**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
 
 **FORM
        10-Q**
 (Mark
        One)
  **x**
              **QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES****EXCHANGE
                  ACT OF 1934**
 
 **For
                  the quarterly period ended March 31,
                  2007**
 
 **o**
              **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 000-51682**
  **Highbury
                  Financial Inc.**(Exact
                  name of registrant as specified in its charter)**Delaware**
              
              **20-3187008**(State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              (I.R.S.
                  Employer
                Identification
                  No.)**999
                  Eighteenth Street, Ste. 3000**
                **Denver,
                  Colorado**
                (Address
                  of principal executive
                  offices)
              
              **80202**
                (Zip
                  Code)
  **(303)
                  357-4802**(Registrant's
                  telephone number, including area
                  code)
  Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
        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 o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.
  Large
                  Accelerated Filer ̈
              Accelerated
                  Filer ̈
              Non-Accelerated
                  Filerx
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).  Yes o No x
  As
        of
        April 21, 2007, 9,527,000 shares of common stock, par value $.0001 per share,
        were issued and outstanding.
 
 
  **Page****PART
                  I. FINANCIAL INFORMATION**Item
                  1 - Financial Statements
              3**Highbury
                  Financial Inc.**Condensed
                  Consolidated Balance Sheets
              3Condensed
                  Consolidated Statements of Operations
              4Condensed
                  Consolidated Statements of Cash Flows
              5Notes
                  to Unaudited Condensed Consolidated Financial Statements
              6**U.S.
                  Mutual Fund Business of ABN AMRO Asset Management Holdings,
                  Inc.**Combined
                  Statements of Financial Condition
              19Combined
                  Statements of Operations
              20Combined
                  Statements of Changes in Owner’s Equity
              21Combined
                  Statements of Cash Flows
              22Notes
                  to Unaudited Combined Financial Statements
              23Item
                  2 - Management's Discussion and Analysis of Financial Condition
                  and
                  Results of Operations
              28Item
                  3 - Quantitative and Qualitative Disclosures About Market
                  Risk
              44Item
                  4 - Controls and Procedures
              44**PART
                  II. OTHER INFORMATION**
              45Item
                  1 - Legal Proceedings
              45Item
                  1A - Risk Factors
              45Item
                  6 - Exhibits
              46Signatures
              47
  2
  **ITEM
        1 - FINANCIAL STATEMENTS**
  **Highbury
        Financial Inc. and Subsidiary**
 
 **Condensed
        Consolidated Balance Sheets**
 
 **March
                  31, 2007**
              
              **December
                  31, 2006***(unaudited)*Current
                  assets:Cash
                  and equivalents
              
              $
              7,607,019
              
              $
              6,248,705Short-term
                  investments
              
              
              1,514,606
              
              
              -Marketable
                  securities
              
              
              1,005,010
              
              
              -Accounts
                  receivable (Note 11)
              
              
              3,603,560
              
              
              3,646,422Prepaid
                  expenses
              
              
              128,550
              
              
              221,220Other
                  current assets
              
              
              -
              
              
              13,670Total
                  current assets
              
              
              13,858,745
              
              
              10,130,017Fixed
                  assets
              
              
              1,177,817
              
              
              573,534Accumulated
                  depreciation
              
              
              (34,864
              )
              
              -Net
                  fixed assets
              
              
              1,142,953
              
              
              573,534Identifiable
                  intangibles (Note 3)
              
              
              26,753,000
              
              
              26,753,000Goodwill
                  (Note 3)
              
              
              9,673,412
              
              
              9,673,412Deferred
                  income taxes (Notes 3, 9)
              
              
              -
              
              
              87,276Other
                  long term assets
              
              
              150,677
              
              
              150,000Total
                  assets
              
              $
              51,578,787
              
              $
              47,367,239Current
                  liabilities:Accounts
                  payable and accrued expenses (Note 5)
              
              $
              4,487,951
              
              $
              2,269,470Income
                  taxes payable (Note 9)
              
              
              316,333
              
              
              242,089Deferred
                  income taxes (Notes 3, 9)
              
              
              140,412
              
              
              -Total
                  current liabilities
              
              
              4,944,696
              
              
              2,511,559Deferred
                  rent (Note 4)
              
              
              590,413
              
              
              -Total
                  liabilities
              
              
              5,535,109
              
              
              2,511,559Commitments
                  and contingencies (Note 7)
              
              
              -
              
              
              -Minority
                  interest (Note 3)
              
              
              840,000
              
              
              626,901Stockholders'
                  equity (Notes 2, 3, 8):Preferred
                  stock, $0.0001 par value, authorized 1,000,000shares;
                  none issued
              
              
              -
              
              
              -Common
                  stock, $0.0001 par value, authorized 50,000,000shares;
                  9,527,000 shares issued and outstanding as of March 31, 2007
                  andDecember
                  31, 2006
              
              
              953
              
              
              953Additional
                  paid-in capital
              
              
              56,693,484
              
              
              56,693,484Accumulated
                  deficit
              
              
              (11,490,759
              )
              
              (12,465,658
              )Total
                  stockholders' equity
              
              
              45,203,678
              
              
              44,228,779Total
                  liabilities and stockholders' equity
              
              $
              51,578,787
              
              $
              47,367,239
 
 See
        Notes
        to Unaudited Condensed Consolidated Financial Statements
  3
  **Highbury
        Financial Inc. and Subsidiary**
 
 **Condensed
        Consolidated Statements of Operations**
 *(unaudited)*
 
 **Three
                  Months Ended**
              
              **Three
                  Months Ended****March
                  31, 2007**
              
              **March
                  31, 2006**Revenue
                  (Note 11)
              
              $
              11,055,186
              
              $
              -Operating
                  expenses:Distribution
                  and sub-advisory costs
              
              $
              (5,226,124
              )
              $
              -Compensation
                  and related expenses
              
              
              (1,328,764
              )
              
              -Amortization
                  of intangible assets
              
              
              -
              
              
              -Depreciation
                  and other amortization
              
              
              (34,864
              )
              
              -Other
                  operating expenses
              
              
              (1,410,100
              )
              
              (90,153
              )Total
                  expenses
              
              
              (7,999,852
              )
              
              (90,153
              )Operating
                  income / (loss)
              
              
              3,055,334
              
              
              (90,153
              )Non-operating
                  income:Interest
                  income
              
              
              84,321
              
              
              244,503Investment
                  income
              
              
              5,000
              
              
              -Total
                  non-operating income
              
              
              89,321
              
              
              244,503Income
                  before minority interest
              
              
              3,144,655
              
              
              154,350Minority
                  interest (Note 3)
              
              
              (1,595,824
              )
              
              -Income
                  before provision for income taxes
              
              
              1,548,831
              
              
              154,350Provision
                  for income taxes (Note 9):Current
              
              
              (346,244
              )
              
              (109,498
              )Deferred -
                  Intangible-related
              
              
              (224,968
              )
              
              -Deferred -
                  Other
              
              
              (2,720
              )
              
              52,303Total
                  income taxes
              
              
              (573,932
              )
              
              (57,195
              )Net
                  income for the period
              
              $
              974,899
              
              $
              97,155Weighted
                  average shares outstanding, basic
              
              
              9,527,000
              
              
              7,345,000Net
                  income per share, basic
              
              $
              0.10
              
              $
              0.01Weighted
                  average shares outstanding, diluted
              
              
              11,445,418
              
              
              7,345,000Net
                  income per share, diluted
              
              $
              0.09
              
              $
              0.01
  See
        Notes
        to Unaudited Condensed Consolidated Financial Statements
  4
  **Highbury
        Financial Inc. and Subsidiary**
 
 **Condensed
        Consolidated Statements of Cash Flows**
 *(unaudited)*
 
 **Three
                  Months Ended**
                **March
                  31, 2007**
              
              **Three
                  Months Ended**
                **March
                  31, 2006**Cash
                  flows from operating activities:Net
                  income for the period
              
              $
              974,899
              
              $
              97,155Adjustments
                  to reconcile net income tonet
                  cash used in operating activities:(Increase)
                  / decrease in deferred taxes
              
              
              227,688
              
              
              (52,303
              )Depreciation
                  and other amortization
              
              
              34,864
              
              
              -Changes
                  in operating assets and liabilities:(Increase)
                  / decrease in trust account
              
              
              -
              
              
              (310,458
              )(Increase)
                  / decrease in short-term investments
              
              
              (1,514,606
              )
              
              -(Increase)
                  / decrease in marketable securities
              
              
              (5,000
              )
              
              -(Increase)
                  / decrease in accounts receivable
              
              
              42,862
              
              
              -(Increase)
                  / decrease in prepaid expenses
              
              
              92,670
              
              
              (131,463
              )(Increase)
                  / decrease in other current assets
              
              
              13,670
              
              
              -(Increase)
                  / decrease in other long term assets
              
              
              (677
              )
              
              -Increase
                  / (decrease) in accounts payable and accrued expenses
              
              
              2,218,481
              
              
              52,203Increase
                  / (decrease) in deferred interest
              
              
              -
              
              
              65,955Increase
                  / (decrease) in income taxes payable
              
              
              74,244
              
              
              109,498Increase
                  / (decrease) in deferred rent
              
              
              68,053
              
              
              -Increase
                  / (decrease) in minority interest
              
              
              213,099
              
              
              -Net
                  cash provided by / (used in) operating activities
              
              
              2,440,247
              
              
              (169,413
              )Cash
                  flows from investing activities:Cash
                  held in trust account
              
              
              -
              
              
              (43,289,567
              )Purchase
                  of investments
              
              
              (1,000,010
              )
              
              -Payment
                  for acquisition
              
              
              -
              
              
              -Receipt
                  of cash for working capital in acquisition
              
              
              -
              
              
              -Payment
                  of costs of the acquisition
              
              
              -
              
              
              -Capital
                  expenditures
              
              
              (81,923
              )
              
              -Net
                  cash used in investing activities
              
              
              (1,081,933
              )
              
              (43,289,567
              )Cash
                  flows from financing activities: (Note 2)Proceeds
                  from sale of shares of common stock and warrants
              
              
              -
              
              
              47,460,000Proceeds
                  from issuance of option
              
              
              -
              
              
              100Payments
                  of notes payable, stockholders
              
              
              -
              
              
              (70,000
              )Payment
                  of costs of public offering
              
              
              -
              
              
              (2,944,987
              )Net
                  cash provided by financing activities
              
              
              -
              
              
              44,445,113Net
                  increase in cash
              
              
              1,358,314
              
              
              986,133Cash
                  at beginning of period
              
              
              6,248,705
              
              
              36,902Cash
                  at end of period
              
              $
              7,607,019
              
              $
              1,023,025Supplemental
                  schedule of non-cash financing and investing activities:Accrual
                  of costs of public offering
              
              $
              -
              
              $
              206,586Accrual
                  of acquisition costs
              
              
              -
              
              
              673,333Deferred
                  rent and leasehold improvements recorded in connection with construction
                  allowance
              
              
              522,360
              
              
              -Supplemental
                  disclosure of cash flow information:Cash
                  paid for taxes
              
              $
              272,000
              
              $
              2,146
 
 See
        Notes
        to Unaudited Condensed Consolidated Financial Statements
 
 5
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Unaudited Condensed Consolidated Financial Statements**
 **1.
        Basis of Presentation**
 
 The
        accompanying condensed consolidated financial statements as of March 31,
        2007
        and for the three months ended March 31, 2007 and March 31, 2006 are unaudited
        and include the accounts of Highbury Financial Inc. (“Highbury” or the
“Company”) and its 65%-owned subsidiary, Aston Asset Management LLC (“Aston”).
        The Company has selected December 31 as its fiscal year end.
 
 In
        the
        opinion of management, all adjustments (consisting of normal accruals) have
        been
        made that are necessary to present fairly the consolidated financial position
        of
        the Company as of March 31, 2007 and the consolidated results of operations
        and
        consolidated cash flows for the three months ended March 31, 2007 and March
        31,
        2006. Operating results for the interim periods presented are not necessarily
        indicative of the results to be expected for a full year. The accompanying
        December 31, 2006 consolidated balance sheet has been derived from the audited
        consolidated financial statements. The condensed consolidated financial
        statements should be read in conjunction with the consolidated financial
        statements and notes thereto included in our Annual Report on Form 10-K for
        the
        year ended December 31, 2006.
 
 The
        accompanying consolidated financial statements and related notes have been
        prepared pursuant to the rules and regulations of the U.S. Securities and
        Exchange Commission. Accordingly, certain information and footnote disclosures
        normally included in financial statements prepared in accordance with United
        States generally accepted accounting principles have been omitted pursuant
        to
        such rules and regulations.
 
 Highbury
        is an investment management holding company providing permanent capital
        solutions to mid-sized investment management firms. The Company pursues
        acquisition opportunities and seeks to establish accretive partnerships with
        high quality investment management firms. Highbury’s strategy is to provide
        permanent equity capital to fund buyouts from corporate parents, buyouts
        of
        founding or departing partners, growth initiatives, or exit strategies for
        private equity funds. This strategy includes leaving material equity interests
        with management teams to align the interests of management and Highbury’s
        shareholders and, in general, does not include integrating future acquisitions,
        although Highbury may execute add-on acquisitions for its current or future
        affiliates. The Company seeks to augment and diversify its sources of revenue
        by
        asset class, investment style, distribution channel, client type and management
        team.
  **2.
        Initial Public Offering**
 
 Highbury
        was incorporated in Delaware on July 13, 2005 to acquire, or acquire control
        of,
        operating businesses in the financial services industry that may provide
        significant opportunities for growth, with a particular focus on investment
        management and securities firms (“Business Combination”).
 
 The
        registration statement for the Company's initial public offering ("Offering")
        was declared effective January 25, 2006. The Company consummated the Offering,
        including full exercise of the over-allotment option, on January 31, 2006
        and
        February 3, 2006, respectively. Simultaneously with the Offering, all of
        the
        Company's stockholders prior to the Offering (the “Initial Stockholders”),
        including all of the officers and directors of the Company, purchased an
        aggregate of 166,667 units from the Company in a private placement (the “Private
        Placement”). The units sold in the Private Placement were identical to the units
        sold in the Offering, but the purchasers in the Private Placement waived
        their
        rights to conversion and to receipt of distribution on liquidation in the
        event
        the Company did not complete a Business Combination.
 
 The
        Company sold 7,910,000 units ("Units") in the Private Placement and the
        Offering, which included the 1,010,000 Units subject to the underwriters’
over-allotment option. Each Unit consists of one share of the Company's common
        stock, $0.0001 par value (“Common Stock”), and two redeemable common stock
        purchase warrants ("Warrants"). Each Warrant entitles the holder to purchase
        from the Company one share of Common Stock at an exercise price of $5.00
        commencing January 25, 2007 and expiring four years from the effective date
        of
        the Offering (January 25, 2010). The Warrants will be redeemable, at the
        Company's option, at a price of $0.01 per Warrant upon 30 days' notice after
        the
        Warrants become exercisable, only in the event that the last sale price of
        the
        Common Stock is at least $8.50 per share for any 20 trading days within a
        30
        trading day period ending on the third day prior to the date on which notice
        of
        redemption is given. Separate trading of the Common Stock and Warrants
        underlying the Company’s Units was permitted on February 21, 2006 and commenced
        on March 1, 2006.
  6
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Unaudited Condensed Consolidated Financial
          Statements**
  Under
        the
        terms of the Warrants, the Company is required to use its best efforts to
        maintain the effectiveness of the registration statement covering the shares
        of
        Common Stock underlying the Warrants. However, the Company is not obligated
        to
        deliver securities, and there are no contractual penalties for failure to
        deliver securities, if a registration statement is not effective at the time
        of
        exercise. Additionally, in the event that a registration statement is not
        effective at the time of exercise, the holder of such Warrant shall not be
        entitled to exercise such Warrant. The Company entered into an Amended and
        Restated Clarification Agreement on December 15, 2006, which clarifies that
        in
        no event (whether in the case of a registration statement not being effective
        or
        otherwise) is the Company required to net cash settle the Warrants.
        Consequently, the Warrants will expire unexercised and unredeemed if there
        is no
        effective registration statement covering the shares of Common Stock issuable
        upon exercise of the Warrants.
 
 In
        connection with the Offering, the Company issued an option, for $100, to
        the
        underwriters to purchase 336,667 Units at an exercise price of $7.50 per
        Unit.
        The option is exercisable beginning on January 25, 2007 and expires on January
        25, 2010. The Company has accounted for the fair value of the option, inclusive
        of the receipt of the $100 cash payment, as an expense of the public offering
        resulting in a charge directly to stockholders' equity. The Company estimates
        that the fair value of this option was approximately $423,000 ($1.26 per
        Unit)
        using a Black-Scholes option pricing model. The fair value of the option
        granted
        to the underwriters was estimated as of the date of grant using the following
        assumptions: (1) expected volatility of 29.0%, (2) risk-free interest rate
        of
        4.34% and (3) expected life of four years. The option may be exercised for
        cash
        or on a "cashless" basis, at the holder's option, such that the holder may
        use
        the appreciated value of the option (the difference between the exercise
        prices
        of the option and the underlying Warrants and the market price of the units
        and
        underlying securities) to exercise the option without the payment of any
        cash.
        In addition, the Warrants underlying such Units are exercisable at $6.25
        per
        share.
 
 The
        holder of the unit purchase option is not entitled to exercise the unit purchase
        option or the Warrants underlying the unit purchase option unless a registration
        statement covering the securities underlying the unit purchase option is
        effective or an exemption from registration is available. On December 15,
        2006,
        the Company entered into Amended Unit Purchase Options, which clarify that
        the
        option and underlying Warrants will expire unexercised and unredeemed if
        there
        is no effective registration statement covering the securities issuable upon
        exercise of the option. In addition, there are no circumstances under which
        the
        Company is required to net cash settle the purchase option or the underlying
        Warrants.
 
