**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 June 30, 2008****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**
            
            **80202**(Address
                of principal executive offices)
            
            (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, a non-accelerated filer or a smaller reporting company.
      See
      definitions of “large accelerated filer”, “accelerated filer”, and ”smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
                Accelerated Filer ̈
            
            Accelerated
                Filer ̈Non-Accelerated
                Filerx
              (Do
                not check if a smaller reporting company)
            
            Smaller
                Reporting Company ̈





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
      July 21, 2008, 9,126,628 shares of common stock, par value $0.0001 per share,
      were issued and outstanding.










**Page****PART
                I. FINANCIAL INFORMATION**
            
            3Item
                1 - Financial Statements
            
            3**Highbury
                Financial Inc.**Condensed
                Consolidated Balance Sheets
            
            3Condensed
                Consolidated Statements of Income
            
            4Condensed
                Consolidated Statements of Stockholders’ Equity
            
            5Condensed
                Consolidated Statements of Cash Flows
            
            6Notes
                to Unaudited Condensed Consolidated Financial Statements
            
            7Item
                2 - Management's Discussion and Analysis of Financial Condition and
                Results of Operations
            
            13Item
                3 - Quantitative and Qualitative Disclosures About Market
                Risk
            
            30Item
                4 - Controls and Procedures
            
            30**PART
                II. OTHER INFORMATION**
            
            30Item
                1 - Legal Proceedings
            
            30Item
                1A - Risk Factors
            
            31Item
                6 - Exhibits
            
            31Signatures
            
            32




2


**ITEM
      1 - FINANCIAL STATEMENTS**




**Highbury
      Financial Inc. and Subsidiary**





**Condensed
      Consolidated Balance Sheets**





**June
                30,**
            
            **December
                31,****2008**
            
            **2007***(unaudited)*
            
            *(audited)*ASSETS**Current
                assets**Cash
                and cash equivalents
            
            $
            7,404,683
            
            $
            7,276,545Investments
            
            
            2,516,731
            
            
            4,635,507Accounts
                receivable
            
            
            3,450,003
            
            
            3,502,142Prepaid
                expenses
            
            
            123,380
            
            
            270,086**Total
                current assets**
            
            
            13,494,797
            
            
            15,684,280**Other
                Assets**Fixed
                assets, net
            
            
            898,960
            
            
            991,260Identifiable
                intangibles
            
            
            25,270,000
            
            
            25,270,000Goodwill
            
            
            7,046,412
            
            
            7,046,412Deferred
                tax assets
            
            
            518,666
            
            
            952,209Other
                long-term assets
            
            
            168,116
            
            
            169,464**Total
                other assets**
            
            
            33,902,154
            
            
            34,429,345**Total
                assets**
            
            $
            47,396,951
            
            $
            50,113,625LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities**Accounts
                payable and accrued expenses
            
            $
            3,890,172
            
            $
            4,549,216Income
                taxes payable
            
            
            92,900
            
            
            97,758**Total
                current liabilities**
            
            
            3,983,072
            
            
            4,646,974Deferred
                rent
            
            
            825,742
            
            
            844,980**Total
                Liabilities**
            
            
            4,808,814
            
            
            5,491,954Minority
                interest
            
            
            840,000
            
            
            840,000Commitments
                and contingencies**Stockholders'
                equity:**Preferred
                stock, $0.0001 par value, authorized1,000,000
                shares; none issued
            
            
            -
            
            
            -Common
                stock, $0.0001 par value, authorized50,000,000
                shares; 9,126,628 and 9,527,000shares
                issued and outstanding as of June 30, 2008and
                December 31, 2007, respectively
            
            
            913
            
            
            953Additional
                paid-in capital
            
            
            51,834,830
            
            
            55,393,484Accumulated
                deficit
            
            
            (10,087,606
            )
            
            (11,612,766
            )**Total
                stockholders’ equity**
            
            
            41,748,137
            
            
            43,781,671**Total
                liabilities and stockholders’ equity**
            
            $
            47,396,951
            
            $
            50,113,625




*See
      accompanying Notes to Unaudited Condensed Consolidated Financial
      Statements.*




3




**Highbury
      Financial Inc. and Subsidiary**





**Condensed
      Consolidated Statements of Income**


*(unaudited)*




**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007****Revenue**
            
            $
            9,680,469
            
            $
            10,616,247
            
            $
            18,959,516
            
            $
            21,671,433**Operating
                expenses**Distribution
                and sub-advisory costs
            
            
            (4,435,366
            )
            
            (5,030,615
            )
            
            (8,786,769
            )
            
            (10,256,739
            )Compensation
                and related expenses
            
            
            (1,612,420
            )
            
            (1,985,660
            )
            
            (3,146,604
            )
            
            (3,314,424
            )Depreciation
                and amortization
            
            
            (45,997
            )
            
            (45,359
            )
            
            (95,056
            )
            
            (80,223
            )Other
                operating expenses
            
            
            (1,327,558
            )
            
            (1,161,113
            )
            
            (2,662,026
            )
            
            (2,571,213
            )**Total
                operating expenses**
            
            
            (7,421,341
            )
            
            (8,222,747
            )
            
            (14,690,455
            )
            
            (16,222,599
            )**Operating
                income**
            
            
            2,259,128
            
            
            2,393,500
            
            
            4,269,061
            
            
            5,448,834**Other
                income**Interest
                income
            
            
            17,280
            
            
            122,453
            
            
            71,291
            
            
            206,774Investment
                income (loss)
            
            
            26,963
            
            
            45,694
            
            
            (151,861
            )
            
            50,694**Total
                other income (loss)**
            
            
            44,243
            
            
            168,147
            
            
            (80,570
            )
            
            257,468**Income
                before minority interest**
            
            
            2,303,371
            
            
            2,561,647
            
            
            4,188,491
            
            
            5,706,302Minority
                interest in net income of subsidiary
            
            
            (897,931
            )
            
            (991,992
            )
            
            (1,757,938
            )
            
            (2,587,816
            )**Income
                before provision for income taxes**
            
            
            1,405,440
            
            
            1,569,655
            
            
            2,430,553
            
            
            3,118,486Provision
                for income taxes
            
            
            (504,559
            )
            
            (642,278
            )
            
            (905,393
            )
            
            (1,216,210
            )**Net
                income**
            
            $
            900,881
            
            $
            927,377
            
            $
            1,525,160
            
            $
            1,902,276**Weighted
                average shares outstanding, basic**
            
            
            9,126,628
            
            
            9,527,000
            
            
            9,192,309
            
            
            9,527,000**Net
                income per share, basic**
            
            $
            0.10
            
            $
            0.10
            
            $
            0.17
            
            $
            0.20**Weighted
                average shares outstanding, diluted**
            
            
            9,126,628
            
            
            12,811,342
            
            
            9,192,309
            
            
            12,163,667**Net
                income per share, diluted**
            
            $
            0.10
            
            $
            0.07
            
            $
            0.17
            
            $
            0.16





*See
      accompanying Notes to Unaudited Condensed Consolidated Financial
      Statements.*




4




**Highbury
      Financial Inc. and Subsidiary**





**Condensed
      Consolidated Statements of Stockholders’ Equity**


*(unaudited)*





**Common
                Stock**
            
            **Additional
                Paid-In**
            
            **Retained
                Earnings (Accumulated****Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit)**
            
            **Total**Balance
                at December 31, 2007
            
            
            9,527,000
            
            $
            953
            
            $
            55,393,484
            
            $
            (11,612,766
            )
            $
            43,781,671Redemption
                of common stock
            
