Company's Consolidated Financial Statements. In June 2009, the FASB established the Codification as the source of authoritative GAAP recognized by the FASB, to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification became nonauthoritative. Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of Codification did not have a material affect our financial position or results of operations. Commencing with the Form 10-Q for the September 30, 2009 quarter end, future filings with the SEC will reference the Codification rather than prior accounting and reporting standards.
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, 2009.

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U.S. Global Investors, Inc. Page 16 of 22 September 30, 2009, Quarterly Report on Form 10-Q