 The
        Company received proceeds from the Private Placement and the Offering, net
        of
        the underwriters’ discount and commissions and offering expenses, of
        approximately $43,783,582. An amount of $42,616,234 of the net proceeds of
        the
        Offering and the Private Placement and approximately $673,333 of compensation
        for the underwriters of the Offering, which was deferred until the consummation
        of a Business Combination (net of approximately $0.11 for each share of common
        stock converted in connection with the Business Combination as described
        below)
        but which would be forfeited if a Business Combination was not consummated,
        was
        placed in an interest-bearing trust account ("Trust Account") until the earlier
        of (i) the consummation of a Business Combination or (ii) liquidation of
        the
        Company. Under the agreement governing the Trust Account, funds were only
        invested in United States "government securities" within the meaning of Section
        2(a)(16) of the Investment Company Act of 1940 with a maturity of 180 days
        or
        less. The remaining net proceeds (not held in the Trust Account) have been
        used
        to pay for business, legal and accounting due diligence on prospective
        acquisitions and general and administrative expenses of the Company.
  7
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Unaudited Condensed Consolidated Financial Statements**
 On
        April
        20, 2006, the Company and Aston (together with Highbury, the “Highbury
        Entities”), entered into an Asset Purchase Agreement (“Asset Purchase
        Agreement”) with AAAMHI, ABN AMRO Investment Fund Services, Inc. (“AAIFS”), ABN
        AMRO Asset Management, Inc., (“AAAMI”), Montag & Caldwell, Inc., (“Montag”),
        Tamro Capital Partners LLC, (“TAMRO”), Veredus Asset Management LLC,
        (“Veredus”), and River Road Asset Management, LLC, (“River Road” and together
        with AAAMHI, AAIFS, AAAMI, Montag, TAMRO and Veredus individually referred
        to as
        a “Seller” and collectively as “Sellers”) to acquire substantially all of the
        Sellers’ business of providing investment advisory, administration, distribution
        and related services to the U.S. mutual funds (the “Target Funds”) specified in
        the Asset Purchase Agreement (collectively, the “Business”). After entering into
        the Asset Purchase Agreement, Highbury submitted the transaction for stockholder
        approval.
 
 The
        Initial Stockholders agreed to vote their 1,725,000 founding shares of common
        stock (Note 8), as well as the 166,667 shares of common stock included in
        the
        units they purchased in the Private Placement, in accordance with the vote
        of
        the majority in interest of all other stockholders of the Company ("Public
        Stockholders") with respect to any Business Combination. After the consummation
        of the Business Combination, these voting safeguards are no longer applicable.
 
 With
        respect to a Business Combination which was approved and consummated, any
        Public
        Stockholder who voted against the Business Combination had the right to demand
        that the Company convert his shares. The per share conversion price was equal
        to
        the amount in the Trust Account, net of taxes payable, calculated as of two
        business days prior to the consummation of the Business Combination, divided
        by
        the number of shares of common stock held by Public Stockholders at the
        consummation of the Offering. Such Public Stockholders were entitled to receive
        their per-share interest, net of taxes payable, in the Trust Account computed
        excluding the shares held by Initial Stockholders.
 
 The
        stockholders approved the Business Combination at the Company’s annual meeting
        of stockholders on November 27, 2006, and the Business Combination was
        subsequently consummated on November 30, 2006. The Company used approximately
        $40,459,312 of the proceeds of the Offering and the Private Placement to
        consummate the Business Combination with the Sellers. In connection with
        the
        consummation of the Business Combination, the Company converted 108,000 shares
        to cash for one Public Stockholder at a cost of $618,972, or approximately
        $5.73
        per share. These shares were subsequently retired by the Company. On November
        30, 2006, the Company paid the underwriters approximately $678,606, inclusive
        of
        the deferred interest, net of taxes payable, and less approximately $11,670
        for
        the shares of common stock which were converted. The Company recorded the
        deferred underwriting fees payable to the underwriters as an expense of the
        public offering resulting in a charge directly to stockholders'
        equity. ****
  **3.
        Significant Accounting Policies**
 
 *Cash
        and Cash Equivalents*
 
 The
        Company considers all highly liquid investments, including money market mutual
        funds, with original maturities of three months or less to be cash equivalents.
        Certain cash accounts are maintained at large financial institutions and,
        at
        times, may exceed federally insured limits.
 
 *Short-Term
        Investments*
 
 Short-term
        investments includes a zero coupon U.S. Treasury Bill with a maturity of
        July
        19, 2007 carried on the Company’s financial statements at $1,514,606 as of March
        31, 2007.
  8
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Unaudited Condensed Consolidated Financial Statements**
 *Marketable
        Securities*
 
 In
        March
        2007, Highbury invested $1,000,010 of initial seed capital in the Aston/River
        Road Small-Mid Cap Fund, a new mutual fund started by Aston. As of March
        31,
        2007, the investment was valued at $1,005,010. This balance is reflected
        on the
        balance sheet as of March 31, 2007 in the line item investments, and the
        change
        in the value of the investment is reflected as investment income on the
        statement of operations for the three months ended March 31, 2007. Highbury
        expects to redeem this investment during the second quarter of 2007. Securities
        underlying the amounts reflected on the balance sheet include investments
        in
        common stock of corporations and cash.
 
 *Fixed
        Assets*
 
 Fixed
        assets are recorded at cost and depreciated using the straight-line method
        over
        their estimated useful lives. The estimated useful lives of office equipment
        and
        furniture and fixtures generally range from three to eleven years. Computer
        software developed or obtained for internal use is amortized using the
        straight-line method over the estimated useful life of the software, generally
        three years or less. The costs of improvements that extend the life of a
        fixed
        asset are capitalized, while the cost of repairs and maintenance are expensed
        as
        incurred. Leasehold improvements are amortized over the shorter of their
        expected useful lives or the remaining term of the lease for which they are
        incurred. Under the terms of Highbury’s credit facility (Note 6), these fixed
        assets are collateral for borrowings under the credit facility.
 
 *Goodwill
        and Intangible Assets*
 
 The
        purchase price and the capitalized transaction costs incurred in connection
        with
        the acquisition of the Business are allocated based on the fair value of
        the
        assets acquired, which is primarily the acquired mutual fund advisory contract.
        In determining the allocation of the purchase price to the acquired mutual
        fund
        advisory contract, Highbury analyzed the present value of the acquired business’
mutual fund advisory contract based on a number of factors including: the
        acquired business’ historical and potential future operating performance; the
        historical and potential future rates of new business from new and existing
        clients and attrition among existing clients; the stability and longevity
        of
        existing advisory and sub-advisory relationships; the acquired business’ recent,
        as well as long-term, investment performance; the characteristics of the
        acquired business’ products and investment styles; the stability and depth of
        the management team; and the acquired business’ history and perceived franchise
        or brand value.
  The
        Company has determined that the acquired mutual fund advisory contract meets
        the
        indefinite life criteria outlined in FAS No. 142, "Goodwill and Other Intangible
        Assets" ("FAS 142"), because the Company expects both the contract and the
        cash
        flows generated by the contract to continue indefinitely due to the likelihood
        of continued renewal at little or no cost. Accordingly, the Company does
        not
        amortize this intangible asset, but instead assesses, each reporting period,
        whether events or circumstances have occurred which indicate that the indefinite
        life criteria are no longer met. If the Company determines the indefinite
        life
        criteria are no longer met, the Company will amortize the asset over its
        remaining useful life. The Company reviews this asset for impairment at least
        annually, or more frequently whenever events or circumstances occur indicating
        that the recorded intangible asset may be impaired. If Highbury concludes
        that
        the carrying value of the asset exceeds its fair value, an impairment loss
        will
        be recorded in an amount equal to any such excess.
 
 The
        excess of purchase price for the acquisition of the Business over the fair
        value
        of net assets acquired, including the acquired mutual fund advisory contract,
        is
        reported as goodwill. Goodwill is not amortized, but is instead reviewed
        for
        impairment. The Company assesses goodwill for impairment at least annually,
        or
        more frequently whenever events or circumstances occur indicating that the
        recorded goodwill may be impaired. If the carrying amount of goodwill exceeds
        the fair value, an impairment loss would be recorded in an amount equal to
        that
        excess.
  9
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Unaudited Condensed Consolidated Financial Statements**
 *Restricted
        Cash*
 
 Under
        the
        terms of the letter of credit provided to the lessor in connection with Aston’s
        lease agreement, the Company is required to maintain $150,000 on deposit
        with
        the bank. This balance is included in other long-term assets on the balance
        sheet.
 
 *Deferred
        Income Taxes*
 
 Deferred
        income taxes reflect the expected future tax consequences of temporary
        differences between the bases of assets and liabilities for financial reporting
        and income tax purposes. During the Company’s development stage, which ended on
        November 30, 2006, many of its expenses were not deductible for income tax
        purposes. Since the Company is no longer in the development stage, most of
        its
        expenses are currently deductible for income tax purposes. The Company will
        amortize the non-deductible expenses it incurred during its development stage
        for income tax purposes over the next 15 years. A valuation allowance may
        be
        established when necessary to reduce deferred tax assets to the amount expected
        to be realized. Highbury’s deferred income taxes principally relate to the
        amortization of intangible assets and non-deductible expenses.
 
 *Minority
        Interest*
 
 Highbury
        owns 65% of Aston and is its manager member. Highbury has a contractual
        arrangement with Aston whereby a percentage of revenue is allocable to fund
        Aston’s operating expenses, including compensation (the Operating Allocation),
        while the remaining portion of revenue (the Owners' Allocation) is allocable
        to
        the Company and the other members, with a priority to Highbury. The portion
        of
        the income or loss of Aston allocated to owners other than Highbury is included
        in minority interest in the Consolidated Statements of Income. Minority interest
        on the Consolidated Balance Sheets includes capital and undistributed income
        owned by the Management Members. Additionally as of March 31, 2007,
        approximately $1,382,725 of undistributed Owners’ Allocation owed to the
        Management Members is included as a distribution payable within accounts
        payable
        and accrued expenses on the Consolidated Balance Sheets. This amount was
        subsequently paid to the Management Members in April 2007.
 
 *Revenue
        Recognition*
 
 Highbury
        derives its operating revenues from Aston, its majority-owned subsidiary.
        Highbury also earns interest income on its cash balances.
 
 Aston
        earns investment advisory and administrative fees for services provided to
        the
        Aston Funds, six money market funds advised by AAAMHI and a limited number
        of
        separately managed accounts. These fees are primarily based on predetermined
        percentages of the market value of the assets under management and are billed
        in
        arrears of the period in which they are earned. These fees are recognized
        over
        the period in which services are performed unless facts and circumstances
        would
        indicate that collectibility of the fees is not reasonably assured. Expense
        reimbursements to certain of the Aston Funds in accordance with agreements
        are
        reported as an offset to investment advisory fees.
  Substantially
        all of Aston’s revenues are derived from the Aston Funds for which Aston is the
        investment advisor. Management has determined that no allowance for doubtful
        accounts is necessary due to all fees being collected within one month from
        the
        date of invoice.
 
 *Distribution
        and Advisory Costs*
 
 Included
        in distribution and advisory costs in the accompanying financial statements
        are
        fees paid to nine institutional investment management firms pursuant to
        contracts related to the management and distribution of the Aston Funds and
        managed account assets. Such costs are recorded in the period incurred. Aston
        pays investment sub-advisory fees pursuant to management contracts with these
        entities under which these firms provide investment sub-advisory services
        to
        certain Aston Funds. Aston has also entered into nearly 400 selling/service
        agreements through which independent third parties sell the Aston Funds and/or
        provide other services to their clients in exchange for certain payments.
        Unless
        paid pursuant to the Aston Funds’ Rule 12b-1 Plan, these payments, as well as
        certain sales and marketing costs, are included within distribution and
        sub-advisory costs.
  10
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Unaudited Condensed Consolidated Financial
          Statements**
  *Leases*
 
 Aston
        currently leases office space for its primary office in Chicago and for two
        satellite offices in New Jersey and California under various leasing
        arrangements. As these leases expire, it can be expected that in the normal
        course of business they will be renewed or replaced. All leases and subleases
        are accounted for under Statement of Financial Accounting Standard ("FAS")
        No.
        13, "Accounting for Leases." These leases are classified as operating leases.
        Most lease agreements classified as operating leases contain renewal options,
        rent escalation clauses or other inducements provided by the landlord. Rent
        expense is accrued to recognize lease escalation provisions and inducements
        provided by the landlord, if any, on a straight-line basis over the lease
        term.
 
 *Loss
        Contingencies*
 
 Highbury
        accrues estimates for loss contingencies related to legal actions,
        investigations and proceedings when it is probable that a liability has been
        incurred and the amount of loss can be reasonably estimated. Currently, the
        Company is unaware of any legal actions, investigations or proceedings which
        could result in a loss to Highbury. As such, the Company has not accrued
        for any
        such contingencies.
 
 *Income
        Per Common Share*
 
 Income
        per share is computed by dividing net income by the weighted average number
        of
        shares of common stock outstanding during the period. The dilutive effect
        of the
        Company’s 15,820,000 outstanding Warrants has been included in diluted income
        per share calculations for the three months ended March 31, 2007. The dilutive
        effect of the Warrants is calculated using the treasury stock method and
        the
        weighted average stock price for the period. The Warrants have not been
        considered for the three months ended March 31, 2006 because the Warrants
        were not exercisable until the later of the completion of the Business
        Combination and January 25, 2007 .
        The
        dilutive effect of the 336,667 Units included in the underwriters’ purchase
        option has not been considered in diluted income per share calculations for
        the
        periods because in each period the unit purchase option was out-of-the-money
        based on the weighted average stock price for the period.
  *Fair
        Value*
 
 Financial
        Accounting Standard No. 107 ("FAS 107"), "Disclosures about Fair Value of
        Financial Instruments," requires Highbury to disclose the estimated fair
        values
        for certain of its financial instruments. Financial instruments include items
        such as accounts receivable, accounts payable, loans, interest rate contracts,
        notes payable and other items as defined in FAS 107.
 
 Fair
        value of a financial instrument is the amount at which the instrument could
        be
        exchanged in a current transaction between willing parties, other than in
        a
        forced or liquidation sale. Quoted market prices are used when available;
        otherwise, management estimates fair value based on prices of financial
        instruments with similar characteristics or by using valuation techniques
        such
        as discounted cash flow models. Valuation techniques involve uncertainties
        and
        require assumptions and judgments regarding prepayments, credit risk and
        discount rates. Changes in these assumptions will result in different valuation
        estimates. The fair value presented would not necessarily be realized in
        an
        immediate sale nor are there typically plans to settle liabilities prior
        to
        contractual maturity. Additionally, FAS 107 allows companies to use a wide
        range
        of valuation techniques; therefore, it may be difficult to compare the Company's
        fair value information to other companies' fair value information.
  11
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Unaudited Condensed Consolidated Financial Statements**
 The
        carrying amounts of cash and equivalents, accounts receivable and accounts
        payable approximates fair value because of the short-term nature of these
        instruments.
 
 *Segment
        Information*
 
 SFAS
        No.
        131, “Disclosures about Segments of an Enterprise and Related Information,”
establishes disclosure requirements relating to operating segments in annual
        and
        interim financial statements. Management has determined that the Company
        operates in one business segment, namely as an investment adviser managing
        mutual funds and separate accounts.
 
 *Share-Based
        Compensation*
 
 In
        December 2004, the Financial Accounting Standards Board issued SFAS No. 123R,
        “Share-Based Payment”, (“SFAS No. 123R” or the “Statement”). This Statement is a
        revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS
        123”), and supersedes Accounting Principles Board Opinion No. 25, “Accounting
        for Stock Issued to Employees” (“APB No. 25”) and its related implementation
        guidance. On January 1, 2006, the Company adopted the provisions of SFAS
        No.
        123R using the modified prospective method. The Statement requires entities
        to
        recognize compensation expense for awards of equity instruments to employees
        based on the grant-date fair value of those awards (with limited exceptions).
        SFAS No. 123R also requires the benefits of tax deductions in excess of
        recognized compensation expense to be reported as financing cash flows.
 
 *Recent
        Accounting Pronouncements*
 
 **Fair
        Value Option for Financial Assets and Financial
        Liabilities:**
 In
        February 2007, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value
        Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits
        entities to choose to measure many financial instruments and certain other
        items
        at fair value. The objective of the statement is to improve financial reporting
        by providing entities with the opportunity to mitigate volatility in reported
        earnings caused by measuring related assets and liabilities differently without
        having to apply complex hedge accounting provisions. The provisions of SFAS
        No.
        159 are effective for fiscal years beginning after November 15, 2007. Management
        is currently evaluating this standard and its impact, if any, on the Company’s
        consolidated financial statements.
 