            
            (400,372
            )
            
            (40
            )
            
            (1,735,571
            )
            
            -
            
            
            (1,735,611
            )Repurchase
                of warrants
            
            
            -
            
            
            -
            
            
            (1,823,083
            )
            
            -
            
            
            (1,823,083
            )Net
                income for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            1,525,160
            
            
            1,525,160Balance
                at June 30, 2008
            
            
            9,126,628
            
            $
            913
            
            $
            51,834,830
            
            $
            (10,087,606
            )
            $
            41,748,137




*See
      accompanying Notes to Unaudited Condensed Consolidated Financial
      Statements.*




5




**Highbury
      Financial Inc. and Subsidiary**





**Condensed
      Consolidated Statements of Cash Flows**


*(unaudited)*





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                income
            
            $
            900,881
            
            $
            927,377
            
            $
            1,525,160
            
            $
            1,902,276Adjustments
                to reconcile net income tonet
                cash provided by operating activities:Depreciation
                and amortization
            
            
            45,997
            
            
            45,359
            
            
            95,056
            
            
            80,223Deferred
                tax assets
            
            
            253,866
            
            
            251,580
            
            
            433,543
            
            
            479,268Unrealized
                investment (gain) loss
            
            
            (24,119
            )
            
            (15,626
            )
            
            154,705
            
            
            (35,261
            )Minority
                interest in net income of subsidiary
            
            
            897,931
            
            
            991,992
            
            
            1,757,938
            
            
            2,587,816Deferred
                rent
            
            
            (9,768
            )
            
            88,471
            
            
            (19,238
            )
            
            156,524Changes
                in operating assets and liabilities(Increase)
                decrease in:Accounts
                receivable
            
            
            (186,534
            )
            
            259,938
            
            
            52,139
            
            
            302,800Prepaid
                expenses
            
            
            53,945
            
            
            54,457
            
            
            146,706
            
            
            147,127Other
                current assets
            
            
            -
            
            
            (338
            )
            
            -
            
            
            12,655Increase
                (decrease) in:Accounts
                payable and accrued expenses
            
            
            269,213
            
            
            535,487
            
            
            (608,180
            )
            
            1,371,243Income
                taxes payable
            
            
            (95,515
            )
            
            74,158
            
            
            (4,858
            )
            
            148,402Net
                cash provided by operating activities
            
            
            2,105,897
            
            
            3,212,855
            
            
            3,532,971
            
            
            7,153,073**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchases
                of investments
            
            
            -
            
            
            (1,980,965
            )
            
            (2,000,000
            )
            
            (4,480,946
            )Proceeds
                from sales of investments
            
            
            900,000
            
            
            1,051,942
            
            
            3,964,071
            
            
            1,051,942Increase
                in other long-term assets
            
            
            3,767
            
            
            -
            
            
            1,348
            
            
            -Purchase
                of property and equipment
            
            
            -
            
            
            (22,567
            )
            
            (2,756
            )
            
            (104,490
            )Net
                cash provided by (used in) investing activities
            
            
            903,767
            
            
            (951,590
            )
            
            1,962,663
            
            
            (3,533,494
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Distributions
                paid to minority interest holders
            
            
            (853,731
            )
            
            (1,382,725
            )
            
            (1,808,802
            )
            
            (1,382,725
            )Redemption
                of common stock
            
            
            -
            
            
            -
            
            
            (1,735,611
            )
            
            -Repurchase
                of warrants
            
            
            -
            
            
            -
            
            
            (1,823,083
            )
            
            -Net
                cash used in financing activities
            
            
            (853,731
            )
            
            (1,382,725
            )
            
            (5,367,496
            )
            
            (1,382,725
            )**Net
                increase in cash and cash equivalents**
            
            
            2,155,933
            
            
            878,540
            
            
            128,138
            
            
            2,236,854**Cash
                and cash equivalents - beginning of period**
            
            
            5,248,750
            
            
            7,607,019
            
            
            7,276,545
            
            
            6,248,705**Cash
                and cash equivalents - end of period**
            
            $
            7,404,683
            
            $
            8,485,559
            
            $
            7,404,683
            
            $
            8,485,559**Supplemental
                schedule of non-cash financing and investing
                activities:**Leasehold
                improvements paid by landlord
            
            $
            -
            
            $
            522,360
            
            $
            -
            
            $
            522,360**Supplemental
                disclosure of cash flow information:**Cash
                paid for income taxes
            
            $
            346,208
            
            $
            272,000
            
            $
            476,708
            
            $
            272,000





*See
      accompanying Notes to Unaudited Condensed Consolidated Financial
      Statements.*




6




**Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**


**1.**  **Basis
      of Presentation and Significant Accounting Policies**





The
      accompanying unaudited condensed consolidated financial statements as of June
      30, 2008 and for the three and six months ended June 30, 2008 and 2007 of
      Highbury Financial, Inc. and Subsidiary (“Company” or “Highbury”) have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and with the
      instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
      do
      not include all of the information and footnotes required by accounting
      principles generally accepted in the United States of America for complete
      financial statements. The December 31, 2007 condensed consolidated balance
      sheet
      data was derived from audited financial statements, but does not include all
      of
      the disclosures required by accounting principles generally accepted in the
      United States of America. In the opinion of management, all adjustments
      considered necessary for a fair statement of the results have been included.
      All
      material intercompany balances and transactions have been eliminated. 
Certain reclassifications have been made to the prior period’s financial
      statements to conform to the current period’s presentation. Operating results
      for interim periods are not necessarily indicative of the results that may
      be
      expected for the full year. The Company’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 2007, as filed with the Securities and Exchange
      Commission on March 28, 2008, includes additional information about Highbury,
      its operations and its financial position, and should be read in conjunction
      with this Quarterly Report on Form 10-Q. **





*Investments*





The
      Company carries its investments in government securities, primarily 6-month
      Treasury bills and its investments in certain mutual funds managed by its
      majority owned subsidiary, Aston Asset Management LLC (“Aston”), invested as
      initial seed capital, at fair value based on quoted market prices. The Company
      reflected interest received and accrued on Treasury bills in interest income
      and
      changes in fair value of mutual funds, which were $26,963 and $(151,861) for
      the
      three and six months ended June 30, 2008, respectively, in Investment income
      (loss).





Investments
      consist of the following:




**June
                30,**
            
            **December
                31,****2008**
            
            **2007**U.S.
                Treasury bills
            
            $
            -
            
            $
            3,064,071Aston
                mutual funds
            
            
            2,516,731
            
            
            1,571,436$
            2,516,731
            
            $
            4,635,507





*Recent
      Accounting Pronouncements*





In
      March
      2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards No. 161 (“SFAS No. 161”), “ *Disclosures
      about Derivative Instruments and Hedging Activities—an amendment of FASB
      Statement No. 133* ”.
      SFAS
      No. 161 gives financial statement users better information about the reporting
      entity's hedges by providing for qualitative disclosures about the objectives
      and strategies for using derivatives, quantitative data about the fair value
      of
      and gains and losses on derivative contracts, and details of credit-risk-related
      contingent features in their hedged positions. SFAS No. 161 is effective for
      financial statements issued for fiscal years and interim periods beginning
      after
      November 15, 2008, with early application encouraged, but not required. We
      do
      not anticipate the adoption of SFAS No. 161 will have a material effect on
      the
      Company’s financial statements.




7


**Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial
        Statements**




In
      April
      2008, the FASB issued Final FASB Staff Position (“FSP”) No. FAS 142-3,
“ *Determination
      of the Useful Life of Intangible Assets* ”
to
      improve the consistency between the useful life of a recognized intangible
      asset
      under SFAS No. 142, Goodwill and Other Intangible Assets, and the period of
      expected cash flows used to measure the fair value of the asset under SFAS
      No.
      141 (revised 2007), Business Combinations, and other guidance under U.S.
      generally accepted accounting principles (“GAAP”). We do not anticipate the
      adoption of this FSP will have a material effect on the Company’s financial
      statements. The FSP is effective for financial statements issued for fiscal
      years beginning after December 15, 2008, and interim periods within those years.
      Early adoption is prohibited.





In
      May
      2008, the FASB issued SFAS No. 162, “ *The
      Hierarchy of Generally Accepted Accounting Principles* ”
(”SFAS
      No. 162”). SFAS No. 162 identifies the sources of accounting principles and
      provides entities with a framework for selecting the principles used in
      preparation of financial statements that are presented in conformity with GAAP.
      The Board believes the GAAP hierarchy should be directed to entities because
      it
      is the entity (not its auditors) that is responsible for selecting accounting
      principles for financial statements that are presented in conformity with GAAP.
      The adoption of FASB 162 is not expected to have a material impact on the
      Company’s financial position.





Management
      does not believe that any other recently issued, but not yet effective,
      accounting standard if currently adopted would have a material effect on the
      accompanying consolidated financial statements.








**2.**  **Accounts
      Payable and Accrued Expenses**





Accounts
      payable and accrued expenses consisted of the following:





**June
                30,**
            
            **December
                31,****2008**
            
            **2007**Payable
                to sub-advisors
            
            $
            1,107,354
            
            $
            1,173,769Payable
                to brokers
            
            
            422,587
            
            
            455,987Payable
                to minority interest
            
            
            914,637
            
            
            965,500Accrued
                compensation payable
            
            
            774,274
            
            
            1,072,280Accrued
                professional fees
            
            
            147,409
            
            
            473,507Other
                payables
            
            
            523,911
            
            
            408,173$
            3,890,172
            
            $
            4,549,216








**3.**  **Commitments
      and Contingencies**





a.  On
      April
      20, 2006, Highbury and Aston, entered into an Asset Purchase Agreement (“Asset
      Purchase Agreement”) with ABN AMRO Asset Management Holdings, Inc., (“AAAMHI”
and together with certain of its current and former affiliates each 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.




8




**Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**


The
      Asset
      Purchase Agreement provides for a contingent adjustment payment payable in
      cash
      shortly after the second anniversary of the closing of the acquisition (November
      30, 2008). In the event the annualized investment advisory fee revenue generated
      under investment advisory contracts between Aston and the Target Funds or
      any new 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 (“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.





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 included in the calculation of Target
      Revenue. For the six-month period ended June 30, 2008 the annualized investment
      advisory fee revenue generated under investment advisory contracts between
      Aston
      and the Target Funds was $32.5 million. Highbury has not accrued any receivable
      or liability for this contingency. The contingent adjustment payment, if any,
      will be accounted for as an increase or decrease in goodwill ultimately
      settled in cash.




b.  On
      August
      1, 2005, the Company's officers and directors and their affiliates (the “Initial
      Stockholders”) purchased 1,725,000 shares of common stock (as adjusted for a
      subsequent stock dividend), which we refer to as the founding shares.
      Simultaneously with the Company’s initial public offering (the “Offering”), all
      of the Initial Stockholders purchased an aggregate of 166,667 units from
      the Company in a private placement (the “Private Placement”). 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 shares held by the Initial Stockholders 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. Following their release from escrow, the founding
      shares may also be eligible for resale pursuant to Rule 144 under the Securities
      Act of 1933, as amended. 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. In addition, the Initial Stockholders have certain "piggy-back"
      registration rights with respect to such securities on registration statements
      filed by the Company. The Company will bear the expenses incurred in connection
      with the filing of any of the foregoing registration statements. The shares
      purchased in the Private Placement may also be eligible for resale pursuant
      to
      Rule 144 under the Securities Act of 1933, as amended.





The
      founding shares have been placed in escrow until the earliest of: (1) January
      31, 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
      descent 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.





c.  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 or other contingencies that could result in a loss to Highbury
      or
      Aston. As such, no contingencies have been accrued.





9




**Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**


**4.**  **Economic
      Dependency**





Relationships
      with a limited number of clients account for a significant majority of
      Highbury’s revenue. Aston’s client, the Aston Funds, a Delaware business trust,
      which accounts for approximately 97% of our assets under management as of June
      30, 2008, is comprised of 28 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 28 funds,
      the
      Aston/Montag & Caldwell Growth Fund and the Aston/Optimum Mid Cap Fund
      contributed approximately 34% and 20% of the revenues of Aston, respectively,
      in
      June 2008. Additionally, as of June 30, 2008, approximately 12% of our assets
      under management and 12% of our revenues were generated by customers sourced
      through a firm which was previously affiliated with the sellers but was
      subsequently sold to an unaffiliated third party. These various client
      concentrations leave Highbury vulnerable to any adverse change in the financial
      condition of any of its major clients. The loss of any of these relationships
      may have a material adverse impact on the Company’s revenue. The Aston/Montag
& Caldwell Growth Fund, the Aston/Optimum Mid Cap Fund and the Aston/ABN
      AMRO Growth Fund contributed approximately 32%, 15% and 10% of the revenues
      of
      Aston, respectively, in June 2007.







**5.**  **Income
      Taxes**





The
      provisions for income taxes for the three and six month periods ended June
      30,
      2008 and 2007 consist of the following:





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**CurrentFederal
            
            $
            179,040
            
            $
            290,809
            
            $
            358,031
            
            $
            593,791State
            
            
            72,197
            
            
            99,889
            
            
            114,363
            
            
            143,151DeferredFederal
            
            
            224,167
            
            
            186,931
            
            
            383,165
            
            
            386,170State
            
            
            29,155
            
            
            64,649
            
            
            49,834
            
            
            93,098$
            504,559
            
            $
            642,278
            
            $
            905,393
            
            $
            1,216,210





The
      sources of the net deferred tax assets are as follows:





**June
                30,**
            
            **December
                31,****2008**
            
            **2007**Expenses
                deferred for income tax purposes
            
            $
            416,852
            
            $
            383,869Impairment
                of intangibles
            
            
            101,814
            
            
            568,340Deferred
                tax assets
            
            $
            518,666
            
            $
            952,209




10




**Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**


**6.**  **Earnings
      Per Share**





The
      calculation of basic earnings per share is computed by dividing income available
      to common stockholders by the weighted average number of shares of the Company's
      common stock outstanding during the period. Diluted earnings per share gives
      effect to all dilutive potential common shares outstanding during the period.
      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**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Numerator:Net
                income
            
            $
            900,881
            
            $
            927,377
            
            $
            1,525,160
            
            $
            1,902,276Denominator:Average
                shares outstanding - basic
            
            
            9,126,628
            
            
            9,527,000
            
            
            9,192,309
            
            
            9,527,000Effect
                of dilutive instruments:Warrants
            
            
            -
            
            
            3,284,342
            
            
            -
            
            
            2,636,667Average
                shares outstanding - diluted
            
            
            9,126,628
            
            
            12,811,342
            
            
            9,192,309
            
            
            12,163,667




The
      Company’s dilutive instruments outstanding include warrants which became
      exercisable on January 25, 2007. There are no effects of dilutive instruments
      included in the 2008 calculations because the warrants were out of the money
      based on the weighted average prices for the Company’s common stock during the
      periods. In the first quarter of 2008, the Company repurchased 1,836,292
      warrants for $1,823,083 and 400,372 shares for $1,735,611. As of June 30, 2008,
      the Company had 13,983,708 warrants outstanding.