 Management
        does not believe that any other recently issued, but not yet effective,
        accounting standards if currently adopted would have a material effect on
        the
        accompanying financial statements.
  12
 
 **Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial
        Statements**




**4.
        Lease Commitments**
 
 Aston
        currently leases office space for its primary office in Chicago and for two
        satellite offices in New Jersey and California under various leasing
        arrangements. The lease for the office in New Jersey expires in May 2007.
        The
        lease for the office in California is on a month-to-month basis. At March
        31,
        2007, the Company's aggregate future minimum payments for the Chicago lease,
        which carries an eleven year term, are payable as follows:
  Year
                  ending December 31,
              
              Required
                  Minimum Payments
              
              Annual
                  Lease Expense2007
              
              $
              17,412
              
              $
              206,5642008
              
              
              215,474
              
              
              219,1742009
              
              
              222,003
              
              
              219,1742010
              
              
              228,533
              
              
              219,1742011
              
              
              235,062
              
              
              219,174Thereafter
              
              
              1,279,257
              
              
              1,114,481Total
              
              $
              2,197,741
              
              $
              2,197,741
  In
        addition to the base rent, Aston is required to pay its pro rata share of
        the
        real estate taxes and operating expenses of its building. The figures in
        the
        table above reflect the base annual rent payments and the base annual rent
        expense on a straight line basis in accordance with SFAS 13. During the
        first three months of 2007, Aston recognized $52,284 of rent expense in
        connection with this lease. Under the terms of Aston’s lease, Aston is entitled
        to an abatement of the base rent and real estate taxes and operating expenses
        for a period of 11 months at the beginning of the lease term. This abatement
        period will end in December 2007. Management has estimated that the
        abatement relating to real estate taxes and operating expenses is approximately
        $190,000. In addition, the lessor contributed $522,360 to the construction
        costs
        in connection with the build-out of the office space. This construction
        allowance, certain leasehold improvements incurred by Aston in connection
        with
        the build-out of the office space and the aforementioned abatement of the
        real
        estate taxes and operating expenses have been recorded as deferred rent and
        are
        being amortized as a reduction to rent expense over the term of the lease
        in
        accordance with SFAS 13. The amortization of these deferred rent amounts
        are not
        included in the annual rent expense schedule above. Also, Aston has an option
        to
        extend the lease under the same terms and conditions for a single additional
        five-year period.
  **5.
        Accounts Payable and Accrued Expenses**
 
 Accounts
        payable and accrued expenses consisted of the following:
 
 At
                  March 31,
              
              At
                  December 31,2007
              
              2006Payable
                  to sub-advisors
              
              $
              1,183,494
              
              $
              1,556,961Payable
                  to brokers
              
              
              756,161
              
              
              239,949Payable
                  to Management Members
              
              
              1,382,725
              
              
              -Other
                  payables
              
              
              1,165,571
              
              
              472,560$
              4,487,951
              
              $
              2,269,470
  13
 
 **Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial
        Statements**




**6.
        Credit Facility**
 
 Highbury
        entered into a credit agreement with City National Bank on August 21, 2006,
        which provides for a revolving line of credit of up to $12.0 million. On
        November 9, 2006, the Company entered into a new credit agreement with City
        National Bank which amended and restated the initial credit agreement to
        amend
        the definitions of debt and net worth to exclude the effects of accounting
        for
        the Company’s outstanding common stock warrants and the underwriters’ unit
        purchase option as liabilities. Highbury subsequently determined that it
        should
        account for these securities as equity. The credit facility will be used
        for
        working capital, general corporate purposes and repurchases of the Company’s
        outstanding securities, if appropriate.
 
 The
        Company’s borrowing under the credit facility bears interest, at Highbury’s
        option, at either the fluctuating prime rate minus 0.50% or LIBOR plus 1.50%.
        In
        addition, Highbury will pay annually a fee of 0.25% on the average daily
        balance
        of the unused portion of the credit facility. The Company will have to make
        interest payments monthly for any prime rate borrowings. For any LIBOR
        borrowings, interest payments will be made at the end of any LIBOR contract
        or
        quarterly, whichever is sooner. Any outstanding principal is due at maturity
        on
        October 31, 2007.
 
 The
        credit facility is secured by all of our assets and contains customary and
        appropriate affirmative and negative covenants for financings of its type
        (subject to customary exceptions). The financial covenants include a maximum
        total leverage ratio of 2.0x EBITDA and a minimum net worth of $20 million.
        Other covenants will, among other things, limit our ability to incur liens
        or
        other encumbrances, make certain investments, dispose of assets, enter into
        mergers or acquisitions and incur indebtedness.
 
 There
        were no borrowings outstanding under this facility at any point in 2006 or
        in
        the first quarter of 2007, including at March 31, 2007. Highbury has maintained
        compliance with the applicable covenants of this facility in the first quarter
        of 2007.
  **7.
        Commitments and Contingencies**
 
 The
        Asset
        Purchase Agreement provides for a contingent adjustment payment payable in
        cash
        shortly after the second anniversary of the closing of the Business Combination.
        In the event the annualized investment advisory fee revenue generated under
        investment advisory contracts between Aston and the Target Funds or any other
        funds advised by Aston and sub-advised by the Sellers for the six months
        prior
        to the second anniversary of the date of the closing of the acquisition,
        or the
        Target Revenue:
 
 ·
              exceeds
                  $41.8 million, Aston and Highbury will collectively pay to AAAMHI
                  the
                  difference between the Target Revenue and $41.8 million, up to
                  a total
                  aggregate payment of $3.8 million; or
 
 ·
              is
                  less than $34.2 million, AAAMHI will pay to Aston and Highbury
                  the
                  difference between the $34.2 million and the Target Revenue, up
                  to a total
                  aggregate payment of $3.8 million.
 
 The
        future annualized revenue will be determined based on the definition of
“Approved Target Funds” which includes the existing funds and new funds or
        classes of funds which are advised by Aston and sub-advised by the Sellers.
        As a
        result, in the event that Highbury were to acquire other mutual fund investment
        managers and the trustees of those mutual funds were to retain sub-advisers
        affiliated with the Sellers, such revenues would be counted for purposes
        of
        calculation of the future annualized revenue. For the six-month period ended
        March 31, 2007, the annualized investment advisory fee revenue generated
        under
        investment advisory contracts between Aston and the Target Funds was $38.8
        million. As such, Highbury has not accrued any liability for this
        contingency.
 
 The
        Company presently occupies office space provided by an affiliate of several
        of
        our Initial Stockholders. Such affiliate has agreed that it will make such
        office space, as well as certain office and secretarial services, available
        to
        the Company, as may be required by the Company from time to time. The Company
        has agreed to pay such affiliate $7,500 per month for such services commencing
        on January 26, 2006. The statements of operations for the three month periods
        ended March 31, 2007 and March 31, 2006 include $22,500 and $16,452,
        respectively, related to this agreement. The agreement is terminable by either
        party upon six months’ prior notice.
  14
 
 **Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial
        Statements**




The
        Initial Stockholders are entitled to registration rights with respect to
        the
        shares of common stock and warrants of the Company owned by them. The holders
        of
        the majority of the founding shares are entitled to make up to two demands
        that
        the Company register these shares and any other warrants or shares of the
        Company owned by them (excluding the shares purchased in the Private Placement)
        at any time commencing on the date the founding shares are released from
        escrow.
        In addition, the Initial Stockholders have certain "piggy-back" registration
        rights with respect to such securities on registration statements filed
        subsequent to the date the founding shares are released from escrow. The
        holders
        of a majority of the units purchased in the Private Placement are entitled
        to
        make up to two demands that the Company register the shares, warrants and
        shares
        underlying the warrants comprising such units at any time commencing on the
        date
        the Company consummates a Business Combination. In addition, the Initial
        Stockholders have certain "piggy-back" registration rights with respect to
        such
        securities on registration statements filed subsequent to the date the Company
        consummates a Business Combination. The Company will bear the expenses incurred
        in connection with the filing of any of the foregoing registration
        statements.
 
 The
        founding shares have been placed in escrow until the earliest of: (1) January
        25, 2009; (2) the Company's liquidation; and (3) the consummation of a
        liquidation, merger or stock exchange, stock purchase or other similar
        transaction which results in all of the Company's stockholders having the
        right
        to exchange their shares of common stock for cash, securities or other property.
        During the escrow period, the Initial Stockholders may not sell or transfer
        their founding shares except among the Initial Stockholders, to their spouses
        and children or trusts established for their benefit, by virtue of the laws
        of
        decent and distribution upon the death of any Initial Stockholder or pursuant
        to
        a qualified domestic relations order, but the Initial Stockholders retain
        all
        other rights as stockholders, including, without limitation, the right to
        vote
        their shares and receive cash dividends, if declared.
 
 The
        Company paid fees and issued securities to the underwriters in the Offering
        as
        described above in Note 2.
 
 Highbury
        and Aston are subject to claims, legal proceedings and other contingencies
        in
        the ordinary course of their business activities. Each of these matters is
        subject to various uncertainties, and it is possible that some of these matters
        may be resolved in a manner unfavorable to the Company or Aston. Highbury
        and
        Aston establish accruals for matters for which the outcome is probable and
        can
        be reasonably estimated. Management is not aware of any claims, legal
        proceedings and other contingencies that could result in a loss to Highbury
        or
        Aston. As such, no contingencies have been accrued.
  **8.
        Stockholders’ Equity**
 
 *Preferred
        Stock*
 
 The
        Company is authorized to issue 1,000,000 shares of preferred stock, par value
        $0.0001 per share, with such designations, voting and other rights and
        preferences as may be determined from time to time by the Board of Directors.
        As
        of March 31, 2007, no shares of preferred stock have been issued.
 
 *Common
        Stock*
 
 The
        Company’s initial stockholders purchased 1,500,000 common shares for $25,000 on
        August 1, 2005. On January 13, 2006, the Board of Directors authorized a
        stock
        dividend of 0.15 shares of common stock for each share of common stock
        outstanding, bringing the initial outstanding shares to 1,725,000. All
        references in the accompanying financial statements to the number of shares
        of
        stock outstanding have been retroactively restated to reflect the stock
        dividend. The Company sold 7,910,000 Units in the Private Placement and the
        Offering, which included all of the 1,010,000 Units subject to the underwriters’
over-allotment option. Included in these Units were one share of common stock
        and two warrants to purchase shares of common stock. In connection with the
        consummation of the Business Combination, the Company repurchased 108,000
        shares
        from one Public Stockholder. As of March 31, 2007, 9,527,000 shares of common
        stock, par value $0.0001 per share, are issued and outstanding.
  15
 
 **Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial
        Statements**




*Common
        Stock Commitments*
 
 At
        March
        31, 2007, 15,820,000 shares of common stock were reserved for issuance upon
        exercise of redeemable Warrants and 1,010,001 shares of common stock were
        reserved for issuance upon exercise of the underwriters' unit purchase option.
        Upon exercise of the underwriters’ unit purchase option, the underwriters will
        receive 336,667 Units, each of which will include one share of common stock
        and two warrants to purchase shares of common stock.
  **9.
        Income Taxes**
 
 We
        adopted the provisions of Financial Standards Accounting Board Interpretation
        No. 48 Accounting for Uncertainty in Income Taxes ("FIN 48") an interpretation
        of FASB Statement No. 109 ("SFAS 109") on January 1, 2007. As a result of
        the
        implementation of FIN 48, we recognized no material adjustment in the liability
        for unrecognized income tax benefits. At the adoption date of January 1,
        2007,
        we had no unrecognized tax benefits, and at March 31, 2007, we continue to
        have
        no unrecognized tax benefits. We will recognize interest and penalties related
        to uncertain tax positions in income tax expense. As of March 31, 2007, we
        do
        not have any accrued interest related to uncertain tax positions. The tax
        years
        2005 and 2006 remain open to examination by the major taxing jurisdictions
        to
        which we are subject.
 
 The
        provisions for income taxes for the three months ended March 31, 2007 and
        March
        31, 2006 consist of the following:
  **Three
                  Months Ended March 31, 2007**
              
              **Three
                  Months Ended March 31, 2006**CurrentFederal
              
              $
              302,982
              
              $
              95,817State
              
              
              43,262
              
              
              13,681DeferredFederal
              
              
              199,239
              
              
              (45,768
              )State
              
              
              28,449
              
              
              (6,535
              )$
              573,932
              
              $
              57,195
  The
        sources of the net deferred tax liability are as follows:
  **March
                    31,****2007**Amortization
                    of goodwill for income tax purposes
                
                $
                299,957Amortization
                    of deferred expenses
                
                
                3,627Interest
                    income deferred for reporting purposes
                
                
                —Expenses
                    deferred for income tax purposes
                
                
                (163,172
                )Valuation
                    allowance
                
                
                —Net
                    deferred income taxes
                
                $
                140,412
  16
 
 **Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial
        Statements**




During
        2006, the Company began to generate taxable income and therefore is no longer
        recording a valuation allowance against its deferred tax assets. Deferred
        tax
        liabilities are primarily the result of tax deductions for the Company's
        intangible assets. The Company amortizes its acquired intangible assets over
        a
        15-year period for tax purposes only, reducing its tax basis below its carrying
        value for financial statement purposes and generating deferred taxes each
        reporting period. Highbury amortized $607,107 related to the goodwill and
        intangible assets in the three months ended March 31, 2007. Additionally,
        at
        November 30, 2006, when Highbury ceased to be a corporation in the development
        stage, the Company had total deferred expenses of $440,342 that are being
        amortized for tax purposes over a 15-year period. These expenses were currently
        deductible for financial statement purposes during Highbury’s development stage
        but were not deductible for tax purposes. Highbury amortized $7,339 of this
        deferred expense in the three months ended March 31, 2007.
  **10.
        Earnings Per Share**
 
 The
        calculation of basic earnings per share is based on the weighted average
        number
        of shares of the Company's common stock outstanding during the period. Diluted
        earnings per share is similar to basic earnings per share, but adjusts for
        the
        effect of the potential issuance of incremental shares of the Company's common
        stock. The following is a reconciliation of the numerator and denominator
        used
        in the calculation of earnings per share available to common stockholders.
 
 Three
                  Months Ended March 31,2007
              
              2006Numerator:Net
                  income
              
              $
              974,899
              
              $
              97,155Denominator:Average
                  shares outstanding - basic
              
              
              9,527,000
              
              
              7,345,000Dilutive
                  effect of Warrants
              
              
              1,918,418
              
              
              —Average
                  shares outstanding - diluted
              
              
              11,445,418
              
              
              7,345,000
 
 As
        of
        March 31, 2007, the Company’s dilutive instruments outstanding include
        15,820,000 Warrants which became eligible to be exercised on January 25,
        2007
        and 336,667 Units included in the underwriters’ purchase option. There are no
        effects of dilutive instruments included in the calculation for the three
        months
        ended March 31, 2006 because the Warrants were not exercisable until the
        later
        of the completion of the Business Combination and January 25, 2007 and the
        underwriters’ purchase option was out of the money based on the weighted average
        share price for the period. The dilutive effect of the Warrants is calculated
        using the treasury stock method and the average share price during the period.
        The Warrants are described in more detail in Note 2.
  **11.
        Related Party Transactions**
 
 Highbury’s
        Board of Directors has adopted certain policies and procedures for the review,
        approval and ratification of related party transactions, which the Company
        refers to as the Related Person Policy. Among other things, the Related Party
        Policy provides that any transaction, arrangement or relationship (or any
        series
        of similar transactions, arrangements or relationships) in which Highbury
        (including any of its subsidiaries) was, is or will be a participant and
        the
        amount involved exceeds $120,000, and in which any related person had, has
        or
        will have a direct or indirect material interest, must be reported to the
        Company’s board of directors prior to the consummation or amendment of the
        transaction. A related person, as defined in the Related Party Policy, means
        any
        person who is, or at any time since the beginning of the Company’s last fiscal
        year was, a director or executive officer of the Company or a nominee to
        become
        a director of the Company; any person who is known to be the beneficial owner
        of
        more than 5% of any class of Highbury’s voting securities; any immediate family
        member of any of the foregoing persons, which means any child, stepchild,
        parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
        daughter-in-law, brother-in-law, or sister-in-law of the director, executive
        officer, nominee or more than 5% beneficial owner, and any person (other
        than a
        tenant or employee) sharing the household of such director, executive officer,
        nominee or more than 5% beneficial owner; and any firm, corporation or other
        entity in which any of the foregoing persons is employed or is a general
        partner
        or principal or in a similar position or in which such person has a 5% or
        greater beneficial ownership interest. The Company’s Board of Directors reviews
        these related party transactions and considers all of the relevant facts
        and
        circumstances available to the board, including (if applicable) but not limited
        to: the benefits to Highbury; the availability of other sources of comparable
        products or services; the terms of the transaction; and the terms available
        to
        unrelated third parties or to employees generally. The Board of Directors
        may
        approve only those related party transactions that are in, or are not
        inconsistent with, the best interests of the Company and its stockholders,
        as
        the board determines in good faith. At the beginning of each fiscal year,
        the
        board will review any previously approved or ratified related party transactions
        that remain ongoing and have a remaining term of more than six months. The
        Board
        will consider all of the relevant facts and circumstances and will determine
        if
        it is in the best interests of Highbury and its stockholders to continue,
        modify
        or terminate these related party transactions.
  17
 **Highbury
          Financial Inc. and Subsidiary**
 
 **Notes
          to Unaudited Condensed Consolidated Financial
          Statements**
  Aston
        is
        the investment advisor to the Aston Funds, a Delaware business trust. Aston’s
        Chief Executive Officer, is the Chairman of the Board of Trustees of the
        Aston
        Funds. Aston’s President, is the President and Chief Executive Officer of the
        Aston Funds. Aston’s Chief Financial Officer and Chief Compliance Officer, is
        the Senior Vice President, Secretary, Treasurer, Chief Financial Officer,
        Chief
        Operating Officer and Chief Compliance Officer of the Aston Funds. As a result
        of these relationships, the Aston Funds may be considered related parties
        as
        such are defined in Financial Accounting Standard No. 57 (“FAS 57”), “Related
        Party Disclosures.” In the three months ended March 31, 2007, Aston earned
        advisory fees of $9,455,297 and administrative fees of $1,150,484 from the
        Aston
        Funds. These fees, in total, accounted for approximately 96% of Aston’s total
        revenue in the three months ended March 31, 2007. As of March 31, 2007, the
        Company’s balance sheet includes accounts receivable of $  3,379,870
        associated with these fees, as Aston is generally paid in the first week
        of the
        month following the month in which fees were earned. There were no comparable
        fees or receivables recorded in the three months ended March 31,
        2006.
 