During
      the three and six months ended June 30, 2007, the Company’s dilutive instruments
      outstanding include 15,820,000 warrants which became exercisable on January
      25,
      2007. The dilutive effect of the warrants is calculated using the treasury
      stock
      method and the average share price during the period.








**7.**  **Related
      Person Transactions**





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 SFAS No. 157, “Related Party Disclosures” (“SFAS 157”). In
      the three and six months ended June 30, 2008, Aston earned advisory fees of
      $8,238,947 and $16,098,563, respectively, and administrative fees of $1,050,627
      and $2,097,345, respectively, from the Aston Funds. These fees, in total,
      accounted for approximately 96% of Aston’s total revenue during both periods. In
      the three and six months ended June 30, 2007, Aston earned advisory fees of
      $9,101,296 and $18,556,593, respectively, and administrative fees of $1,079,169
      and $2,229,652, respectively, from the Aston Funds. These fees, in total,
      accounted for approximately 96% of Aston’s total revenue for each of the three
      and six months ended June 30, 2007. As of June 30, 2008 and December 31, 2007,
      the Company’s balance sheets include accounts receivable of $2,947,327 and
      $3,093,885, respectively, associated with these fees, as Aston is generally
      paid
      in the first week of the month following the month in which fees were
      earned.




11




**Highbury
        Financial Inc. and Subsidiary**
 
 **Notes
        to Unaudited Condensed Consolidated Financial Statements**


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 had agreed to pay Berkshire Capital
      $7,500 per month for such facilities and services commencing on January 26,
      2006. The Company agreed to increase this payment to $10,000 per month effective
      November 1, 2007. The statements of income for the three and six months ended
      June 30, 2008 include $30,000 and $60,000 related to this agreement,
      respectively. The statements of income for the three and six months ended June
      30, 2007 include $22,500 and $45,000 related to this agreement, respectively.
      The agreement is terminable by either party upon six months’ prior
      notice.





12




**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 condensed consolidated financial
      statements and the notes thereto included in this Quarterly Report on Form
      10-Q
      and the consolidated financial statements included in our Annual Report on
      Form
      10-K for the fiscal year ended December 31, 2007 filed with the Securities
      and
      Exchange Commission on March 28, 2008.*





*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 our
                Annual Report on Form 10-K for the year ended December 31, 2007,
                filed
                with the Securities and Exchange Commission on March 28, 2008, 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.*




13




**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 our revolving credit facility, other external borrowings, retained
      earnings (if any), additional equity and other sources of capital, including
      seller financing and contingent payments.




As
      of
      June 30, 2008 the Company had approximately $4.8 billion of total assets under
      management, compared to approximately $4.7 billion as of March 31, 2008. As
      of
      June 30, 2008, Aston managed 28 no-load mutual funds, comprised of 25 equity
      funds and 3 fixed income funds, with approximately $4.7 billion of mutual fund
      assets under management. As of June 30, 2008, 15 of the mutual funds carried
      an
      overall Morningstar Rating TM of three
      stars or better, including four four-star funds and two five-star funds. Of
      the
      28 funds, 12 are relatively new and are not currently rated by Morningstar.
      The
      25 equity funds are classified in eight of the nine Morningstar
      Rating TM 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.




*Business
      Combination* .
      On
      April 20, 2006, Highbury and Aston entered into an asset purchase agreement
      with
      ABN AMRO Asset Management Holdings, Inc., or AAAMHI, and certain of its
      affiliates, or 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, or the acquired
      business. In connection with the consummation of 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 as an Aston Fund.
      Pursuant to the asset purchase agreement, the sellers have agreed not to
      terminate these agreements prior to November 30, 2011.




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 shortly after the second anniversary of the date of the closing
      of the acquisition (November 30, 2008), 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 contingent adjustment payment,
      if
      any, will be accounted for as an increase or decrease in
      goodwill ultimately settled in cash.





The
      acquired business was founded in 1993 within Alleghany Corporation 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.
      Historically, the acquired business utilized seven different entities to manage
      the equity funds, of which five were current or former affiliates of the sellers
      and two were independent. One existing fixed income manager and two new
      managers were retained to manage three fixed income funds. Aston now employs
      17
      different sub-advisors of which five are current or former affiliates of the
      sellers and twelve are independent. Aston’s relationship with the sub-advisers
      currently or formerly affiliated with the sellers 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.




14




Between
      the consummation of the acquisition and June 30, 2008, Aston opened 13 new
      equity mutual funds including three funds in the first quarter of 2008. These
      funds are set forth in the table below.




**Fund**
            
            **Morningstar
                Category**Aston/Optimum
                Large Cap Opportunity
            
            Large
                GrowthAston/River
                Road Small-Mid Cap Fund
            
            Small
                ValueAston/Neptune
                International
            
            Foreign
                Large GrowthAston/Resolution
                Global Equity Fund
            
            World
                StockAston/ABN
                AMRO Global Real Estate
            
            Specialty-Real
                EstateAston/SGA
                International Small-Mid Cap
            
            Foreign
                Small/Mid GrowthAston/Barings
                International
            
            Foreign
                Large BlendAston/Montag
                & Caldwell Mid Cap Growth
            
            Mid-Cap
                GrowthAston/Cardinal
                Mid Cap Value
            
            Mid-Cap
                ValueAston/ClariVest
                Mid Cap Growth
            
            Mid-Cap
                GrowthAston/Smart
                Allocation ETF Fund
            
            Large
                BlendAston/MB
                Enhanced Equity Income Fund
            
            Large
                ValueAston/New
                Century Absolute Return ETF Fund
            
            Moderate
                Allocation




Between
      the consummation of the acquisition and June 30, 2008, Aston closed or merged
      four mutual funds as a result of poor investment performance, portfolio manager
      turnover or other reasons. Aston intends to manage its family of mutual funds
      in
      response to client demands, and may open new funds or close existing funds
      over
      time, as appropriate.




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 herein 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, 28% of the total revenues of Aston
      net of sub-administrative fees, which we refer to as the owners’
allocation, 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 revenues net of sub-administrative fees
      is
      allocated to Highbury and 9.8% of total revenues net of sub-administrative
      fees
      is allocated to the Aston management members. The remaining revenues, which
      we refer to as the operating allocation, of Aston are used to pay operating
      expenses of Aston, including salaries and bonuses of all employees of Aston
      (including the Aston management members).




15




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, then 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* .
      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 June 30, 2008, Aston was reimbursing
      23
      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 97% of our assets under management, is comprised of 28 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 28 funds, the Aston/Montag & Caldwell Growth Fund
      and the Aston/Optimum Mid Cap Fund account for approximately 34% and 20%,
      respectively, of the revenues of Aston in June 2008. Additionally, as of June
      30, 2008, approximately 12% of our assets under management and 12% of our
      revenues are generated by customers sourced through a firm which was previously
      affiliated with the sellers but was subsequently sold to an unaffiliated third
      party. 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;




·
            our
                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;




16




·
            the
                level of intangible assets and the associated amortization expense
                resulting from our acquisitions;




·
            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 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,
                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, net of sub-administrative fees, 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 and excluding certain non-cash,
                non-recurring items) 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,
                legal services 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.




17




·
            *Distribution
                and Sub-advisory Costs*.
                Aston has contracted on a non-exclusive basis with approximately
                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, or sub-advisers, 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 June 30, 2008, Aston employed 37 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 condensed
      consolidated financial statements, which have been prepared in accordance with
      accounting principles generally accepted in the United States of America, or
      GAAP, for interim financial information and with the instructions to Form 10-Q
      and Rule 10-01 of Regulation S-X. 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 1 to its
      unaudited condensed consolidated financial statements included elsewhere herein
      and in Note 1 to its audited financial statements included in its Annual Report
      on Form 10-K for the year ended December 31, 2007, filed with the Securities
      and
      Exchange Commission on March 28, 2008. The following summaries should be read
      in
      conjunction with those condensed consolidated financial statements and the
      related notes. While all accounting policies affect the consolidated financial
      statements, certain policies may be viewed as critical. Critical accounting
      policies are those that are both most important to the portrayal of the
      consolidated 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 consolidation, investments, goodwill and intangible assets, revenue
      recognition and income taxes.




18




*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 in consolidation.




*Investments.* In
      2007,
      the Company elected to adopt the provisions of Statement of Financial Accounting
      Standards (“SFAS”) No. 157 “Fair Value Measurements” (“SFAS 157”) and SFAS No.
      159 “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS 159”). The Company carries its investments in government securities,
      primarily 6-month Treasury bills and its investments in certain mutual funds
      managed by Aston at fair value based on quoted market prices. The Company
      reflects interest paid and accrued on Treasury bills in Interest income and
      changes in fair value of mutual funds in Investment income (loss).




*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 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.




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 is 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.




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 values of our intangible assets and goodwill and
      the
      related amortization could be stated differently and our impairment conclusions
      could be modified.




19




*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. Fee waivers and expense
      reimbursements to certain of the Aston Funds in accordance with agreements
      are
      reported as an offset to investment advisory fees. 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.




*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 assets are primarily the result of impairment of the
      Company’s acquired intangible assets. We amortize acquired intangible assets
      over a 15-year period for tax purposes only, reducing their tax basis and
      generating deferred taxes each reporting period.




**Recently
      Issued Pronouncements**




In
      March
      2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards No. 161 (“SFAS No. 161”), “ *Disclosures
      about Derivative Instruments and Hedging Activities—an amendment of FASB
      Statement No. 133* ”.
      SFAS
      No. 161 gives financial statement users better information about the reporting
      entity's hedges by providing for qualitative disclosures about the objectives
      and strategies for using derivatives, quantitative data about the fair value
      of
      and gains and losses on derivative contracts, and details of credit-risk-related
      contingent features in their hedged positions. SFAS No. 161 is effective for
      financial statements issued for fiscal years and interim periods beginning
      after
      November 15, 2008, with early application encouraged, but not required. We
      do
      not anticipate the adoption of SFAS No. 161 will have a material effect on
      the
      Company’s financial statements.





In
      April
      2008, the FASB issued Final FASB Staff Position (“FSP”) No. FAS 142-3,
“ *Determination
      of the Useful Life of Intangible Assets* ”
to
      improve the consistency between the useful life of a recognized intangible
      asset
      under SFAS No. 142, Goodwill and Other Intangible Assets, and the period of
      expected cash flows used to measure the fair value of the asset under SFAS
      No.
      141 (revised 2007), Business Combinations, and other guidance under U.S.
      generally accepted accounting principles (“GAAP”). We do not anticipate the
      adoption of this FSP will have a material effect on the Company’s financial
      statements. The FSP is effective for financial statements issued for fiscal
      years beginning after December 15, 2008, and interim periods within those years.
      Early adoption is prohibited.





In
      May
      2008, the FASB issued SFAS No. 162, “ *The
      Hierarchy of Generally Accepted Accounting Principles* ”
(”SFAS
      No. 162”). SFAS No. 162 identifies the sources of accounting principles and
      provides entities with a framework for selecting the principles used in
      preparation of financial statements that are presented in conformity with GAAP.
      The Board believes the GAAP hierarchy should be directed to entities because
      it
      is the entity (not its auditors) that is responsible for selecting accounting
      principles for financial statements that are presented in conformity with GAAP.
      The adoption of FASB 162 is not expected to have a material impact on the
      Company’s financial position.




20




Management
      does not believe any other recently issued, but not yet effective, accounting
      standard if adopted in its current form would have a material effect on the
      accompanying consolidated financial statements.





**Results
      of Operations**





*Three
      months ended June 30, 2008 compared to three months ended June 30,
      2007*





For
      the
      three months ended June 30, 2008, the Company earned net income of $900,881
      on
      total operating revenue of $9,680,469, as compared to net income of $927,377
      and
      operating revenue $10,616,247 for the three months ended June 30, 2007. The
      following table summarizes the components of revenue, weighted average assets
      under management and the weighted average fee basis for the period.




For
                the three months ended
              June
                30, 2008Total
                Fees
            
            
            Weighted
                Average Assets Under Management ($M)
            
            
            Weighted
                Average Fee Basis (Annualized)Net
                advisory fees
            
            $
            8,489,683
            
            $
            4,867
            (1)
            
            0.70
            %Net
                administrative fees(2)
            
            
            515,576
            
            
            7,807
            (3)
            
            0.03
            %Money
                market service fees
            
            
            140,159
            
            
            3,106
            
            
            0.02
            %
            (4)$
            9,145,418
            
            
            4,867
            (5)
            
            0.75
            %
            (5)




For
                the three months ended
              June
                30, 2007Total
                Fees
            
            
            Weighted
                Average Assets Under Management ($M)
            
            
            Weighted
                Average Fee Basis (Annualized)Net
                advisory fees
            
            $
            9,396,591
            
            $
            5,265
            (1)
            
            0.72
            %Net
                administrative fees(2)
            
            
            549,319
            
            
            8,238
            (3)
            
            0.03
            %Money
                market service fees
            
            
            140,487
            
            
            3,119
            
            
            0.02
            %
            (4)$
            10,086,397
            
            
            5,265
            (5)
            
            0.77
            %
            (5)




(1)
            Includes
                long-term mutual fund and separate account assets under
                management.(2)
            Administrative
                fees are presented net of sub-administration fees paid to a third
                party to
                be consistent with the methodology used in calculating the revenue
                sharing
                arrangement with Aston. Gross administration fees were $1,050,627
                and
                $1,079,169 in the three months ended June 30, 2008 and 2007,
                respectively.(3)
            Aston
                provides administrative services to the Aston Funds, as well as six
                money
                market mutual funds managed by affiliates of AAAMHI.(4)
            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.




21




(5)
            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
      June 30, 2008, the Company had approximately $4.8 billion of total assets under
      management, compared to approximately $4.7 billion as of March 31, 2008. As
      of
      June 30, 2008, mutual fund assets under management were approximately $4.7
      billion, compared to approximately $4.5 billion as of March 31, 2008, an
      increase of approximately 3%. This increase resulted from positive market
      appreciation and other adjustments, including distributions of income and gain,
      reinvestments of distributions, and other items, of approximately $156 million.
      For the quarter, net client outflows, which represent aggregate contributions
      from new and existing clients less withdrawals, were $29 million. In April
      2008,
      the Company experienced redemptions of approximately $200 million from customers
      sourced through a firm which was previously affiliated with the sellers but
      was
      subsequently sold to an unaffiliated third party. The Company experienced net
      asset inflows of approximately $171 million from all other clients during the
      quarter. During the three months ended June 30, 2007, the Company experienced
      net client outflows of $446 million offset by positive market appreciation
      and
      other adjustments of $307 million. The Company believes that recent improvements
      in the relative investment performance of many of the Aston Funds have led
      to
      improvement in our net asset flows. During the three months ended June 30,
      2008,
      separate account assets under management increased from $151 million to $167
      million.