 In
        the
        first quarter of 2007, Highbury engaged Berkshire Capital Securities LLC
        (“Berkshire Capital”) to act as a non-exclusive financial advisor in connection
        with possible future acquisitions. In such capacity, Berkshire Capital will
        assist the Company in structuring, negotiating and completing acquisitions
        of
        targets identified by Highbury and acknowledged by both Highbury and Berkshire
        Capital as being subject to Berkshire Capital’s engagement. If the Company
        enters into an agreement to acquire such a target company during the term
        of
        Berkshire Capital’s engagement or within two years thereafter, and such
        acquisition is completed, then the Company will pay Berkshire Capital a success
        fee at closing equal to the greater of (a) the sum of 3.0% of the first $15
        million of the aggregate consideration in such transaction and 1.0% of the
        aggregate consideration in such transaction in excess of $15 million, and
        (b)
        $600,000. Upon the execution of a definitive agreement with respect to an
        acquisition, Highbury will pay Berkshire Capital $200,000 which will be credited
        against the success fee. Highbury will also reimburse Berkshire Capital for
        its
        reasonable expenses in performing its services under the engagement letter
        and
        will indemnify Berkshire Capital for liabilities it incurs in performing
        such
        services, unless such liabilities are attributable to Berkshire Capital’s gross
        negligence or willful misconduct.
  The
        Company presently occupies office space provided by Berkshire Capital. Berkshire
        Capital has agreed that it will make such office space, as well as certain
        office and secretarial services, available to the Company, as may be required
        by
        the Company from time to time. The Company has agreed to pay Berkshire Capital
        $7,500 per month for such services commencing on January 26, 2006. The
        statements of operations for the three months ended March 31, 2007 and March
        31,
        2006 include $22,500 and $16,452, respectively, related to this agreement.
        The
        agreement is terminable by either party upon six months’ prior
        notice.
  18
  **U.S.
        Mutual Fund Business of**
 **ABN
        AMRO Asset Management Holdings, Inc.**
  **Combined
        Statements of Financial Condition**
  **March 31,**
                **2006**
              
              **December 31,**
                **2005*****(Unaudited)*****Assets**Cash
                  and cash equivalents
              
              **$**
              **5,596,066**
              
              $
              5,239,747Advisory
                  and administrative fees receivable
              
              
              **3,820,248**
              
              
              4,074,486Goodwill
              
              
              **10,518,750**
              
              
              10,518,750Other
                  intangible assets
              
              
              **22,045,000**
              
              
              22,045,000Other
                  assets
              
              
              **1,635**
              
              
              1,635Total
                  assets
              
              **$**
              **41,981,699**
              
              $
              41,879,618**Liabilities
                  and owner’s equity**Accounts
                  payable—affiliates
              
              **$**
              **2,404,388**
              
              $
              2,266,559Accrued
                  compensation and benefits
              
              
              **337,618**
              
              
              648,625Other
                  accrued liabilities
              
              
              **1,014,692**
              
              
              954,318Total
                  liabilities
              
              
              **3,756,698**
              
              
              3,869,502Owner’s
                  equity
              
              
              **38,225,001**
              
              
              38,010,116Total
                  liabilities and owner’s equity
              
              **$**
              **41,981,699**
              
              $
              41,879,618
  *See
        accompanying notes.*
  19
  **U.S.
        Mutual Fund Business of**
 **ABN
        AMRO Asset Management Holdings, Inc.**
  **Combined
        Statements of Operations**
 ***(Unaudited)***
  **Three
        Months Ended March 31, 2006 and 2005**
  **2006**
              
              **2005****Revenues**Advisory
                  fees, net
              
              **$**
              **10,674,645**
              
              $
              11,980,270Administration
                  fees
              
              
              **357,937**
              
              
              327,757Total
                  revenues
              
              
              **11,032,582**
              
              
              12,308,027**Operating
                  expenses**Distribution
                  and advisory costs:Affiliates
              
              
              **6,315,868**
              
              
              7,670,670Other
              
              
              **1,981,608**
              
              
              2,895,300Total
                  distribution and advisory costs
              
              
              **8,297,476**
              
              
              10,565,970Compensation
                  and related expenses
              
              
              **966,376**
              
              
              1,078,185Related
                  party expense allocations
              
              
              **638,014**
              
              
              628,256Other
                  operating expenses
              
              
              **353,729**
              
              
              138,225Total
                  operating expenses
              
              
              **10,255,595**
              
              
              12,410,636Operating
                  income (loss)
              
              
              **776,987**
              
              
              (102,609
              )Interest
                  income
              
              
              **22,600**
              
              
              21,965Net
                  income (loss) before taxes
              
              
              **799,587**
              
              
              (80,644
              )Income
                  tax provision (benefit)
              
              
              **—**
              
              
              —Net
                  income (loss)
              
              **$**
              **799,587**
              
              $
              (80,644
              )
  *See
        accompanying notes.*
  20
 **U.S.
        Mutual Fund Business of**
 **ABN
        AMRO Asset Management Holdings, Inc.**
  **Combined
        Statements of Changes in Owner’s Equity**
 ***(Unaudited)***
  **Three
        Months Ended March 31, 2006 and 2005**
  Owner’s
                  equity at January 1, 2005
              
              $
              59,421,138Net
                  income
              
              
              (80,644
              )Net
                  transfers from AAAMHI
              
              
              362,777Owner’s
                  equity at March 31, 2005
              
              $
              59,703,271Owner’s
                  equity at January 1, 2006
              
              $
              **38,010,116**Net
                  income
              
              
              **799,587**Net
                  transfers to AAAMHI
              
              
              **(584,702**
              **)**Owner’s
                  equity at March 31, 2006
              
              **$**
              **38,225,001**
  *See
        accompanying notes.*
  21
  **U.S.
        Mutual Fund Business of**
 **ABN
        AMRO Asset Management Holdings, Inc.**
  **Combined
        Statements of Cash Flows**
 ***(Unaudited)***
  **Three
        Months Ended March 31, 2006 and 2005**
  **2006**
              
              **2005****Operating
                  activities**Net
                  income (loss)
              
              **$**
              **799,587**
              
              $
              (80,644
              )Adjustments
                  to reconcile net income (loss) to net cash flow provided by (used
                  in)
                  operating activities:Changes
                  in assets and liabilities:(Increase)
                  decrease in advisory and administrative fees receivable
              
              
              **254,238**
              
              
              (119,611
              )(Increase)
                  decrease in other assets
              
              
              **—**
              
              
              914Increase
                  (decrease) in accounts payable—affiliates
              
              
              **137,829**
              
              
              (252,842
              )Increase
                  (decrease) in accrued compensations and benefits
              
              
              **(311,007**
              **)**
              
              (597,671
              )Increase
                  (decrease) in other accrued liabilities
              
              
              **60,374**
              
              
              612,347Net
                  cash flow provided by (used in) operating activities
              
              
              **941,021**
              
              
              (437,507
              )**Financing
                  activities**Transfers
                  (to) from AAAMHI, net
              
              
              **(584,702**
              **)**
              
              362,777Net
                  cash provided by (used in) operating activities
              
              
              **(584,702**
              **)**
              
              362,777Net
                  increase in cash and cash equivalents
              
              
              **356,319**
              
              
              (74,730
              )Cash
                  and cash equivalents at beginning of year
              
              
              **5,239,747**
              
              
              3,158,266Cash
                  and cash equivalents at end of year
              
              **$**
              **5,696,066**
              
              $
              3,083,536
  *See
        accompanying notes.*
  22
 **U.S.
          Mutual Fund Business of**
 **ABN
          AMRO Asset Management Holdings, Inc.**
  **Notes
          to Combined Financial Statements**
 ***(Unaudited)***
  **1.
        Basis of Presentation**
  The
        accompanying combined financial statements include the U.S. Mutual Fund Business
        of ABN AMRO Asset Management Holdings, Inc. (AAAMHI) (the Business). The
        principal operations of the Business relate to investment advisory,
        administrative and distribution services provided to certain registered
        investment companies comprising ABN AMRO Funds (the Funds) and a small number
        of
        managed accounts of AAAMHI. The Business is included in the consolidated
        financial statements of AAAMHI, a wholly owned subsidiary of ABN AMRO Asset
        Management Holding N.V. (AAAMHNV), which is a wholly owned subsidiary of
        ABN
        AMRO Bank N.V. (ABN AMRO). Pursuant to an Asset Purchase Agreement (the
        Agreement), dated as of April 20, 2006, AAAMHI and its wholly owned subsidiaries
        and certain other affiliated entities (ABN AMRO Investment Fund Services,
        Inc.,
        ABN AMRO Asset Management Inc. (AAAM), Montag & Caldwell, Inc. (Montag),
        TAMRO Capital Partners LLC (TAMRO), Veredus Asset Management LLC (Veredus),
        and
        River Road Asset Management, LLC (River Road)) agreed to sell the Business
        to
        Highbury Financial Inc. (Highbury) for an aggregate cash purchase price of
        $38.6
        million. Upon completion of the sale transaction, certain members of the
        Business’ management and staff will join Highbury. Additionally, a newly formed
        subsidiary of Highbury, Aston Asset Management LLC, will become adviser to
        the
        Funds, which will be re-named the Aston Funds. AAAMHI and certain affiliates
        who
        are currently the advisers to the Funds will continue to provide advisory
        services to the Funds after completion of the sale but in a sub-advisory
        capacity. A senior officer of AAAMHI and two other individuals not involved
        in
        the Business have also agreed to join Highbury in connection with the
        acquisition of the Business.
  The
        combined financial statements have been prepared from AAAMHI’s historical
        accounting records on a carve-out basis to include the historical financial
        position, results of operations, and cash flows applicable to the Business.
        The
        combined financial statements exclude all continuing operations of AAAMHI
        and
        its affiliated entities listed in the preceding paragraph that will be retained
        by the sellers. The combined financial statements have been prepared as if
        the
        Business had been a stand-alone operation, though they are not necessarily
        representative of results had the Business operated as a stand-alone operation,
        and it is not practicable to estimate what those expenses would have been
        on a
        stand-alone basis. Revenues, expenses, assets, and liabilities were derived
        from
        amounts associated with the Business in the AAAMHI financial records. The
        financial results include allocations of corporate expenses from AAAMHI and
        other U.S. affiliates and allocations of other corporate expenses from AAAMHI’s
        parent company that may be different from comparable expenses that would
        have
        been incurred if the Business operated as a stand-alone business. Allocations
        include amounts related to finance, occupancy, information systems, human
        resources, and other corporate services provided by AAAMHI and other U.S.
        affiliates and its parent based on percentage estimates of usage or costs
        incurred by the Business, which management believes represents a reasonable
        allocation methodology. Certain cash receipts and cash payments related to
        the
        Business were handled through AAAMHI and affiliate cash accounts, which are
        not
        included in the carve-out financial statements. These amounts have been
        accounted for as net capital contributions to the Business and are reflected
        as
“Net transfers from AAAMHI” in the combined statements of changes in owner’s
        equity and the combined statements of cash flows reflects these cash
        transactions.
  Preparation
        of the combined financial statements in conformity with accounting principles
        generally accepted in the United States (GAAP) requires management to make
        estimates and assumptions that affect the reported financial statement amounts
        and accompanying notes. Management believes that the estimates utilized in
        preparing its financial statements are reasonable and prudent. Actual results
        could differ from those estimates.
  **2.
        Summary of Significant Accounting Policies**
  **Principles
        of Combination**
  The
        accompanying combined statements of financial condition, operations, cash
        flows,
        and owner’s equity of the Business for the years ended December 31, 2005, 2004,
        and 2003 have been prepared on a carve-out basis (see Note 1).
  23
 **U.S.
          Mutual Fund Business of**
 **ABN
          AMRO Asset Management Holdings, Inc.**
  **Notes
          to Combined Financial Statements**
 ***(Unaudited)***
  **Cash
        and Cash Equivalents**
  Cash
        and
        cash equivalents represent cash in banks and investments in money market
        mutual
        funds.
  **Goodwill
        and Intangible Assets**
  The
        Business has adopted the provisions of SFAS No. 142, “Goodwill and Other
        Intangible Assets” (FAS 142). Intangible assets, comprising the estimated value
        of investment management contracts, and goodwill, included in the combined
        financial statements of the Business relate to the acquisition of certain
        AAAMHI
        affiliates including the Business. These amounts reflect management’s best
        estimate of a reasonable allocation to the Business of such amounts included
        in
        the financial records of AAAMHI. The provisions of SFAS No. 142 require that
        goodwill and other intangible assets with indefinite lives no longer be
        amortized, but instead be tested at least annually for impairment and require
        reporting units to be identified for the purpose of assessing potential future
        impairments of goodwill. The Business’ acquired intangible management contract
        asset relate to the provision of investment advisory services to the Funds
        in
        exchange for fees that are based on a percentage of the average daily net
        assets
        of the funds. These management contracts were acquired in 2001 as part of
        the
        acquisition of certain AAAMHI affiliates. The management contracts are subject
        to annual renewal by the Funds’ board of trustees which is expected to continue
        indefinitely since this has been the experience for the Funds as well as
        for the
        mutual fund industry as a whole. Accordingly, the Business’ acquired intangible
        assets related to the Funds are considered to be of an indefinite life as
        there
        is no foreseeable limit on the contract period. The Business conducts its
        annual
        testing of goodwill and intangible assets for impairment annually in the
        fourth
        quarter, unless events warrant more frequent testing.
  **Revenue
        Recognition**
  The
        Business derives its revenues from investment advisory and administrative
        services provided to the Funds and a limited number of managed accounts of
        AAAMHI. Based on the terms of the advisory and administrative agreements
        in
        place that set out fees to be earned as a stated percentage of assets under
        management, advisory and administrative fees are recognized in revenue in
        the
        period such services are performed unless facts and circumstances would indicate
        that collectibility of the fees are not reasonably assured. Expense
        reimbursements to certain of the Funds in accordance with agreements are
        reported as an offset to investment advisory fees. Such reimbursements totaled
        $566,061 and $536,600 for the three months ended March 31, 2006 and March
        31,
        2005, respectively.
  **Distribution
        and Advisory Costs**
  Included
        in distribution and advisory costs in the accompanying financial statements
        are
        fees paid to AAAMHI and its affiliates and other non-affiliated entities
        pursuant to contracts related to the management and distribution of the Funds
        and managed account assets. Such costs are recorded in the period incurred.
  The
        Funds
        pay five affiliates of AAAMHI (Montag, AAAM, TAMRO, Veredus and River Road)
        investment advisory fees pursuant to management contracts with these entities
        under which the affiliates provide investment advisory services to the Funds.
        AAAM also pays two third-party investment management firms, MFS Institutional
        Advisors, Inc. and Optimum Investment Advisors, LLC, investment sub-advisory
        fees pursuant to management contracts with these entities under which these
        independent firms provide investment sub-advisory services to two of the
        Funds.
        The Business, generally through ABN AMRO Distribution Services (USA) Inc.
        (the
        Distributor), has entered into nearly 400 selling/service agreements through
        which independent third parties sell the Business’ Funds and/or provide other
        services to their clients in exchange for certain payments. Unless paid by
        the
        Distributor pursuant to the Funds’ Rule 12b-1 Plan, these payments, as well as
        certain sales and marketing costs, are included within distribution and advisory
        costs.
  **Income
        Taxes**
  The
        Business is a component of AAAMHI, and as such was a component of the
        consolidated income tax return of AAAMHI, or an affiliate of AAAMHI, for
        the
        periods presented in these financial statements. However, for the purpose
        of the
        preparation of these financial statements, the Business is considered a
        stand-alone entity and any required provision for federal and state income
        taxes
        has been determined accordingly. The provision for federal and state income
        taxes is comprised of two components, current and deferred income taxes.
        Deferred tax assets and liabilities are determined based on temporary
        differences between the financial and tax reporting bases of assets and
        liabilities and are measured using currently enacted rates and laws. Deferred
        tax assets are recognized subject to management’s judgment that realization is
        more likely than not.
  24
 **U.S.
          Mutual Fund Business of**
 **ABN
          AMRO Asset Management Holdings, Inc.**
  **Notes
          to Combined Financial Statements**
 ***(Unaudited)***
  **Fair
        Value of Financial Instruments**
  The
        carrying value of financial assets and liabilities included in the accompanying
        combined statements of financial condition approximate fair values due to
        their
        short-term nature.
  **3.
        Goodwill and Intangible Assets**
  Goodwill
        and intangible assets at March 31, 2006 and December 31, 2005 included in
        the
        accompanying combined statements of financial condition are shown net of
        accumulated amortization of $1,553,200 and $2,113,467 recorded prior to 2002
        and
        the adoption of FAS 142. Impairment charges of approximately $10.4 million
        of
        intangible assets and $13.3 million of goodwill were recorded by the Business
        in
        2005 in accordance with FAS 142.
  The
        facts
        and circumstances leading to the impairment charges to goodwill and intangible
        assets relate to management’s assessment of declines in net assets in the Funds
        resulting from net share redemptions and unfavorable investment performance
        trends. The fair value of the Business used to determine the impairment of
        goodwill was determined with reference to the expected proceeds to be received
        upon the sale of the Business. The fair value of the intangible asset related
        to
        the investment management contracts used to determine the amount of impairment
        of the intangible asset, was determined based on a discounted cash flow analysis
        of the acquired contracts. No impairment of goodwill or intangibles was
        determined to be required for periods prior to 2005.
 