The
      Company generated total operating revenue during the three months ended June
      30,
      2008 of $9,680,469, as compared to $10,616,247 during the three months ended
      June 30, 2007. This 9% decrease in revenue was largely attributable to the
      overall decline in assets under management from 2007 to 2008. Weighted average
      assets under management, as presented above, decreased from approximately $5.3
      billion in the second quarter of 2007 to approximately $4.9 billion in the
      second quarter of 2008, a decline of approximately 8%. Additionally, the
      Company’s overall weighted average fee basis declined from 0.77% in the second
      of 2007 to 0.75% for the same period in 2008 as a result of the lower asset
      balances and a change in the allocation of assets among the mutual funds. Net
      advisory fees decreased from $9,396,591 in the second quarter of 2007 to
      $8,489,683 for the same period in 2008, primarily as a result of lower average
      mutual fund balances. For the same reason, gross administration fees decreased
      from $1,079,169 in the second quarter of 2007 to $1,050,627 in the second
      quarter of 2008. Net administration fees declined from $549,319 in the second
      quarter of 2007 to $515,576 in the second quarter of 2008. Aston also earned
      money market service fees from ABN AMRO of $140,159 in the three months ended
      June 30, 2008, down slightly from $140,487 in the three months ended June 30,
      2007.




Distribution
      and sub-advisory costs declined from $5,030,615 for the three months ended
      June
      30, 2007 to $4,435,366 in the corresponding period in 2008. This 12% decline
      is
      attributable to the decline in weighted average assets under management from
      2007 to 2008, as these expenses are directly related to the value of assets
      under management.





Compensation
      and related expenses were $1,612,420 for the three months ended June 30, 2008.
      Compensation and related expenses were $1,985,660 for the three months ended
      June 30, 2007. The Aston management team participates directly in the
      profitability of the business through their retention of any excess operating
      allocation which is paid as compensation. Because of the lower level of assets
      under management in the second quarter of 2008, as compared to the second
      quarter of 2007, there was a lower level of excess operating allocation
      available to distribute as compensation to the Aston management
      team.





The
      Company incurred $45,997 of depreciation expense relating to Aston’s fixed
      assets in the second quarter of 2008, compared to $45,359 in the second quarter
      of 2007.





Other
      operating expenses increased from $1,161,113 for the three months ended June
      30,
      2007 to $1,327,558 for the three months ended June 30, 2008. These expenses
      include the operating expenses of Aston and Highbury for the periods and consist
      primarily of legal, accounting, insurance, occupancy and administrative fees.
      Aston’s direct operating expenses for the three months ended June 30, 2007 were
      $756,317, as compared to $1,038,311 during the first three months of 2008.
      Highbury’s direct operating expenses for the three months ended June 30, 2008
      and 2007 were as follows:




22




Three
                Months Ended,June
                30,2008
            
            2007Professional
                fees
            
            $
            143,092
            
            $
            210,000Insurance
            
            
            55,701
            
            
            69,609Administrative
                fees
            
            
            30,000
            
            
            22,500Travel
                and entertainment
            
            
            33,791
            
            
            46,589Other
                expenses
            
            
            26,663
            
            
            56,098$
            289,247
            
            $
            404,796





Non-operating
      income consists primarily of earnings on cash and cash equivalent balances
      and
      short-term investments in U.S. Treasury bills and Aston mutual funds. For the
      three months ended June 30, 2008, Highbury earned interest income on its cash
      balances of $17,280. The Company also had unrealized gains of $26,963 related
      to
      investments in Aston mutual funds. For the three months ended June 30, 2007,
      Highbury earned $122,453 on its cash and cash equivalent balances and had
      unrealized gains of $45,694 related to investments in U.S. Treasury bills and
      Aston mutual funds.




For
      the
      three months ended June 30, 2008, the Company recorded income before minority
      interest and provisions for income taxes of $2,303,371. Minority interest
      expense and income taxes for the period were $897,931 and $504,559,
      respectively. For the three months ended June 30, 2007, the Company recorded
      income before minority interest and provisions for income taxes of $2,561,647.
      Minority interest expense and income taxes for the period were $991,992 and
      $642,278, respectively.




The
      following table outlines Highbury’s income tax expenses for the three months
      ended June 30, 2008 and June 30, 2007.





Three
                Months Ended
              June
                30,2008
            
            2007Current
            
            $
            251,237
            
            $
            390,698Deferred -
                intangible related
            
            
            233,262
            
            
            248,575Deferred
                - other
            
            
            20,060
            
            
            3,005Total
            
            $
            504,559
            
            $
            642,278





For
      further discussion of the Company’s income taxes, please refer to Note 5 of the
      condensed consolidated financial statements included elsewhere in this
      document.





Highbury
      earned net income of $900,881 in the three months ended June 30, 2008, as
      compared to $927,377 during the three months ended June 30, 2007.




23




*Six
      months ended June 30, 2008 compared to six months ended June 30,
      2007*





For
      the
      six months ended June 30, 2008, the Company earned net income of $1,525,160
      on
      total operating revenue of $18,959,516, as compared to net income of $1,902,276
      and operating revenue $21,671,433 for the six months ended June 30, 2007.





As
      of
      June 30, 2008, the Company had approximately $4.8 billion of total assets under
      management, compared to approximately $5.1 billion as of December 31, 2007.
      As
      of June 30, 2008, mutual fund assets under management were approximately $4.7
      billion, compared to approximately $5.0 billion as of December 31, 2007, a
      decrease of approximately 6%. This decrease resulted from negative market
      appreciation and other adjustments, including distributions of income and gain,
      reinvestments of distributions, and other items, of approximately $296 million.
      For the six month period, net client outflows, which represent aggregate
      contributions from new and existing clients less withdrawals, were $17 million.
      In April 2008, the Company experienced redemptions of approximately $200 million
      from customers sourced through a firm which was previously affiliated with
      the
      sellers but was subsequently sold to an unaffiliated third party. For the six
      month period, the Company experienced net asset inflows of approximately $183
      million from all other clients. During the six months ended June 30, 2007,
      the
      Company experienced net client outflows of $739 million offset by positive
      market appreciation and other adjustments of $377 million. The Company believes
      that recent improvements in the relative investment performance of many of
      the
      Aston Funds have led to improvements in our net asset flows. During the six
      months ended June 30, 2008, separate account assets under management increased
      from $145 million to $167 million.




The
      Company generated total operating revenue during the six months ended June
      30,
      2008 of $18,959,516, as compared to $21,671,433 during the six months ended
      June
      30, 2007. This 13% decrease in revenue was largely attributable to the overall
      decline in assets under management from 2007 to 2008. Net advisory fees
      decreased from $19,148,311 in the first six months of 2007 to $16,579,964 for
      the same period in 2008, primarily as a result of lower average mutual fund
      balances. For the same reason, gross administration fees decreased from
      $2,229,652 in the first six months of 2007 to $2,097,345 for the same period
      in
      2008. Net administration fees declined from $1,136,500 in the first six months
      of 2007 to $1,027,273 for the same period in 2008. Aston also earned money
      market service fees from ABN AMRO of $282,207 in the six months ended June
      30,
      2008, down slightly from $293,470 in the six months ended June 30,
      2007.




Distribution
      and sub-advisory costs declined from $10,256,739 for the six months ended June
      30, 2007 to $8,786,769 in the corresponding period in 2008. This 14% decline
      is
      attributable to the decline in assets under management from 2007 to 2008, as
      these expenses are directly related to the value of assets under
      management.





Compensation
      and related expenses were $3,146,604 for the six months ended June 30, 2008.
      Compensation and related expenses were $3,314,424 for the six months ended
      June
      30, 2007. The Aston management team participates directly in the profitability
      of the business through their retention of any excess operating allocation
      which
      is paid as compensation. In the first quarter of 2007, Aston repaid a loan
      from
      Highbury for $840,000 in lieu of distributing the excess operating allocation
      as
      compensation. In 2008, all excess operation allocation was distributed as
      compensation to the Aston management team.





The
      Company incurred $95,056 of depreciation expense relating to Aston’s fixed
      assets in the first six months of 2008, compared to $80,223 in the first six
      months of 2007.





Other
      operating expenses increased from $2,571,213 for the six months ended June
      30,
      2007 to $2,662,026 for the six months ended June 30, 2008. These expenses
      include the operating expenses of Aston and Highbury for the periods and consist
      primarily of legal, accounting, insurance, occupancy and administrative fees.
      Aston’s direct operating expenses for the six months ended June 30, 2007 were
      $1,710,574, as compared to $1,957,108 during the first six months of 2008.
      Highbury’s direct operating expenses for the six months ended June 30, 2008 and
      2007 were as follows:




24




Six
                Months Ended,June
                30,2008
            
            2007Professional
                fees
            
            $
            434,288
            
            $
            535,293Insurance
            
            
            111,615
            
            
            127,821Administrative
                fees
            
            
            60,000
            
            
            45,000Travel
                and entertainment
            
            
            44,244
            
            
            57,629Other
                expenses
            
            
            54,771
            
            
            94,896$
            704,918
            
            $
            860,639





Non-operating
      income consists primarily of earnings on cash and cash equivalent balances
      and
      short-term investments in U.S. Treasury bills and Aston mutual funds. For the
      six months ended June 30, 2008, Highbury earned interest income on its cash
      balances of $71,291. The Company also had unrealized losses of $151,861 related
      to investments in Aston mutual funds. For the six months ended June 30, 2007,
      Highbury earned $206,774 on its cash and cash equivalent balances and had
      unrealized gains of $50,694 related to investments in U.S. Treasury bills and
      Aston mutual funds.




For
      the
      six months ended June 30, 2008, the Company recorded income before minority
      interest and provisions for income taxes of $4,188,491. Minority interest
      expense and income taxes for the period were $1,757,938 and $905,393,
      respectively. For the six months ended June 30, 2007, the Company recorded
      income before minority interest and provisions for income taxes of $5,706,302.
      Minority interest expense and income taxes for the period were $2,587,816 and
      $1,216,210, respectively.




The
      following table outlines Highbury’s income tax expenses for the six months ended
      June 30, 2008 and June 30, 2007.





Six
                Months Ended
              June
                30,2008
            
            2007Current
            
            $
            472,394
            
            $
            736,942Deferred -
                intangible related
            
            
            466,525
            
            
            473,543Deferred
                - other
            
            
            (33,526
            )
            
            5,725Total
            
            $
            905,393
            
            $
            1,216,210





For
      further discussion of the Company’s income taxes, please refer to Note 5 of the
      condensed consolidated financial statements included elsewhere in this
      document.





Highbury
      earned net income of $1,525,160 in the six months ended June 30, 2008, as
      compared to $1,902,276 during the six months ended June 30, 2007.





***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.




25




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 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.




Three
                Months Ended
              June
                30,
            
            Six
                Months Ended
              June
                30,2008
            
            2007
            
            2008
            
            2007**Net
                Income**
            
            $
            900,881
            
            $
            927,377
            
            $
            1,525,160
            
            $
            1,902,276Intangible
                amortization
            
            
            —
            
            
            —
            
            
            —
            
            
            —Intangible-related
                deferred taxes
            
            
            233,262
            
            
            248,575
            
            
            466,525
            
            
            473,543Affiliate
                depreciation
            
            
            45,997
            
            
            45,359
            
            
            95,056
            
            
            80,223Other
                non-cash expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Cash
                Net Income**
            
            $
            1,180,140
            
            $
            1,221,311
            
            $
            2,086,741
            
            $
            2,456,042




**Liquidity
      and Capital Resources**




Highbury
      funds its business activities with a combination of operating income and the
      interest income earned on its cash and cash equivalent balances and expects
      to
      fund future acquisitions with retained net income or the issuance of debt or
      equity. As of June 30, 2008, 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 provides for a maximum total leverage ratio (including debt from all
      sources) of 5.0 times Adjusted EBITDA, although borrowings under the credit
      agreement are limited 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. 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. For further information about the amendment to our credit
      facility, please refer to the section entitled “Credit Facility.”




Current
      market conditions may make it more difficult for us to complete an acquisition
      through the use of debt financing because of the reduced availability of debt
      at
      appropriate terms. If we issue debt to finance an acquisition, a decrease in
      our
      assets under management caused by negative market conditions could have an
      adverse effect on the distributions we receive from Aston and potential future
      affiliates and limit our ability to repay our borrowings. In addition, our
      ability to make accretive acquisitions through the issuance of additional equity
      is dependent upon the relationship between the market value of our outstanding
      common stock and the pricing of any transaction. If the price of our common
      stock remains at or near its current level, it may be more difficult for us
      to
      issue additional equity to finance an acquisition. The inability to complete
      accretive acquisitions may negatively impact our growth, results of operations
      or financial condition.




26




Aston
      funds its business activities with cash flows from operations. However, 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.





As
      of
      June 30, 2008, the Company had $7,404,683 of cash and equivalents, $2,516,731
      of
      investments, and $3,450,003 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 June 2008. Aston receives its revenues
      generally within the first week of the month following the month in which they
      are earned. At June 30, 2008, the Company had accounts payable of $3,890,172,
      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 $914,637 of distributions payable to the Aston
      management members which were subsequently paid in July 2008. 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 and cash equivalents
      on a
      quarterly basis to its owners, so we do not expect large cash and cash
      equivalents balances to accrue within Aston. Highbury will retain its cash
      and
      cash equivalents, and we expect our cash and cash equivalents balances will
      increase over time, until the cash and cash equivalents is used to fund
      acquisitions, service debt, if any, or repurchase our securities, if
      appropriate.




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.




*Cash
      Flow from Operating Activities* .
      Cash
      flow from operations generally represents net income plus non-cash charges
      for
      amortization, deferred taxes, depreciation and other items as well as the
      changes in our consolidated working capital. For the three months ended June
      30,
      2008, the Company received $2,105,897 of net cash flow from its operating
      activities. In addition to net income of $900,881, the Company’s cash flow was
      increased by $253,866 relating to deferred taxes related primarily to the
      amortization of goodwill and intangible assets for income tax purposes, by
      $269,213 relating to an increase in accounts payable and accrued expenses and
      by
      $897,931 relating to the Company’s minority interest in its affiliate. For the
      three months ended June 30, 2007, the Company received $3,212,855 of net cash
      flow from its operating activities. In addition to net income of $927,377,
      the
      Company’s cash flow was increased by $251,580 relating to deferred taxes related
      primarily to the amortization of goodwill and intangible assets for income
      tax
      purposes, by $535,487 relating to an increase in accounts payable and accrued
      expenses and by $991,992 relating to the Company’s minority interest in its
      affiliate.