 **4.
        Distribution and Advisory Costs**
  Distribution
        and advisory costs in the accompanying combined statement of operations consist
        of the following:
  **Three
                  Months Ended March 31****2006**
              
              **2005**Advisory
                  costs:AAAMHI
                  affiliates
              
              **$**
              **6,144,486**
              
              $
              7,503,854Third
                  party sub-advisers
              
              
              **700,318**
              
              
              571,822Total
                  advisory costs
              
              
              **6,844,804**
              
              
              8,075,676Distribution
                  costs:AAAMHI
                  affiliates
              
              
              **171,382**
              
              
              166,816Non-affiliates
              
              
              **1,281,290**
              
              
              2,323,478Total
                  distribution costs
              
              
              **1,452,672**
              
              
              2,490,294Total
                  distribution and advisory costs
              
              **$**
              **8,297,476**
              
              $
              10,565,970
  25
 **U.S.
          Mutual Fund Business of**
 **ABN
          AMRO Asset Management Holdings, Inc.**
  **Notes
          to Combined Financial Statements**
 ***(Unaudited)***
  **5.
        Income Taxes**
  A
        reconciliation of the differences between the total income tax provision
        (benefit) and the amounts computed at the statutory federal tax rate of 35%
        for
        the three month periods ended March 31, 2006 and 2005, is as follows:
  **2006**
              
              
              **2005**Income
                  tax provision (benefit) at statutory federal income tax
                  rate
              
              **$**
              **279,855**
              
              $
              (28,225
              )Increase
                  (decrease) in taxes resulting from:State
                  income taxes, net of federal benefit
              
              
              **39,979**
              
              
              (4,032
              )Valuation
                  allowance adjustment
              
              
              **(319,834**
              **)**
              
              32,257Provision
                  for income taxes
              
              **$**
              **—**
              
              $
              —
  The
        current and deferred portion of the total provision for income taxes was
        $0 for
        each of the respective periods.
  The
        components of the net deferred tax balances as of March 31, 2006 and December
        31, 2005, are as follows:
  **March
                  31**
                **2006**
              
              
              **December
                  31**
                **2005**Deferred
                  tax assets:Net
                  operating loss carryforwards
              
              **$**
              **6,677,547**
              
              $
              6,560,728Goodwill
                  and intangibles
              
              
              **2,707,833**
              
              
              3,107,833Other
              
              
              **—**
              ****
              
              36,654Less
                  valuation allowance
              
              
              **(9,385,380**
              **)**
              
              (9,705,215
              )Net
                  deferred taxes
              ****
              **$**
              **—**
              
              $
              —
  The
        need
        for a valuation allowance to reduce federal and state deferred tax assets
        and
        net operating losses has been determined as if the Business was a stand-alone
        entity. As such, management believes it is more likely than not that these
        items
        will not be realized.
  **6.
        Benefit Plans**
  **Pension
        Plans**
  ABN
        AMRO
        Bank sponsors a non-contributory defined benefit pension plan covering
        substantially all U.S. salaried employees. Assets held by the plan consist
        primarily of shares of registered investment companies and pooled trust funds.
        The allocated expense of the Business totaled $26,545 and $68,946 for the
        three
        months ended March 31, 2006 and 2005, respectively.
  **Profit
        Sharing and Savings Plan**
  ABN
        AMRO
        Bank sponsors a profit sharing and savings plan under Section 401(k) of the
        Internal Revenue Code, covering substantially all U.S. salaried employees.
        Under
        the plan, employee contributions are partially matched by the respective
        ABN
        AMRO Bank subsidiary. In addition, the respective ABN AMRO Bank subsidiary
        may
        allocate a portion of its net profits to employees’ accounts in the plan. The
        allocated expense of the Business totaled $41,957 and $46,134 for the three
        months ended March 31, 2006 and 2005, respectively.
  **Group
        Welfare Plan**
  ABN
        AMRO
        Bank provides welfare and life insurance benefits to substantially all U.S.
        salaried employees and their dependents. The amount charged to expense includes
        welfare benefits paid to participants, net of participant contributions,
        and
        administrative costs. Life insurance premiums paid to insurance companies
        are
        recognized as an expense when paid. The allocated expense of the Business
        totaled $36,112 and $63,192 for the three months ended March 31, 2006 and
        2005,
        respectively.
  26
 **U.S.
          Mutual Fund Business of**
 **ABN
          AMRO Asset Management Holdings, Inc.**
  **Notes
          to Combined Financial Statements**
 ***(Unaudited)***
  **7.
        Related Party Transactions**
  ABN
        AMRO
        is a Dutch bank with operations around the world. With respect to its asset
        management business in the United States, ABN AMRO has two primary wholly-owned
        subsidiaries, ABN AMRO North America Holding Company (AANAHC) and AAAMHNV.
        AAAMHNV owns 100% of AAAMHI, and the assets of the Business are owned in
        their
        entirety by AAAMHI.
  In
        the
        ordinary course of business, the Business utilizes investment advisory services
        provided by several affiliated entities. Five subsidiaries of AAAMHI, including
        Montag (100% owned), AAAM (100% owned), TAMRO (100% owned), Veredus (50%
        owned)
        and River Road (45% owned), currently serve as investment advisors to the
        Funds.
        The Funds pay the investment advisors an advisory fee, net of any fee waivers
        and expense reimbursements, and the advisors pay the Business a fixed percentage
        of the net advisory fees for administrative and distribution services. The
        payments made to affiliated entities, which provide advisory and distribution
        services to certain mutual funds and separate account assets of AAAMHI are
        included under the caption “Distribution and advisory costs” in the accompanying
        combined statements of operations (See Note 4).
  The
        Business also utilizes operational and support services provided by several
        affiliated entities. ABN AMRO Services Company, Inc., a wholly-owned subsidiary
        of AANAHC, provides the Business with certain IT, infrastructure and e-mail
        services. LaSalle Bank Corporation, also a wholly-owned subsidiary of AANAHC,
        provides the Business with payroll, benefits, general ledger maintenance,
        internal audit and accounts payable services. AAAMHI provides the Business
        with
        executive management, finance, human resources and personal trade compliance
        services. The cost of these services is included under the caption
“Related-party expense allocations” in the accompanying combined statements of
        operations. Payables to affiliates related to distribution, advisory or other
        services provided to the Business are included in “Accounts payable—affiliates”
in the accompanying combined statements of financial condition.
 
 27
  **ITEM
        2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF
        OPERATIONS**
  *You
        should read this discussion and analysis of our financial condition and results
        of operations in conjunction with the consolidated financial statements and
        the
        notes thereto included in this Quarterly Report on Form 10-Q and our Annual
        Report on Form 10-K for the fiscal year ended December 31, 2006 filed with
        the
        Securities and Exchange Commission on March 23, 2007.*
 
 *Unless
        otherwise provided in this Quarterly Report, references to the “Company,” the
“Registrant,” the “Issuer,” “we,” “us,” and “our” refer to Highbury Financial
        Inc. and its subsidiary. References to Highbury refer solely to Highbury
        Financial Inc. and references to Aston refer solely to Aston Asset Management
        LLC, a subsidiary of Highbury.*
 
 **Forward
        Looking Statements**
 
 *This
        Quarterly Report on Form 10-Q includes forward-looking statements within
        the
        meaning of the Private Securities Litigation Reform Act of 1995, as amended,
        Section 27A of the Securities Act of 1933, as amended, or the Securities
        Act,
        and Section 21E of the Securities Exchange Act of 1934, as amended, or the
        Exchange Act. We have based these forward-looking statements on our current
        expectations and projections about future events. These forward-looking
        statements are subject to known and unknown risks, uncertainties and assumptions
        about us that may cause our actual results to be materially different from
        historical results and results expressed or implied by such forward-looking
        statements. In some cases, you can identify forward-looking statements by
        terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,”
“anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms
        or other similar expressions. Factors that might cause or contribute to such
        a
        discrepancy include, but are not limited to, the following:*
 
 *·*
            our
                performance is directly affected by changing conditions in global
                financial markets generally and in the**equity
                markets particularly, and a decline or a lack of sustained growth
                in these
                markets may result in decreased advisory fees and administrative
                fees and
                a corresponding decline (or lack of growth) in our operating results
                and
                in the cash flow distributable to us from our existing or future
                affiliates; 
 *·*
            we
                cannot be certain that we will be successful in finding or investing
                in
                additional investment management firms on favorable terms, or that
                existing and future affiliates will have favorable operating results; 
 *·*
            we
                may need to raise capital by making long-term or short-term borrowings
                or
                by selling shares of our common stock or other securities in order
                to
                finance investments in additional****investment
                management firms or additional investments in our existing affiliate,
                and
                we cannot be sure that such capital will be available to us on acceptable
                terms, if at all; and 
 *·*
            those
                certain other factors discussed under the caption “Risk Factors” in this
                Quarterly Report and in our Annual Report on Form 10-K for the year
                ended
                December 31, 2006, filed with the Securities and Exchange Commission
                on
                March 23, 2007, and in any other filings we make with the Securities
                and
                Exchange Commission from time to time. 
 *We
        will not undertake and we specifically disclaim any obligation to release
        publicly the result of any revisions which may be made to any forward-looking
        statements to reflect events or circumstances after the date of such statements
        or to reflect the occurrence of events, whether or not anticipated. In that
        respect, we wish to caution readers not to place undue reliance on any such
        forward-looking statements, which speak only as of the date
        made.*
 
 **Overview**
  Highbury
        is an investment management holding company providing permanent capital
        solutions to mid-sized investment management firms. We pursue acquisition
        opportunities and seek to establish accretive partnerships with high quality
        investment management firms. Highbury’s strategy is to provide permanent equity
        capital to fund buyouts from corporate parents, buyouts of founding or departing
        partners, growth initiatives, or exit strategies for private equity funds.
        This
        strategy includes leaving material equity interests with management teams
        to
        align the interests of management and Highbury’s shareholders and, in general,
        does not include integrating our acquisitions, although Highbury may execute
        add-on acquisitions for its current or future affiliates. We seek to augment
        and
        diversify our sources of revenue by asset class, investment style, distribution
        channel, client type and management team. We intend to fund future acquisitions
        with retained net income or the issuance of debt or equity.
  28
  Highbury
        was formed on July 13, 2005, for the purpose of acquiring or acquiring
        control of, through a merger, capital stock exchange, asset acquisition,
        stock
        purchase or other similar business combination, one or more financial services
        businesses. Highbury closed its initial public offering on January 31,
        2006. After deducting the underwriting discounts and commissions and the
        offering expenses, the total net proceeds to Highbury from the offering and
        the
        private placement that Highbury closed contemporaneously with its initial
        public
        offering, were approximately $43,783,582. Highbury deposited $42,616,234
        of the
        net proceeds and the non-accountable expense allowance of $673,333, which
        the
        underwriters agreed to defer until consummation of our initial business
        combination, into a trust account at Lehman Brothers, Inc., or the trust
        account, maintained by Continental Stock Transfer & Trust Company
        acting as trustee, for an initial total of $43,289,567 in the trust account.
        On
        November 30, 2006, upon consummation of the acquisition, the trust account
        was liquidated.
  *Business
        Combination* .
        On
        April 20, 2006, Highbury and Aston entered into an asset purchase
        agreement, dated as of April 20, 2006, referred to in this Quarterly Report
        on Form 10-Q as the asset purchase agreement, among Highbury, Aston and ABN
        AMRO
        Asset Management Holdings, Inc., or AAAMHI, ABN AMRO Investment Fund Services,
        Inc., ABN AMRO Asset Management, Inc., Montag & Caldwell, Inc., Tamro
        Capital Partners LLC, Veredus Asset Management LLC, and River Road Asset
        Management, LLC, collectively referred to herein as the sellers. Pursuant
        to the
        asset purchase agreement, on November 30, 2006, we acquired substantially
        all of
        the sellers’ business of providing investment advisory, administration,
        distribution and related services to the target funds specified in the asset
        purchase agreement. In connection with the consummation of this transaction,
        referred to in this Quarterly Report as the acquisition, Aston entered into
        agreements with each of the sellers that managed the target funds prior to
        the
        acquisition, pursuant to which each such seller now acts as a sub-adviser
        to the
        applicable target fund, each of which is now rebranded an Aston Fund. Pursuant
        to the asset purchase agreement, the sellers have agreed not to terminate
        these
        agreements for a period of five years following the consummation of the
        acquisition.
  Pursuant
        to the asset purchase agreement, Highbury and Aston paid $38.6 million in
        cash
        to AAAMHI. The asset purchase agreement provides for a contingent adjustment
        payment in cash on the second anniversary of the date of the closing of the
        acquisition, as follows: in the event the annualized investment advisory
        fee
        revenue generated under investment advisory contracts between Aston and the
        sellers applicable to the target funds for the six months prior to the second
        anniversary of the date of the closing of the acquisition, or the target
        revenue, (x) exceeds $41.8 million, we will pay to AAAMHI the difference
        between the target revenue and $41.8 million, up to a total aggregate payment
        of
        $3.8 million, or (y) is less than $34.2 million, AAAMHI will pay to us the
        difference between the $34.2 million and the target revenue, up to a total
        aggregate payment of $3.8 million.
  The
        acquired business was founded in 1993 within Alleghany Asset Management,
        Inc. by
        employees of Aston to manage open-end investment funds for retail and
        institutional clients in the United States. Originally, the acquired business
        employed investment advisers affiliated with its parent to manage the assets
        of
        the funds, while it centralized the distribution, marketing, reporting and
        other
        operations of the fund family. As the business developed, the acquired business
        created new mutual funds managed by experienced independent investment advisers.
        As of March 31, 2007, Aston managed 20 no-load mutual funds, comprised of
        16
        equity funds and four fixed income funds, with approximately $5.2 billion
        of
        mutual fund assets under management. Aston also managed approximately $206
        million of separate account portfolios. Historically, the acquired business
        utilized seven different entities to manage the equity funds, of which five
        are
        affiliates of the sellers and two are independent. Upon consummation of the
        acquisition, Aston entered into long-term contracts with each of these entities
        pursuant to which they will sub-advise the funds. The contracts with the
        sellers’ affiliates will not be terminable by the sub-advisers for five years.
        One existing fixed income manager and two new managers have been retained
        to
        manage three fixed income funds. Aston’s relationship with the sub-advisers is
        supported by limited non-compete provisions and certain capacity guarantees
        in
        certain products to benefit Aston. This arrangement is intended to ensure
        that
        the investment philosophies and processes guiding the mutual funds in the
        future
        are consistent with their historical investment philosophies and
        processes.
  29
  As
        of
        March 31, 2007, 11 of the mutual funds carried an overall Morningstar Rating
        of
        three stars or better, including five four-star funds. Five funds are relatively
        new and are not currently rated by Morningstar. The 17 equity funds are
        classified in seven of the nine Morningstar style boxes, giving Aston wide
        coverage of the public equity investment spectrum and multiple sources of
        revenue. Aston intends to expand its assets under management with a combination
        of internal growth, new product development and accretive acquisitions. The
        Company believes the development of new products will provide growth in the
        future.
 
 New
        products may include:
  ·
              additional
                  open-end mutual funds with current or new
                  sub-advisers;
  ·
              funds
                  of funds;
  ·
              closed-end
                  funds;
  ·
              wrap
                  accounts; or
  ·
              an
                  expanded separate account management
                  program.
  A
        fund of
        funds is a fund that invests in other commingled investment funds. Closed-end
        funds are funds that do not offer daily liquidity for investor purchases
        and
        sales at net asset value, but rather are typically listed on an exchange
        and
        traded in the secondary market. Wrap accounts are accounts offered by retail
        distribution firms that provide access to institutional investment management
        services without the use of a registered investment company. A separate account
        is an account managed for a single investor not commingled with the assets
        of
        other investors.
  Since
        the
        consummation of the acquisition, Aston has created two new equity mutual
        funds.
        The Aston/Optimum Large Cap Opportunity Fund opened in December 2006, and
        the
        Aston/River Road Small-Mid Cap Fund opened in March 2007. In addition, Aston
        is
        in discussions with additional investment management firms and existing
        sub-advisers to create a variety of new mutual funds. The investment styles
        of
        these funds, if created, may include global equities, international equities,
        global real estate and large, mid and small cap U.S. equities.
 
 In
        addition, Aston may be able to develop new distribution channels
        including:
  ·
              arrangements
                  with banks and insurance companies which, like ABN AMRO, elect
                  to divest
                  their mutual fund operations but enter into agreements with Aston
                  to
                  service their customers; and
  ·
              wholesalers
                  focused on the traditional retail broker
                  channel.
  *Revenue
        Sharing Arrangement with Aston* .
        Highbury formed Aston on April 19, 2006 and became the sole member of
        Aston. In connection with Highbury and Aston entering into the asset purchase
        agreement, the limited liability company agreement of Aston was amended and
        eight employees of the acquired business and ABN AMRO were admitted as members
        of Aston (collectively referred to in this Quarterly Report as the Aston
        management members). Highbury owns 65% of the membership interests of Aston,
        and
        the Aston management members own 35% of the membership interests of Aston.
  Pursuant
        to the limited liability company agreement, 72% of the revenues, or the
        Operating Allocation, of Aston is used to pay operating expenses of Aston,
        including salaries and bonuses of all employees of Aston (including the Aston
        management members). The remaining 28% of the revenues, or Owners’ Allocation,
        of Aston is allocated to the owners of Aston. The Owners’ Allocation is
        allocated among the members of Aston according to their relative ownership
        interests. **** Currently,
        18.2% of total revenue is allocated to Highbury and 9.8% of total revenue
        is
        allocated to the Aston management members.
  30
  Highbury’s
        contractual share of revenues has priority over the distributions to the
        Aston
        management members in the event Aston’s actual operating expenses exceed the
        Operating Allocation. As a result, excess expenses first reduce the portion
        of
        the Owners’ Allocation allocated to the Aston management members until the Aston
        management members’ allocation is eliminated before Highbury’s allocation is
        reduced. Any reduction in the distribution of revenues to be paid to Highbury
        is
        required to be paid to Highbury out of any future excess Operating Allocation
        and the portion of future Owners’ Allocation allocated to the Aston management
        members, with interest.
  *Business
        Overview* .
        Commencing with the acquisition on November 30, 2006 of the acquired business,
        we derive most of our revenue from the provision of investment management
        and
        related services. Aston generates revenue by charging mutual funds an advisory
        fee and an administrative fee based on a percentage of invested assets. A
        portion of the fees are paid to the sub-advisers, to a third-party
        sub-administrator and to third-party distribution partners. Each fund typically
        bears all expenses associated with its operation and the issuance and redemption
        of its securities. In particular, each fund pays investment advisory fees
        (to
        Aston), shareholder servicing fees and expenses, fund accounting fees and
        expenses, transfer agent fees, custodian fees and expenses, legal and auditing
        fees, expenses of preparing, printing and mailing prospectuses and shareholder
        reports, registration fees and expenses, proxy and annual meeting expenses
        and
        independent trustee fees and expenses. Aston has guaranteed many of the funds
        that their expenses will not exceed a specified percentage of their net assets.
        Aston absorbs all advisory fees and other mutual fund expenses in excess
        of
        these self-imposed limits in the form of expense reimbursements or fee waivers
        and collects as revenue the advisory fee less reimbursements and waivers.
        As of
        March 31, 2007, Aston was reimbursing 16 mutual funds whose expenses exceed
        the
        applicable expense cap.
  Relationships
        with a limited number of clients account for a significant majority of our
        revenue. We expect that Aston’s relationships with these clients will continue
        to account for a substantial portion of our total revenue in future periods.
        Aston’s client, the Aston Funds, a Delaware business trust, which accounts for
        approximately 96% of our assets under management, is comprised of 20 mutual
        funds that are currently managed by Aston. Because all these funds have the
        same
        trustees, it is possible that the contracts with them could be terminated
        simultaneously. Of these 20 funds, Aston/ABN AMRO Growth,
        Aston/Montag & Caldwell Growth and Aston/Optimum Mid Cap each accounted
        for more than 10% of the revenues of Aston in the most recent fiscal quarter.
        Additionally, the assets under management that Aston sources through independent
        financial advisers using Schwab and Fidelity, as custodians, each generate
        more
        than 10% of revenues received by Aston. These various client concentrations
        leave us vulnerable to any adverse change in the financial condition of any
        of
        our major clients. The loss of any of these relationships may have a material
        adverse impact on our revenues.
  Our
        level
        of profitability will depend on a variety of factors, including:
  ·
              those
                  affecting the global financial markets generally and the equity
                  markets
                  particularly, which could potentially result in considerable increases
                  or
                  decreases in our assets under management;
  ·
              the
                  level of revenue, which is dependent on our ability to maintain
                  or
                  increase assets under management by maintaining existing investment
                  advisory relationships and fee structures, marketing our services
                  successfully to new clients and obtaining favorable investment
                  results;
  ·
              our
                  ability to maintain certain levels of operating profit margins;
  ·
              the
                  availability and cost of the capital with which we finance our
                  existing
                  and new acquisitions;
  ·
              our
                  success in making new acquisitions and the terms upon which such
                  transactions are completed;
  ·
              the
                  level of intangible assets and the associated amortization expense
                  resulting from our acquisitions;
  31
  ·
              the
                  level of expenses incurred for holding company operations; and
  ·
              the
                  level of taxation to which we are
                  subject.
  **Key
        Operating Measures**
  We
        use
        the following key measures to evaluate and assess our business:
  ·
              *Assets
                  Under Management*.
                  Aston is the investment manager for 20 open-end mutual funds, comprised
                  of
                  16 equity and four fixed income funds. Aston generates revenues
                  by
                  charging each fund investment advisory and administrative fees
                  (collected
                  in monthly installments), each of which are equal to a percentage
                  of the
                  daily weighted average assets under management of the fund. Assets
                  under
                  management change on a daily basis as a result of client investments
                  and
                  withdrawals and changes in the market value of securities held
                  in the
                  mutual funds. We carefully review net asset flows into the mutual
                  funds,
                  trends in the equity markets and the investment performance of
                  the mutual
                  funds, both absolutely and relative to their peers, to monitor
                  their
                  effects on the overall level of assets under
                  management.
 