For
      the
      six months ended June 30, 2008, the Company received $3,532,971 of net cash
      flow
      from its operating activities. In addition to net income of $1,525,160, the
      Company’s cash flow was increased by $433,543 relating to deferred taxes related
      primarily to the amortization of goodwill and intangible assets for income
      tax
      purposes and by $1,757,938 relating to the Company’s minority interest in its
      affiliate. Cash flow was reduced by a $608,180 relating to a decrease in
      accounts payable and accrued expenses. For the six months ended June 30, 2007,
      the Company received $7,153,073 of net cash flow from its operating activities.
      In addition to net income of $1,902,276, the Company’s cash flow was increased
      by $479,268 relating to deferred taxes related primarily to the amortization
      of
      goodwill and intangible assets for income tax purposes, by $1,371,243 relating
      to an increase in accounts payable and accrued expenses and by $2,587,816
      relating to the Company’s minority interest in its affiliate.




27




*Cash
      Flow from Investing Activities* .
      Changes
      in net cash flow from investing activities will result primarily from capital
      expenditures, investments in new affiliates, investments in U.S. treasury
      securities with an original maturity in excess of 90 days or, from time to
      time,
      investments in new mutual funds created by Aston. In January 2008, Highbury
      invested $1,000,000 in the Aston/Smart Allocation ETF Fund, and in March 2008,
      Highbury invested $1,000,000 in the Aston/New Century Absolute Return ETF Fund.
      Highbury financed these investments through the sale of investments in U.S.
      treasury securities. In the second quarter of 2008, Highbury sold $400,000
      of
      investments in the Aston/New Century Absolute Return ETF Fund and $500,000
      of
      investments in the Aston/Smart Allocation ETF Fund. In March 2007, Highbury
      invested $1,000,010 in the Aston/River Road Small-Mid Cap Fund and purchased
      U.S. treasury securities of $1,499,971. In the second quarter of 2007, Highbury
      purchased U.S. treasury securities of $1,980,965. In addition, Aston purchased
      $2,756 and $104,490 in fixed assets in the six months ended June 30, 2008 and
      June 30, 2007, respectively. Cash flow from investing activities provided
      $903,767 in the three months ended June 30, 2008, as compared to a use of
      $951,590 in the three months ended June 30, 2007. Cash flow from investing
      activities provided $1,962,663 in the six months ended June 30, 2008, as
      compared to a use of $3,533,494 in the six months ended June 30,
      2007.




*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, the repurchase of the Company’s outstanding securities or the
      payment of distributions to Aston’s minority interest holders. The Company
      distributed $853,731 and $1,808,802 to Aston’s minority interest holders during
      the three and six months ended June 30, 2008, respectively. The Company
      distributed $1,382,725 to Aston’s minority interest holders during the three and
      six months ended June 30, 2007. Additionally, during the first quarter of 2008,
      the Company repurchased 1,836,292 warrants for $1,823,083 and 400,372 shares
      for
      $1,735,611. Cash flow from financing activities used $853,731 in the three
      months ended June 30, 2008, as compared to a use of $1,382,725 in the three
      months ended June 30, 2007. Cash flow from financing activities used $5,367,496
      in the six months ended June 30, 2008, as compared to a use of $1,382,725 in
      the
      six months ended June 30, 2007.




***Credit
      Facility***




We
      have
      available a credit agreement with City National Bank expiring on October 31,
      2008, which provides for a revolving line of credit of up to $12.0 million.
      The
      credit agreement provides for a maximum total leverage ratio (including debt
      from all sources) of 5.0 times Adjusted EBITDA, although borrowings under the
      credit agreement are limited to 2.0 times Adjusted EBITDA, and incorporates
      a
      minimum fixed charge coverage ratio of 1.25x and a minimum net worth of $20
      million. The credit facility may 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, 2008. 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 June 30, 2008, 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. As of June 30, 2008, we were in compliance with all of the
      covenant requirements under this credit facility.




28




***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, 2007, filed with the Securities and Exchange Commission on March
      28, 2008.




***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. 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 net income to Adjusted
      EBITDA:




Three
                Months Ended
              June
                30,
            
            
            Six
                Months Ended
              June
                30,2008
            
            
            2007
            
            
            2008
            
            
            2007**Net
                Income**
            
            $
            900,881
            
            $
            927,377
            
            $
            1,525,160
            
            $
            1,902,276Income
                tax expense
            
            
            504,559
            
            
            642,278
            
            
            905,393
            
            
            1,216,210Interest
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —Intangible
                amortization
            
            
            —
            
            
            —
            
            
            —
            
            
            —Depreciation
                and other amortization
            
            
            45,997
            
            
            45,359
            
            
            95,056
            
            
            80,223Other
                non-cash expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Adjusted
                EBITDA**
            
            $
            1,451,437
            
            $
            1,615,014
            
            $
            2,525,609
            
            $
            3,198,709





**Off-Balance
      Sheet Arrangements**




Warrants
      issued in conjunction with our initial public offering are equity linked
      derivatives and accordingly represent off-balance sheet arrangements. The
      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.





**Agreements
      with Berkshire Capital**




Highbury
      occupies office space provided by Berkshire Capital Securities LLC, or Berkshire
      Capital, pursuant to an office services agreement. Messrs. Cameron, Foote and
      Forth, our executive officers, are affiliated with Berkshire Capital. The office
      services agreement provides for a monthly fixed fee of $10,000 for office and
      secretarial services including use and access to our office in Denver, Colorado
      and those other office facilities of Berkshire Capital as we may reasonably
      require. In addition, certain employees of Berkshire Capital will provide us
      with financial reporting support on a daily basis. The term of the agreement
      is
      indefinite. The agreement is terminable by either party upon six months’ prior
      notice. The condensed consolidated statements of income for the three and six
      months ended June 30, 2008 include $30,000 and $60,000 related to this
      agreement, respectively. The condensed consolidated statements of income for
      the
      three and six months ended June 30, 2007 include $22,500 and $45,000 related
      to
      this agreement, respectively.




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. As of June 30, 2008,
      we had made no payments pursuant to this engagement.




29




**Impact
      of Inflation**




Our
      revenue is directly linked to the total assets under management within the
      28
      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. Current interest rates available to us may or
      may
      not exceed the current rate of inflation. In some cases, the impact of inflation
      could erode our purchasing power.




**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK.**





There
      have been no material changes to our Quantitative and Qualitative Disclosures
      About Market Risk in the six months ended June 30, 2008.  Please refer to
      Item 7A in our Annual Report on Form 10-K for the fiscal year ended December
      31,
      2007, filed with the Securities and Exchange Commission on March 28,
      2008.




**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
      June 30, 2008. 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.




During
      the most recently completed fiscal quarter, there has been no 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
      re sults
      of
      operations.




30




**ITEM
      1A. RISK FACTORS**





There
      have been no material changes from the risk factors previously disclosed in
      Item
      1A “Risk Factors” of our Annual Report on Form 10-K filed with the Securities
      and Exchange Commission on March 28, 2008.




**ITEM
      6. EXHIBITS**





The
      exhibits are listed on the Exhibit Index and are included elsewhere in this
      Quarterly Report on Form 10-Q.




31




**SIGNATURES**





Pursuant
      to 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:
                July 31, 2008
            By: /s/
                Richard S.
                FooteRichard
                S. Foote
              President
                and Chief Executive Officer
              (Principal
                Executive Officer)







Dated:
                July 31, 2008
            By:
                /s/ R. Bradley
                ForthR.
                Bradley Forth
              Executive
                Vice President, Chief Financial Officer and Secretary
              (Principal
                Financial and Accounting Officer)




32




**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.




33