 ·
              *Total
                  Revenue*.
                  Total revenue for Aston is equal to the sum of the advisory fees
                  and the
                  administrative fees and money market service fees earned by the
                  business
                  in a given period. We operate Aston under a revenue sharing structure
                  through which Highbury receives a fixed percentage (18.2%) of the
                  total
                  revenue earned by Aston. In addition, Highbury earns interest income
                  on
                  its cash balances which we recognize as non-operating income on
                  the
                  financial statements.
 
 ·
              *Weighted
                  Average Fee Basis*.
                  The weighted average fee basis is equal to the total revenue earned
                  in a
                  specific period divided by the weighted average assets under management
                  for that period. Because each fund has a different fee schedule,
                  the
                  weighted average fee basis provides us with a single indicator
                  of the
                  business’ ability to generate fees on its total assets under management
                  across all products.
 
 ·
              *Total
                  Operating Expenses*.
                  The total operating expenses include the operating expenses of
                  Aston as
                  well as Highbury. At the Aston level, we monitor total operating
                  expenses
                  relative to Aston’s total revenue to ensure there is sufficient operating
                  margin to cover expenses. We expect total operating expenses (including
                  distribution and sub-advisory costs) to equal approximately 72%
                  of the
                  total revenue of Aston, as provided in Aston’s limited liability company
                  agreement. At the Highbury level, we incur operating expenses in
                  connection with our pursuit of accretive acquisitions, including
                  expenses
                  for travel, entertainment and due diligence. We also incur legal
                  and
                  accounting expenses in connection with our SEC filing requirements
                  and
                  expenses of directors’ and officers’
insurance.
 
 
 **Description
        of Certain Line Items**
  Following
        is a description of the components of certain line items from our consolidated
        financial statements:
 
 ·
              *Operating
                  Revenue*.
                  Aston generates advisory fees based on a fixed percentage of the
                  daily
                  weighted average assets under management for each fund and receives
                  these
                  fees on a monthly basis. For many funds, Aston provides an expense
                  cap
                  which guarantees to investors that the total expenses of a fund
                  will not
                  exceed a fixed percentage of the total assets under management.
                  For small
                  funds, the fixed expenses for fund accounting, client reporting,
                  printing
                  and other expenses, when combined with the investment advisory
                  fees and
                  administrative fees, cause a fund’s total expenses to exceed the expense
                  cap. In such cases, Aston reimburses the funds for the excess fixed
                  expenses or waives a portion of the investment advisory fee, so
                  as to keep
                  the total expenses of the fund at or below the expense cap. Aston’s
                  advisory fees include investment advisory fees from all of the
                  funds, net
                  of all fee waivers and expense reimbursements. Additionally, Aston
                  generates administration fees for providing administration services.
                  Such
                  services include marketing and customer relations, bookkeeping
                  and
                  internal accounting functions, and legal, regulatory and board
                  of trustees
                  support. Finally, Aston earns monthly fees from AAAMHI in return
                  for
                  providing administration services to six money market funds which
                  continue
                  to be advised by AAAMHI.
  32
  ·
              *Distribution
                  and Sub-advisory Costs*.
                  Aston has contracted on a non-exclusive basis with nearly 400 different
                  institutions to sell its mutual funds, in exchange for a distribution
                  fee,
                  to retail and institutional investors. These distribution fees
                  are
                  generally equal to a fixed percentage of the assets invested by
                  the retail
                  or institutional investor. In addition, Aston employs third-party
                  investment managers to perform the security research and investment
                  selection processes for each of its mutual funds. Under this arrangement,
                  Aston pays the third-party investment manager a sub-advisory fee,
                  generally equal to 50% of the advisory fees for the mutual fund,
                  net of
                  fee waivers, expense reimbursements, and applicable distribution
                  fees paid
                  under the distribution agreements discussed above. Total distribution
                  and
                  sub-advisory fees represent the largest component of expenses for
                  Aston.
                  Since these fees are generally based on total assets under management,
                  they increase or decrease proportionately with total assets under
                  management.
 
 ·
              *Compensation
                  and Related Expenses*.
                  As of March 31, 2007, Aston employed 36 full-time employees. The
                  compensation and related expenses of Aston include the base salaries,
                  incentive compensation, health insurance, retirement benefits and
                  other
                  costs related to the employees. These expenses increase and decrease
                  with
                  the addition or termination of employees. Highbury currently has
                  no
                  employees and provides no compensation to its officers or
                  directors.
  ·
              *Other
                  Operating Expenses*.
                  The most significant components of other operating expenses include
                  professional fees, insurance, occupancy, marketing and advertising,
                  voice
                  and data communication and travel and entertainment
                  expenses.
 
  **Critical
        Accounting Policies**
  The
        Company’s discussion and analysis of its financial condition and results of
        operations for the purposes of this document are based upon its consolidated
        financial statements, which have been prepared in accordance with accounting
        principles generally accepted in the United States of America, or GAAP. The
        preparation of these financial statements requires management to make estimates
        and assumptions that affect the reported amounts of assets, liabilities,
        revenues, expenses and related disclosures. Actual results could differ from
        those estimates.
  The
        Company’s significant accounting policies are presented in Note 4 to its
        condensed consolidated financial statements included elsewhere herein, and
        the
        following summaries should be read in conjunction with the financial statements
        and the related notes. While all accounting policies affect the financial
        statements, certain policies may be viewed as critical. Critical accounting
        policies are those that are both most important to the portrayal of the
        financial statements and results of operations and that require management’s
        most subjective or complex judgments and estimates. We believe the policies
        that
        fall within this category are the policies related to principles of combination,
        goodwill and intangible assets, valuation and income taxes.
  *Principles
        of Consolidation* .
        The
        consolidated financial statements include the accounts of Highbury and Aston,
        in
        which Highbury has a controlling financial interest. Generally, an entity
        is
        considered to have a controlling financial interest when it owns a majority
        of
        the voting interest in an entity. Highbury is the manager member of Aston
        and
        owns 65% of Aston. Highbury has a contractual arrangement with Aston whereby
        a
        percentage of revenue is allocable to fund Aston’s operating expenses (referred
        to as the Operating Allocation), while the remaining portion of revenue
        (referred to as the Owners' Allocation) is allocable to Highbury and the
        other
        members, with a priority to Highbury. The portion of the income of Aston
        allocated to owners other than Highbury is included in minority interest
        in the
        Consolidated Statements of Income. Minority interest on the Consolidated
        Balance
        Sheets includes capital and undistributed income owned by the management
        members
        of Aston. All material intercompany balances and transactions have been
        eliminated.
  33
  *Goodwill
        and Intangible Assets* .
        The
        purchase price and the capitalized transaction costs incurred in connection
        with
        the acquisition of the acquired business are allocated based on the fair
        value
        of the assets acquired, which is primarily the acquired mutual fund advisory
        contract. In determining the allocation of the purchase price to the acquired
        mutual fund advisory contract, we have analyzed the present value of the
        acquired business’ existing mutual fund advisory contracts based on a number of
        factors including: the acquired business’ historical and potential future
        operating performance; the historical and potential future rates of new business
        from new and existing clients and attrition among existing clients; the
        stability and longevity of existing advisory and sub-advisory relationships;
        the
        acquired business’ recent, as well as long-term, investment performance; the
        characteristics of the acquired business’ products and investment styles; the
        stability and depth of the management team; and the acquired business’ history
        and perceived franchise or brand value.
  We
        have
        determined that the acquired mutual fund advisory contract meets the indefinite
        life criteria outlined in Statement of Financial Accounting Standards No.
        142,
        "Goodwill and Other Intangible Assets" ("SFAS 142"), because we expect both
        the
        contract and the cash flows generated by the contract to continue indefinitely
        due to the likelihood of continued renewal at little or no cost. Accordingly,
        we
        do not amortize this intangible asset, but instead review this asset at least
        annually for impairment. If the carrying amount of this intangible asset
        exceeds
        the fair value, an impairment loss would be recorded in an amount equal to
        that
        excess. Additionally, each reporting period, we assess whether events or
        circumstances have occurred which indicate that the indefinite life criteria
        are
        no longer met. If the indefinite life criteria are no longer met, we will
        amortize the intangible asset over its remaining useful life.
  The
        excess of purchase price for the acquisition of the acquired business over
        the
        fair value of net assets acquired, including the acquired mutual fund advisory
        contract, is reported as goodwill. Goodwill is not amortized, but is instead
        reviewed for impairment. Highbury assesses goodwill for impairment at least
        annually, or more frequently whenever events or circumstances occur indicating
        that the recorded goodwill may be impaired. If the carrying amount of goodwill
        exceeds the fair value, an impairment loss would be recorded in an amount
        equal
        to that excess.
 
 *Valuation.* In
        allocating the purchase price of the acquisition and testing our assets for
        impairment, we make estimates and assumptions to determine the value of our
        acquired client relationships. In these valuations, we make assumptions of
        the
        growth rates and useful lives of existing and prospective client accounts.
        Additionally, we make assumptions of, among other factors, projected future
        earnings and cash flow, valuation multiples, tax benefits and discount rates.
        The impacts of many of these assumptions are material to our financial condition
        and operating performance and, at times, are subjective. If we used different
        assumptions, the carrying value of our intangible assets and the related
        amortization could be stated differently and our impairment conclusions could
        be
        modified.
 
 *Income
        Taxes.* Deferred
        tax assets and liabilities are primarily the result of timing differences
        between the carrying value of assets and liabilities and the deductibility
        of
        operating expenses for financial reporting and income tax purposes. Deferred
        tax
        liabilities are primarily the result of tax deductions for the Company's
        intangible assets. We amortize acquired intangible assets over a 15-year
        period
        for tax purposes only, reducing their tax basis below their carrying value
        for
        financial statement purposes and generating deferred taxes each reporting
        period. We amortized $607,107 related to goodwill and intangible assets in
        the
        three months ended March 31, 2007. Additionally, at November 30, 2006, when
        Highbury ceased to be a corporation in the development stage, we had total
        deferred expenses of $440,342 that are being amortized for tax
        purposes over a 15-year period. These expenses were currently deductible
        for
        financial statement purposes during Highbury’s development stage but were not
        deductible for tax purposes. Highbury amortized $7,339 of this deferred expense
        in the three months ended March 31, 2007.
 
 We
        adopted the provisions of Financial Standards Accounting Board Interpretation
        No. 48 Accounting for Uncertainty in Income Taxes ("FIN 48") an interpretation
        of FASB Statement No. 109 ("SFAS 109") on January 1, 2007. As a result of
        the
        implementation of FIN 48, we recognized no material adjustment in the liability
        for unrecognized income tax benefits. At the adoption date of January 1,
        2007,
        we had no unrecognized tax benefits, and at March 31, 2007, we continue to
        have
        no unrecognized tax benefits. We will recognize interest and penalties related
        to uncertain tax positions in income tax expense. As of March 31, 2007, we
        do
        not have any accrued interest related to uncertain tax positions. The tax
        years
        2005 and 2006 remain open to examination by the major taxing jurisdictions
        to
        which we are subject.
  34
  *Principles
        of Combination* .
        The
        accompanying combined statements of operations, cash flows and owner’s equity
        for the acquired business for the three months ended March 31, 2006 have
        been
        prepared on a carve-out basis. The combined financial statements have been
        prepared from AAAMHI’s historical accounting records on a carve-out basis to
        include the historical financial position, results of operations and cash
        flows
        applicable to the acquired business. The combined financial statements have
        been
        prepared as if the business had been a stand-alone operation, though they
        are
        not necessarily representative of results had the acquired business operated
        as
        a stand-alone operation. Revenues, expenses, assets and liabilities were
        derived
        from amounts associated with the acquired business in the AAAMHI financial
        records. The financial results include allocations based on methodologies
        that
        management believes are reasonable of corporate expenses from AAAMHI and
        allocations of other corporate expenses from AAAMHI’s parent company that may be
        different from comparable expenses that would have been incurred if the acquired
        business operated as a stand-alone business. Specifically, ABN AMRO Services
        Company, Inc., a wholly-owned subsidiary of ABN AMRO North America Holding
        Company, or AANAHC, provided the acquired business with certain IT,
        infrastructure and e-mail services. LaSalle Bank Corporation, also a
        wholly-owned subsidiary of AANAHC, provided the acquired business with payroll,
        benefits, general ledger maintenance, internal audit and accounts payable
        services. These services were charged based upon utilized quantities (typically
        number of employees, number of transactions processed, or hours worked).
        AAAMHI
        provided the acquired business with executive management, finance, human
        resources and personal trade compliance services. These services were charged
        based upon employee count or management time incurred. AAAMHI’s parent and its
        parent companies provided other executive management, technology, sales support,
        finance, compliance and human resources support services. These services
        were
        charged out on a formula basis that considers assets under management, number
        of
        employees and non-interest expense. The cost of these services is included
        under
        the caption “Related-party expense allocations” in the accompanying combined
        statements of operations of the acquired business. Certain cash receipts
        and
        cash payments related to the acquired business were handled through AAAMHI
        and
        affiliate cash accounts which are not included in the carve-out financial
        statements. “Net transfers from AAAMHI” in the combined statements of changes in
        owner’s equity reflects these cash transactions.
 
 The
        discussion and analysis of the acquired business’ financial condition and
        results of operations for the purposes of this document are based upon its
        consolidated financial statements, which have been prepared in accordance
        with
        GAAP. The acquired business’ significant accounting policies are presented in
        Note 2 to its combined financial statements included elsewhere herein, and
        the
        following summaries should be read in conjunction with the financial statements
        and the related notes included in this prospectus. The acquired business’
management believes the policies that fall within this category are the policies
        related to principles of combination and goodwill and intangible
        assets.
 
  **Recently
        Issued Accounting Pronouncements**
  In
        February 2007, FASB issued Statement of Financial Accounting Standards No.
        159,
“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS
        No. 159”). SFAS No. 159 permits entities to choose to measure many financial
        instruments and certain other items at fair value. The objective of the
        statement is to improve financial reporting by providing entities with the
        opportunity to mitigate volatility in reported earnings caused by measuring
        related assets and liabilities differently without having to apply complex
        hedge
        accounting provisions. The provisions of SFAS No. 159 are effective for fiscal
        years beginning after November 15, 2007. We are currently evaluating this
        standard and its impact, if any, on our consolidated financial statements.
  Management
        does not believe that any other recently issued, but not yet effective,
        accounting standards if currently adopted would have a material effect on
        the
        accompanying financial statements.
  35
  **Summary
        Financials**
 
 Highbury
        was formed July 13, 2005 to acquire or acquire control of one or more businesses
        in the financial services industry. On November 30, 2006, the Company completed
        its acquisition of the U.S. mutual fund business of ABN AMRO, or the acquired
        business. Selected financial information is presented below for the acquired
        business and for the Company for the three months ended March 31, 2006. The
        Company’s consolidated financial results for the three months ended March 31,
        2007 include the operations of the acquired business.
 
 Three
                  Months Ended March 31, 2006
              
              Three
                  Months Ended
                March
                  31, 2007Acquired
                  Business
              
              The
                  Company
              
              Combined(1)
              
              The
                  Company**Statement
                  of Income Data**Operating
                  revenue
              
              $
              11,032,582
              
              $
              —
              
              $
              11,032,582
              
              $
              11,055,186Distribution
                  and advisory costs
              
              
              (8,297,476
              )
              
              —
              
              
              (8,297,476
              )
              
              (5,226,124
              )Compensation
                  and related expenses
              
              
              (966,376
              )
              
              —
              
              
              (966,376
              )
              
              (1,328,764
              )Amortization
                  of intangible assets
              
              
              —
              
              
              —
              
              
              —
              
              
              —Depreciation
                  and other amortization
              
              
              —
              
              
              —
              
              
              —
              
              
              (34,864
              )Other
                  expenses
              
              
              (991,743
              )
              
              (90,153
              )
              
              (1,081,896
              )
              
              (1,410,100
              )Operating
                  income (loss)
              
              $
              776,987
              
              $
              (90,153
              )
              $
              686,834
              
              $
              3,055,334Interest
                  income
              
              
              22,600
              
              
              244,503
              
              
              267,103
              
              
              89,321Minority
                  interest
              
              
              —
              
              
              —
              
              
              —
              
              
              (1,595,824
              )Income
                  taxes
              
              
              —
              
              
              (57,195
              )
              
              (57,195
              )
              
              (573,932
              )Net
                  income (loss)
              
              $
              799,587
              
              $
              97,155
              
              $
              896,742
              
              $
              974,899Earnings
                  per share - basic
              
              
              n/a
              
              $
              0.01
              
              
              
              
              $
              0.10Average
                  shares outstanding - basic
              
              
              n/a
              
              
              7,345,000
              
              
              
              
              
              9,527,000Earnings
                  per share - diluted
              
              
              n/a
              
              $
              0.01
              
              
              
              
              $
              0.09Average
                  shares outstanding - diluted
              
              
              n/a
              
              
              7,345,000
              
              
              
              
              
              11,445,418
 
 (1)
              The
                  information presented in the “Combined” column for the three months ended
                  March 31, 2006 is the arithmetic sum of the operating results of
                  the
                  Company and the acquired business for period, which is prior to
                  the date
                  of the acquisition. No pro forma or other adjustments have been
                  made in
                  the presentation of the “Combined” financial results.
 
 **Basis
        of Presentation**
 
 In
        the
“Results of Operations” section to follow, we discuss the actual consolidated
        financial results for the Company for the three months ended March 31, 2007
        and
        March 31, 2006. In addition, we compare the combined results, as defined
        above
        in the Summary Financials, for the three months ended March 31, 2006 with
        the
        Company’s actual results for the three months ended March 31, 2007. The
        financial statements for the acquired business for the three months ended
        March
        31, 2006 are presented on a carve-out basis.
 
 We
        do not
        believe that the financial statements for the acquired business are comparable
        to the financial statements for the Company for periods following the business
        combination. Prior to the completion of the business combination, the acquired
        business was a division of AAAMHI and was not a separate legal entity.
        Historically, the acquired business utilized two sub-advisers and five advisers
        affiliated with AAAMHI. Because the Aston Funds were introduced over a period
        of
        13 years and are managed by five different affiliates of AAAMHI, the historical
        fee sharing agreements between the acquired business and each investment
        adviser
        with respect to each Aston Fund varied among the funds and over time. In
        addition, since the acquired business and the investment advisers were part
        of a
        commonly controlled corporate entity, the historical fee sharing arrangements
        were not reflective of market terms but rather internal allocations that
        also
        varied.
 
 Subsequent
        to the completion of the business combination, the investment adviser affiliates
        of AAAMHI continue to perform the same investment management services for
        the
        Aston Funds as they had previously provided. However, as a result of the
        new
        sub-advisory agreements, they receive a smaller share of the net advisory
        fees
        after payments of third-party distribution fees than they received historically.
        These new sub-advisory agreements were determined based on arm’s length
        negotiation between the sub-advisers affiliated with AAAMHI and us and reflect
        market terms.
  36
  In
        addition, certain amounts included in the acquired business’ financial
        statements were allocated from AAAMHI or other related entities. We believe
        that
        these allocations are reasonable, but not necessarily indicative of costs
        that
        would have been incurred by the acquired business had it operated as a stand
        alone business for the same periods. For these reasons, the revenue and expenses
        of the acquired business as it operates within the Company are not consistent
        with the revenue and expenses of the acquired business on a historical basis.
        As
        such, it may be difficult to draw conclusions from a comparison of operating
        results from before and after the acquisition.
  **Results
        of Operations**
 
 *Three
        months ended March 31, 2007 compared to three months ended March 31, 2006
        for
        the Company*
 
 For
        the
        three months ended March 31, 2007, the Company earned net income of $974,899
        on
        total operating revenue of $11,055,186. The following table summarizes the
        total
        fees, weighted average assets under management and the weighted average fee
        basis for the period.
 
 For
                  the three months ended March 31, 2007Total
                  Fees
              
              Weighted
                  Average
                Assets
                  Under
                Management
                  ($M)
              
              Weighted
                  Average
                Fee
                  Basis
                (Annualized)Net
                  advisory fees
              
              $
              9,751,420
              
              $
              5,548
              (1)
              
              0.71
              %Administrative
                  fees
              
              
              1,150,484
              
              
              8,965
              (2)
              
              0.05
              %Money
                  market service fees
              
              
              152,982
              
              
              3,619
              
              
              0.02
              %(3)Total
                  revenue
              
              $
              11,055,186
              
              
              5,548
              (4)
              
              0.81
              %(4)
 
 (1)
              Includes
                  long-term mutual fund and separate account assets under
                  management.(2)
              Aston
                  provides administrative services to the Aston Funds, as well as
                  six money
                  market mutual funds managed by affiliates of AAAMHI.(3)
              Aston
                  receives a money market service fee from AAAMHI equal to $550,000
                  per
                  annum plus 0.0001% of the weighted average assets under management
                  in the
                  six money market mutual funds in excess of $3 billion. The fee
                  is accrued
                  and paid monthly.(4)
              For
                  an estimate of the overall weighted average fee basis, we use the
                  total
                  fees from all sources and the weighted average assets under management
                  for
                  which we provide investment advisory services (Note 1
                  above).
  As
        of
        March 31, 2007, the Company had $5,437 million of total assets under management,
        compared to $5,653 million as of December 31, 2006. As of March 31, 2007,
        mutual
        fund assets under management were $5,231 million, compared to $5,454 million
        as
        of December 31, 2006, a decline of approximately 4%. This decline resulted
        from
        net client cash flows, which represent aggregate contributions from new and
        existing clients less withdrawals, of approximately $293 million, offset
        by
        market appreciation of approximately $70 million. The net outflows during
        the
        quarter primarily resulted from redemptions in the Aston/Montag & Caldwell
        Growth Fund and the Aston/Veredus Aggressive Growth Fund. The Company believes
        these outflows are the result of investors’ concerns about the relative
        investment performance of these funds as compared to other similar funds.
        The
        Company believes that an improvement in the relative investment performance
        could stem these outflows. Additionally, Aston is actively developing new
        products to attract new assets. Since the consummation of the acquisition,
        Aston
        has created two new equity mutual funds. The Aston/Optimum Large Cap Opportunity
        Fund opened in December 2006, and the Aston/River Road Small-Mid Cap Fund
        opened
        in March 2007. Aston is also in discussions with additional investment
        management firms and existing sub-advisers to create a variety of new mutual
        funds. The investment styles of these funds, if created, may include global
        equities, international equities, global real estate and large, mid and small
        cap U.S. equities. During the first quarter of 2007, separate account assets
        under management increased from $199 million to $206 million.
  37
  The
        Company incurred $7,999,852 of total operating costs for the three months
        ended
        March 31, 2007. During the period, Aston incurred total distribution and
        sub-advisory expenses of $5,226,124, including $4,131,222 payable to the
        sub-advisers (approximately 42% of the net advisory fees for the period)
        and
        $1,094,902 payable pursuant to third-party distribution agreements
        (approximately 10% of the net advisory fees for the period). Aston incurred
        employee compensation and related expenses of $1,328,764 during the period.
        Highbury has no employees and did not pay compensation of any kind to its
        directors or officers during the period. The Company incurred $34,864 of
        depreciation expense relating to Aston’s fixed assets and $1,410,100 of other
        operating expenses during the period. These expenses include the operating
        expenses of Aston and Highbury for the period and consist primarily of legal,
        accounting, insurance, occupancy and administrative fees. Aston’s direct
        operating expenses for the three months ended March 31, 2007 were $954,257,
        and
        Highbury’s direct operating expenses for the three months ended March 31, 2007
        were as follows:
 
 Professional
                  fees
              
              $
              310,409Insurance
              
              
              58,212Administrative
                  fees
              
              
              22,500Travel
                  and entertainment
              
              
              11,040Other
                  expenses
              
              
              53,682$
              455,843
 
 Non-operating
        income consists primarily of earnings on cash and cash equivalent balances
        and
        short-term investments in U.S. Treasury bills. For the three months ended
        March
        31, 2007, Highbury earned interest income on these balances and investments
        of
        $84,321. Highbury also invested $1,000,010 in the Aston/River Road Small-Mid
        Cap
        Fund, a new mutual fund opened by Aston in March 2007. As of March 31, 2007,
        this investment was valued at $1,005,010. The Company recorded investment
        income
        of $5,000 on its statement of operations for the three months ended March
        31,
        2007 to reflect this increase in value. Highbury expects to redeem this
        investment during the second quarter of 2007.
 
 The
        Company recorded income of $3,144,655 before minority interest and provisions
        for income taxes for the three months ended March 31, 2007. As a result of
        the
        Aston management members’ interest in Aston, **** the
        Company recorded a minority interest expense of $1,595,824 for the period.
 
 Highbury
        earned net income of $97,155 in the three months ended March 31, 2006. However,
        since the Company had not completed the acquisition at that time, the Company
        did not earn any operating revenue during the period. During the period,
        Highbury’s activities were focused exclusively on identifying targets for an
        initial business combination. Highbury incurred $90,153 of operating expenses
        during the period, primarily relating to legal, accounting, insurance, occupancy
        and administrative fees and earned interest income of $244,503 on the balance
        of
        cash held in its trust account during the period. Highbury recorded income
        before provisions for income taxes of $154,350 for the three months ended
        March
        31, 2006.
 
 The
        following table outlines Highbury’s income tax expenses for the three-month
        periods ended March 31, 2007 and March 31, 2006.
 
 Three
                  Months Ended March 31, 2007
              
              Three
                  Months Ended March 31, 2006Current
              
              $
              346,244
              
              $
              109,498Deferred
                  - intangible related
              
              
              224,968
              
              
              -Deferred
                  - other
              
              
              2,720
              
              
              (52,303
              )Total
              
              $
              573,932
              
              $
              57,195
  38
 
 The
        sources of the Company’s deferred tax liability are as
        follows:
 
 March
                    31, 2007Amortization
                    of goodwill and intangibles
                
                $
                299,957Amortization
                    of deferred expenses
                
                
                3,627Interest
                    income deferred for reporting purposes
                
                
                -Expenses
                    deferred for income tax purposes
                
                
                (163,172
                )Valuation
                    allowance
                
                
                -Total
                
                $
                140,412
 
 For
        further discussion of the Company’s income taxes, please refer to Note 9 of the
        condensed consolidated financial statements included elsewhere in this
        document.
 
 The
        Company had net income of $974,899 for the three months ended March 31, 2007
        compared to net income of $97,155 for the three months ended March 31, 2006.
        Highbury’s basic and diluted earnings per share increased from $0.01 and $0.01,
        respectively, for the three months ended March 31, 2006 to $0.10 and $0.09,
        respectively, for the three month periods March 31, 2007.
 
 *Three
        months ended March 31, 2007 for the Company compared to combined results
        of the
        Company and the acquired business in the three months ended March 31,
        2006*
 
 Combined
        operating revenue of the Company and the acquired business during the three
        months ended March 31, 2006 was $11,032,582, as compared to $11,055,186 for
        the
        Company during the three months ended March 31, 2007. This marginal increase
        in
        revenue is largely attributable to Aston’s Administrative, Marketing and
        Compliance Agreement with ABN AMRO, whereby Aston provides certain
        administrative services to six money market mutual funds managed by ABN AMRO.
        Net advisory fees decreased from $10,674,645 in 2006 to $9,751,420 in 2007,
        primarily as a result of lower average mutual fund balances. This decline
        was
        partially mitigated by an increase in the weighted average advisory fee basis
        from 0.70% in the first three months of 2006 to 0.71% in the first three
        months
        of 2007. As of March 31, 2007, the Company’s total mutual fund assets under
        management were $5.2 billion, as compared to $6.1 billion as of March 31,
        2006
        for the acquired business. However, the administration fees earned by the
        acquired business increased from $357,937 in 2006 to $1,150,484 in 2007,
        primarily as a result of the additional services provided to the money market
        mutual funds and a change in the presentation of the administration fees.
        The
        acquired business accrued revenue from administration fees net of certain
        sub-administration fees paid to a third-party provider. The Company has
        determined it is appropriate to record the revenues on a gross basis and
        include
        the associated sub-administration expenses within other operating costs.
        The
        administration fees earned by the Company in the three months ended March
        31,
        2007, net of all sub-administration fees paid, were $587,181. This represents
        an
        increase of $229,244, on a comparable basis, over the fees earned by the
        acquired business in the prior period. This increase is primarily attributable
        to the additional administrative services provided to the money market mutual
        funds. Aston also earned money market service fees from ABN AMRO of $152,982
        in
        the three months ended March 31, 2007 under this agreement. There were no
        corresponding fees in the three months ended March 31, 2006.
 
 Distribution
        and advisory costs declined from $8,297,476 for the acquired business in
        the
        three months ended March 31, 2006 to $5,226,124 for the Company in the
        corresponding period in 2007. This decline is partially attributable to the
        decline in mutual fund assets under management from 2006 to 2007, as these
        expenses are directly related to the value of assets under management. In
        addition, the new sub-advisory agreements into which Aston entered at the
        closing of the acquisition provide for substantially lower payments to the
        sub-advisers affiliated with AAAMHI than the historical fee-sharing agreements.
        These new agreements have substantially decreased the sub-advisory costs
        from
        pre-acquisition levels.
  39
  Combined
        compensation and related expenses were $966,376 for the three months ended
        March
        31, 2006. Compensation and related expenses for the Company were $1,328,764
        for
        the three months ended March 31, 2007. This increase is largely attributable
        to
        the increased operating profitability of Aston as a result of the changes
        in the
        sub-advisory contracts and other changes to the acquired business since the
        acquisition. The Aston management team participates directly in this increased
        profitability through their retention of any excess operating allocation
        which
        is paid as compensation. The increase also reflects the addition of three
        employees at Aston at the time of the acquisition that were not reflected
        in the
        compensation expense for the first three months of 2006.
 
 Combined
        other operating expenses were $1,081,896 for the three months ended March
        31,
        2006. During the three months ended March 31, 2007, the Company incurred
        $1,410,000 of other operating expenses. This increase of $328,204 is largely
        attributable to the increase in Highbury’s direct operating costs between the
        periods from $90,153 to $455,843, a difference of $365,690. Highbury’s operating
        expenses increased for several reasons. For one, the results reflect a full
        quarter of operations in 2007 whereas all expenses incurred prior to the
        Company’s initial public offering at the end of January 2006 related to and
        therefore were charged to the offering. In addition, Highbury has incurred
        legal
        and accounting fees in the first quarter associated with the Company’s public
        reporting obligations and a post-effective amendment of its registration
        statement. Excluding these expenses, the operating expense levels of the
        acquired business and Aston were substantially the same.
  The
        Company generated operating income of $3,055,334 during the three months
        ended
        March 31, 2007 as compared to combined operating income of $686,834 in the
        three
        months ended March 31, 2006 for the Company and the acquired business. While
        operating revenues were similar between the periods, the increase in operating
        income is primarily attributable to the Administrative, Marketing and Compliance
        Agreement with ABN AMRO and to the new sub-advisory contracts signed at the
        time
        of the acquisition which reduced Aston’s payments to sub-advisors affiliated
        with ABN AMRO.
  Because
        of the different capital structures and ownership structures of the acquired
        business before and after the acquisition, comparisons of the differences
        in
        interest income, minority interest and income taxes are not
        meaningful.
  ***Supplemental
        Non-GAAP Performance Measure***
 
 As
        supplemental information, we provide a non-GAAP performance measure that
        we
        refer to as Cash Net Income. This measure is provided in addition to, but
        not as
        a substitute for, GAAP Net Income. Cash Net Income means the sum of (a) net
        income determined in accordance with GAAP, plus (b) amortization of intangible
        assets, plus (c) deferred taxes related to intangible assets, plus (d) affiliate
        depreciation, plus (e) other non-cash expenses. We consider Cash Net Income
        an
        important measure of our financial performance, as we believe it represents
        operating performance before non-cash expenses relating to the acquisition
        of
        our interest in our affiliated investment management firm. Cash Net Income
        is
        not a measure of financial performance under GAAP and, as calculated by us,
        may
        not be consistent with computations of Cash Net Income by other companies.
        Cash
        Net Income is used by our management and board of directors as a performance
        benchmark.
  Since
        our
        acquired assets do not generally depreciate or require replacement by us,
        and
        since they generate deferred tax expenses that are unlikely to reverse, we
        add
        back these non-cash expenses to Net Income to measure operating performance.
        We
        will add back amortization attributable to acquired client relationships
        because
        this expense does not correspond to the changes in value of these assets,
        which
        do not diminish predictably over time. The portion of deferred taxes generally
        attributable to intangible assets (including goodwill) that we do not amortize
        but which generates tax deductions is added back, because these accruals
        would
        be used only in the event of a future sale of Aston or an impairment charge,
        which we consider unlikely. We will add back the portion of consolidated
        depreciation expense incurred by Aston because under Aston’s operating agreement
        we are not required to replenish these depreciating assets. We also add back
        expenses that we incur for financial reporting purposes for which there is
        no
        corresponding cash expense because such expenses cause our Net Income to
        be
        understated relative to our ability to generate cash flow to service debt,
        if
        any, finance accretive acquisitions, and repurchase securities, if
        appropriate.
  40
 
 Three
                  Months Ended March 31, 2007
              
              Three
                  Months Ended March 31, 2006**Net
                  Income**
              
              $
              974,899
              
              $
              97,155Intangible
                  amortization
              
              
              —
              
              
              —Intangible-related
                  deferred taxes
              
              
              224,968
              
              
              —Affiliate
                  depreciation
              
              
              34,864
              
              
              —Other
                  non-cash expenses
              
              
              —
              
              
              —**Cash
                  Net Income**
              
              $
              1,234,731
              
              $
              97,155
  **Liquidity
        and Capital Resources**
  Since
        its
        inception, Highbury has funded its business activities almost exclusively
        through cash flows from financing, including the debt and equity provided
        by the
        initial shareholders and the funds raised in our initial public offering.
        Going
        forward, Highbury expects to fund its business activities with a combination
        of
        operating income and the interest income earned on its cash balances and
        to fund
        future acquisitions with retained net income or the issuance of debt or equity.
        As of March 31, 2007, Highbury had no borrowings outstanding. In the future,
        however, we will closely review our ratio of debt to Adjusted EBITDA (our
        "leverage ratio") as an important gauge of our ability to service debt, make
        new
        investments and access capital. The leverage covenant of our credit facility
        currently limits our leverage ratio to 2.0 times Adjusted EBITDA. We believe
        this level is prudent for our business, although substantially higher levels
        of
        senior and subordinated debt in relation to Adjusted EBITDA may also be prudent
        to fund future acquisitions.
  Historically,
        the acquired business funded its business activities almost exclusively with
        operating cash flow. We expect Aston will also fund its business activities
        almost exclusively with operating cash flow. Highbury may occasionally provide
        capital to Aston to help finance the development of new products or execute
        accretive acquisitions. Because Aston, like most investment management
        businesses, does not require a high level of capital expenditures, such as
        for
        purchases of inventory, property, plant or equipment, liquidity is less of
        a
        concern than for a company that sells physical assets. Historically, the
        amount
        of cash and cash equivalents held on the balance sheet of the acquired business
        was primarily influenced by the policies of its parent, AAAMHI. Prior to
        the
        acquisition, AAAMHI owned 100% of the acquired business and continues to
        own
        several other affiliates which also have low capital requirements. As such,
        cash
        balances often accumulated in the affiliates until AAAMHI decided to transfer
        them. These periodic cash transfers cause the value of cash and equivalents
        held
        by the business to fluctuate widely and without correlation to the underlying
        operations of the acquired business.
  As
        of
        March 31, 2007, the Company had $7,607,019 of cash and equivalents, $1,514,606
        of short-term investments, $1,005,010 of other investments and **** $3,603,560 **** of
        accounts receivable. The accounts receivable are primarily related to the
        investment advisory fees, administrative fees and money market service fees
        earned by Aston in March 2007. Aston receives its revenues generally within
        the
        first week of the month following the month in which they are earned. At
        March
        31, 2007, the Company had accounts payable of $4,487,951, primarily attributable
        to the revenue sharing payments owed to Aston’s distribution partners and the
        investment sub-advisers. These payments are generally paid shortly after
        the
        receipt of the revenue discussed above. In addition, this figure includes
        $1,382,725 of distributions payable to the Aston management members which
        were
        subsequently paid in April 2007. Because Aston is able to finance its day-to-day
        operations with operating cash flow, it does not need to retain a significant
        amount of cash on its balance sheet. Going forward, we expect Aston will
        distribute all of its excess cash on a quarterly basis to its owners, so
        we do
        not expect large cash balances to accrue within Aston. Highbury will retain
        its
        cash, and we expect our cash balances will increase over time until the cash
        is
        used to fund acquisitions, service debt, if any, or repurchase our securities,
        if appropriate.
  41
  Management
        believes our existing liquid assets, together with the expected continuing
        cash
        flow from operations, our borrowing capacity under the current credit facility
        and our ability to issue debt or equity securities will be sufficient to
        meet
        our present and reasonably foreseeable operating cash needs and future
        commitments. In particular, we expect to finance future acquisitions through
        operating cash flows and the issuance of debt or equity securities.
  *Cash
        Flow from Operating Activities* .
        Cash
        flow from operations generally represents net income plus non-cash charges
        for
        amortization, deferred taxes and depreciation as well as the changes in our
        consolidated working capital. In the first three months of 2007, the Company
        received $2,440,247 of net cash flow from its operating activities. In addition
        to our net income of $974,899, the Company benefited from $227,688 of deferred
        taxes related primarily to the amortization of goodwill and intangible assets
        acquired in the acquisition for income tax purposes. Accounts payable and
        accrued expenses increased by $2,218,481, primarily as a result of the
        accumulation of the quarterly distribution owed to the Aston management members
        and certain legal and accounting expenses incurred by Highbury in connection
        with our public reporting requirements. During the period, the Company also
        invested $1,514,606 in treasury securities with a current maturity in excess
        of
        three months.
  *Cash
        Flow from Investing Activities* .
        Changes
        in net cash flow from investing activities will result primarily from capital
        expenditures, investments in new affiliates or, from time to time, in new
        mutual
        funds created by Aston. In March 2007, Highbury invested $1,000,010 in the
        Aston/River Road Small-Mid Cap Fund. Highbury expects to redeem this investment
        during the second quarter as new investors invest in the fund. In addition,
        Aston purchased $81,923 in fixed assets during the period.
  *Cash
        Flow from Financing Activities* .
        Changes
        in net cash flow from financing activities will result primarily from the
        issuance of equity or debt or the repayment of any obligations which may
        arise
        thereunder. During the three months ended March 31, 2006, Highbury did not
        have
        any cash flows related to financing activities. In the three months ended
        March
        31, 2006, Highbury received net cash flow of $44,445,113 from financing
        activities as a result of our initial public offering and private placement
        in
        January.
  ***Credit
        Facility***
  We
        entered into a credit agreement with City National Bank on August 21, 2006,
        which provides for a revolving line of credit of up to $12.0 million. On
        November 9, 2006, we entered into a new credit agreement with City National
        Bank which amended and restated our initial credit agreement to amend the
        definitions of debt and net worth to exclude the effects of accounting for
        our
        outstanding common stock warrants and the underwriters’ unit purchase option as
        liabilities. We subsequently determined that we should account for these
        securities as equity. The credit facility will be used for working capital,
        general corporate purposes and repurchases of our outstanding securities,
        if
        appropriate.
  Borrowings
        under our credit facility will bear interest, at our option, at either the
        fluctuating prime rate minus one-half of one percent (0.50%) per year or
        the
        LIBOR interest rate plus one and one-half percent (1.50%) per year. In addition,
        we will be required to pay annually a fee of one quarter of one percent (0.25%)
        on the average daily balance of the unused portion of the credit facility.
        We
        will have to make interest payments monthly for any prime rate borrowings.
        For
        any LIBOR borrowings, interest payments will be made at the end of any LIBOR
        contract or quarterly, whichever is sooner. Any outstanding principal is
        due at
        maturity on October 31, 2007. For so long as certain events of default
        continue, upon notice by City National Bank, the interest rate on any
        outstanding loans will increase by three percent (3%). As of March 31,
        2007, we had no borrowings outstanding.
  Our
        credit facility is secured by all of our assets. Our credit facility contains
        customary negative covenants which, among other things, limit indebtedness,
        asset sales, loans, investments, liens, mergers and acquisitions, sale and
        leaseback transactions and purchases of equity, other than repurchases of
        our
        outstanding securities. Our credit facility also contains affirmative covenants
        as to, among other things, financial statements, taxes, corporate existence
        and
        legal compliance. We are also required to maintain a minimum net worth and
        ratio
        of debt to EBITDA. As of March 31, 2007, we were in compliance with all of
        the
        covenant requirements under this credit facility.
  42
 ***Contractual
        Obligations***
  There
        have been no material changes to the Company’s contractual obligations as
        disclosed in the Company’s Annual Report on Form 10-K for the year ended
        December 31, 2006, filed with the Securities and Exchange Commission on March
        23, 2007.
  ***Supplemental
        Non-GAAP Liquidity Measure***
  As
        supplemental information, we provide information regarding Adjusted EBITDA,
        a
        non-GAAP liquidity measure. This measure is provided in addition to, but
        not as
        a substitute for, cash flow from operations. Adjusted EBITDA means the sum
        of
        (a) net income determined in accordance with GAAP, plus (b) amortization
        of
        intangible assets, plus (c) interest expense, plus (d) depreciation, plus
        (e)
        other non-cash expenses, plus (f) income tax expense. This definition of
        Adjusted EBITDA is consistent with the definition of EBITDA used in our credit
        facility. Adjusted EBITDA, as calculated by us, may not be consistent with
        computations of Adjusted EBITDA by other companies. As a measure of liquidity,
        we believe that Adjusted EBITDA is useful as an indicator of our ability
        to
        service debt, make new investments and meet working capital requirements.
        We
        provide this non-GAAP measure because our management uses this information
        when
        analyzing the Company’s financial position.
 
 The
        following table provides a reconciliation of cash flow from operations to
        Adjusted EBITDA:
 
 Three
                  Months Ended March 31, 2007
              
              Three
                  Months Ended March 31, 2006**Cash
                  Flow from Operations**
              
              $
              2,440,247
              
              $
              (169,413
              )Interest
                  expense
              
              
              
              
              
              —Current
                  income tax provision
              
              
              346,244
              
              
              109,498Changes
                  in assets and liabilities
              
              
              (989,697
              )
              
              214,265Changes
                  in minority interest
              
              
              (213,099
              )
              
              —**Adjusted
                  EBITDA**
              
              $
              1,583,695
              
              $
              154,350
  The
        following table provides a reconciliation of net income to Adjusted EBITDA:
 
 Three
                  Months Ended March 31, 2007
              
              Three
                  Months Ended March 31, 2006**Net
                  Income**
              
              $
              974,899
              
              $
              97,155Income
                  tax expense
              
              
              573,932
              
              
              57,195Interest
                  expense
              
              
              —
              
              
              —Intangible
                  amortization
              
              
              —
              
              
              —Depreciation
                  and other amortization
              
              
              34,864
              
              
              —Other
                  non-cash expenses
              
              
              —
              
              
              —**Adjusted
                  EBITDA**
              
              $
              1,583,695
              
              $
              154,350
  43
 
 **Off-Balance
        Sheet Arrangements**
  Options
        and warrants issued in conjunction with our initial public offering are equity
        linked derivatives and accordingly represent off-balance sheet arrangements.
        The
        options and warrants meet the scope exception in paragraph 11(a) of FAS 133
        and
        are accordingly not accounted for as derivatives for purposes of FAS 133,
        but
        instead are accounted for as equity. See Notes 2 and 11 to our financial
        statements for a discussion of the options and warrants.
 
 **Agreements
        with Berkshire Capital**
  Highbury
        occupies office space provided by Berkshire Capital Securities LLC, or Berkshire
        Capital. Messrs. Cameron, Foote and Forth, our executive officers, are
        affiliated with Berkshire Capital. Berkshire Capital has agreed to make such
        office space, as well as certain office and secretarial services, available
        to
        Highbury, as may be required by Highbury from time to time. Highbury has
        agreed
        to pay Berkshire Capital $7,500 per month for such services indefinitely.
        The
        agreement is terminable by either party upon six months’ prior notice. The
        statements of operations for the three-month periods ended March 31, 2007
        and
        March 31, 2006 include $22,500 and $16,452, respectively, related to this
        agreement.
 
 We
        have
        engaged Berkshire Capital to act as our non-exclusive financial advisor in
        connection with possible future acquisitions. In such capacity, Berkshire
        Capital will assist us in structuring, negotiating and completing acquisitions
        of targets identified by us and acknowledged by both us and Berkshire Capital
        as
        being subject to Berkshire Capital’s engagement. If we enter into an agreement
        to acquire such a target company during the term of Berkshire Capital’s
        engagement or within two years thereafter, and such acquisition is completed,
        then we will pay Berkshire Capital a success fee at closing equal to the
        greater
        of (a) the sum of 3.0% of the first $15 million of the aggregate consideration
        in such transaction and 1.0% of the aggregate consideration in such transaction
        in excess of $15 million, and (b) $600,000. Upon the execution of a definitive
        agreement with respect to an acquisition, we will pay Berkshire Capital $200,000
        which will be credited against the success fee. We will also reimburse Berkshire
        Capital for its reasonable expenses in performing its services under the
        engagement letter and will indemnify Berkshire Capital for liabilities it
        incurs
        in performing such services, unless such liabilities are attributable to
        Berkshire Capital’s gross negligence or willful misconduct. The statement of
        operations for the three months ended March 31, 2007 does not include any
        expenses related to this agreement.
  **Impact
        of Inflation**
  Our
        revenue is directly linked to the total assets under management within the
        20
        mutual funds and the separate accounts managed by Aston. Our total assets
        under
        management increase or decrease on a daily basis as a result of fluctuations
        in
        the financial markets and net asset flows from investors. While long-term
        returns in the financial markets have historically exceeded the rate of
        inflation, this may not be the case going forward. Our operating expenses
        are
        likely to be directly affected by inflation. Furthermore, we earn interest
        income on our cash balances. While the current interest rates available to
        us
        exceed the rate of inflation, this may not be the case going forward. In
        such
        cases, the impact of inflation will erode our purchasing power.
 
 **ITEM
        3.** **QUANTITATIVE
        AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**
 
 **** There
        have been no significant changes to our Quantitative and Qualitative Disclosures
        About Market Risk in the three months ended March 31, 2007.  Please refer
        to Item 7A in our Annual Report on Form 10-K for the fiscal year ended December
        31, 2006, filed with the Securities and Exchange Commission on March 23,
        2007.
  **ITEM
        4. CONTROLS AND PROCEDURES.**
  We
        carried out an evaluation, under the supervision and with the participation
        of
        our management, including our chief executive officer and chief financial
        officer, of the effectiveness of our disclosure controls and procedures as
        of
        March 31, 2007. Based on that evaluation, our chief executive officer and
        chief
        financial officer concluded that our disclosure controls and procedures are
        effective as of the end of the period covered by this report to ensure that
        information required to be disclosed by us in reports that we file or submit
        under the Securities Exchange Act of 1934 is recorded, processed, summarized
        and
        reported within the time periods specified in Securities and Exchange
        Commission’s rules and forms.
  44
  During
        the most recently completed fiscal quarter, there has been no significant
        change
        in our internal control over financial reporting that has materially affected,
        or is reasonably likely to materially affect, our internal control over
        financial reporting.
 
 **PART
        II.**
 **OTHER
        INFORMATION**
  **ITEM
        1. LEGAL PROCEEDINGS**
 
 Neither
        Highbury nor Aston is currently subject to any material legal proceedings,
        nor,
        to our knowledge, is any material legal proceeding threatened against either
        of
        them. From time to time, we may be a party to certain legal proceedings
        incidental to the normal course of our business. While the outcome of these
        legal proceedings cannot be predicted with certainty, we do not expect that
        these proceedings will have a material effect upon our financial condition
        or
        results of operations.
 
 **ITEM
        1A. RISK FACTORS**
 
 In
        addition to the other information included in this Quarterly Report on Form
        10-Q
        and the risk factors contained in our Annual Report on Form 10-K for the
        fiscal
        year ended December 31, 2006, filed with the Securities and Exchange Commission
        on March 23, 2007, you should consider the following risk factors in evaluating
        our business and future prospects. If any of the risks contained in this
        Report
        or our Annual Report occur, our business, financial condition and results
        of
        operations may be materially adversely affected. In that event, the trading
        price of our securities could decline, and our stockholders could lose all
        or a
        part of their investment.
 
 ***If
        we are unable to maintain a current prospectus relating to the common stock
        underlying our warrants, our warrants may have little or no value and the
        market
        for our warrants may be limited.***
  No
        warrants will be exercisable and we will not be obligated to issue shares
        of
        common stock unless at the time a holder seeks to exercise such warrant,
        a
        prospectus relating to the common stock issuable upon exercise of the warrants
        is current and the common stock has been registered or qualified or deemed
        to be
        exempt under the securities laws of the state of residence of the holder
        of the
        warrants. Under the terms of the warrant agreement between Continental Stock
        Transfer & Trust Company, as warrant agent, and us, we have agreed to
        use our best efforts to maintain a current prospectus relating to the common
        stock issuable upon exercise of our warrants until the expiration of our
        warrants. However, we cannot assure you that we will be able to do so. If
        the
        prospectus relating to the common stock issuable upon exercise of the warrants
        is not current or if the common stock is not qualified or exempt from
        qualification in the jurisdictions in which the holders of the warrants reside,
        our warrants may not be exercisable before they expire, and we will not net-cash
        settle the warrants. Thus, our warrants may be deprived of any value. The
        market
        for our warrants may be limited, and the warrants may expire worthless and
        unredeemed. Even if warrant holders are not able to exercise their warrants
        because there is no current prospectus or the common stock is not qualified
        or
        exempt from qualification in the jurisdictions in which the holders of the
        warrants reside, we can exercise our redemption rights.
  ***If
        our stockholders who acquired their shares prior to our initial public offering
        exercise their registration rights, it may have an adverse effect on the
        market
        price of our common stock.***
 
 Our
        stockholders who acquired their shares prior to our initial public offering,
        or
        our initial stockholders, are entitled to demand that we register the resale
        of
        their 1,725,000 shares of common stock owned prior to our initial public
        offering. The holders of the majority of these shares may elect to exercise
        these registration rights at any time after the date on which their shares
        of
        common stock are released from escrow, which will be January 31, 2009. In
        addition, our initial stockholders hold 166,667 shares that they purchased
        in a
        private placement contemporaneously with our initial public offering that
        are
        now eligible for registration. If all these shares are registered, there
        will be
        an additional 166,667 shares of common stock eligible for trading in the
        public
        market (and potentially another 333,334 shares of common stock issuable to
        our
        initial stockholders upon exercise of warrants). The presence of this additional
        number of shares of common stock eligible for trading in the public market
        may
        have an adverse effect on the market price of our common stock.
  45
  **ITEM
        2. EXHIBITS**
 
 The
        exhibits are listed on the Exhibit Index and are included elsewhere in this
        Quarterly Report on Form 10-Q.
  46
  **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
  **HIGHBURY
                  FINANCIAL INC.**
 
 Dated:
                  May 2, 2007
              By:/s/
                  Richard S.
                  FooteRichard
                  S. Foote
                President
                  and Chief Executive Officer
                (Principal
                  Executive Officer)
  
 Dated:
                  May 2, 2007
              By:/s/
                  R. Bradley
                  ForthR.
                  Bradley Forth
                Executive
                  Vice President, Chief Financial Officer and Secretary
                (Principal
                  Financial and Accounting Officer)
  47
  **EXHIBIT
        INDEX**
 
 **Exhibit**
                **Number**
              
              **Description
                  of Document**31.1
              
              Section
                  302 Certification by CEO.31.2
              
              Section
                  302 Certification by CFO.32
              
              Section
                  906 Certification by CEO and CFO.
  48