**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 September 30, 2007****o**
            **TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF 1934****For
              the
              transition period from _____________ to
              _____________**




**Commission
      File Number 000-51682**




**Highbury
      Financial Inc.**


(Exact
      name of registrant as specified in its charter)




**Delaware**
            
            **20-3187008**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)**999
                Eighteenth Street, Ste. 3000**
              **Denver,
                Colorado**
            
            **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, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.




Large
                Accelerated Filer ̈
            Accelerated
                Filer ̈
            Non-Accelerated
                Filerx





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).   Yes o No x




As
      of
      October 31, 2007, 9,527,000 shares of common stock, par value $0.0001 per share,
      were issued and outstanding.










**Page****PART
                I. FINANCIAL INFORMATION**Item
                1 - Financial Statements
            2**Highbury
                Financial Inc.**
            2Condensed
                Consolidated Balance Sheets
            2Condensed
                Consolidated Statements of Operations
            3Condensed
                Consolidated Statements of Cash Flows
            4Notes
                to Unaudited Condensed Consolidated Financial Statements
            5**U.S.
                Mutual Fund Business of ABN AMRO Asset Management Holdings,
                Inc.**
            18Combined
                Statements of Financial Condition
            18Combined
                Statements of Operations
            19Combined
                Statements of Changes in Owner’s Equity
            20Combined
                Statements of Cash Flows
            21Notes
                to Unaudited Combined Financial Statements
            22Item
                2 - Management's Discussion and Analysis of Financial Condition and
                Results of Operations
            27Item
                3 - Quantitative and Qualitative Disclosures About Market
                Risk
            48Item
                4 - Controls and Procedures
            48**PART
                II. OTHER INFORMATION**
            49Item
                1 - Legal Proceedings
            49Item
                1A - Risk Factors
            49Item
                6 - Exhibits
            50Signatures
            51







**ITEM
      1 - FINANCIAL STATEMENTS**




**Highbury
      Financial Inc. and Subsidiary**


**Condensed
      Consolidated Balance Sheets**





**September
                30, 2007**
            
            **December
                31,**
              **2006***(unaudited)*Current
                assets:Cash
                and equivalents
            
            $
            8,259,926
            
            $
            6,248,705Short-term
                investments
            
            
            3,106,981
            
            
            -Marketable
                securities
            
            
            196,957
            
            
            -Accounts
                receivable (Note 11)
            
            
            3,155,459
            
            
            3,646,422Deferred
                acquisition costs
            
            
            265,616
            
            
            -Prepaid
                expenses
            
            
            195,780
            
            
            221,220Other
                current assets
            
            
            -
            
            
            13,670Total
                current assets
            
            
            15,180,719
            
            
            10,130,017Fixed
                assets
            
            
            1,210,616
            
            
            573,534Accumulated
                depreciation
            
            
            (126,568
            )
            
            -Fixed
                assets, net
            
            
            1,084,048
            
            
            573,534Identifiable
                intangibles (Note 3)
            
            
            26,753,000
            
            
            26,753,000Goodwill
                (Note 3)
            
            
            9,673,412
            
            
            9,673,412Deferred
                income taxes (Notes 3, 9)
            
            
            -
            
            
            87,276Other
                long term assets
            
            
            152,123
            
            
            150,000Total
                assets
            
            $
            52,843,302
            
            $
            47,367,239Current
                liabilities:Accounts
                payable and accrued expenses (Note 5)
            
            $
            4,329,704
            
            $
            2,269,470Income
                taxes payable (Note 9)
            
            
            655,792
            
            
            242,089Deferred
                income taxes (Notes 3, 9)
            
            
            526,698
            
            
            -Total
                current liabilities
            
            
            5,512,194
            
            
            2,511,559Deferred
                rent (Note 4)
            
            
            767,354
            
            
            -Total
                liabilities
            
            
            6,279,548
            
            
            2,511,559Commitments
                and contingencies (Note 7)
            
            
            -
            
            
            -Minority
                interest (Note 3)
            
            
            840,000
            
            
            626,901Stockholders'
                equity (Notes 2, 3, 8):Preferred
                stock, $0.0001 par value, authorized 1,000,000 shares; none
                issued
            
            
            -
            
            
            -Common
                stock, $0.0001 par value, authorized 50,000,000 shares; 9,527,000
                shares
                issued and outstanding as of December 31, 2006 and September 30,
                2007
            
            
            953
            
            
            953Additional
                paid-in capital
            
            
            55,393,484
            
            
            56,693,484Accumulated
                deficit
            
            
            (9,670,683
            )
            
            (12,465,658
            )Total
                stockholders' equity
            
            
            45,723,754
            
            
            44,228,779Total
                liabilities and stockholders' equity
            
            $
            52,843,302
            
            $
            47,367,239





See
      Notes
      to Unaudited Condensed Consolidated Financial Statements


2


**Highbury
      Financial Inc. and Subsidiary**


**Condensed
      Consolidated Statements of Operations**


*(unaudited)*





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Revenue
                (Note 11)
            
            $
            10,157,568
            
            $
            -
            
            $
            31,829,001
            
            $
            -Operating
                expenses:Distribution
                and sub-advisory costs
            
            
            (4,735,347
            )
            
            -
            
            
            (14,992,086
            )
            
            -Compensation
                and related expenses
            
            
            (1,777,417
            )
            
            -
            
            
            (5,091,841
            )
            
            -Other
                operating expenses
            
            
            (1,320,117
            )
            
            (147,649
            )
            
            (3,891,330
            )
            
            (408,323
            )Depreciation
                and other amortization
            
            
            (46,345
            )
            
            -
            
            
            (126,568
            )
            
            -Amortization
                of intangible assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                expenses
            
            
            (7,879,226
            )
            
            (147,649
            )
            
            (24,101,825
            )
            
            (408,323
            )Operating
                income / (loss)
            
            
            2,278,342
            
            
            (147,649
            )
            
            7,727,176
            
            
            (408,323
            )Non-operating
                income:Interest
                income
            
            
            135,146
            
            
            5,812
            
            
            341,920
            
            
            9,188Investment
                income / (loss)
            
            
            (473
            )
            
            461,190
            
            
            50,221
            
            
            1,179,735Total
                non-operating income
            
            
            134,673
            
            
            467,002
            
            
            392,141
            
            
            1,188,923Income
                before minority interest
            
            
            2,413,015
            
            
            319,353
            
            
            8,119,317
            
            
            780,600Minority
                interest (Note 3)
            
            
            (947,709
            )
            
            -
            
            
            (3,535,525
            )
            
            -Income
                before provision for income taxes
            
            
            1,465,306
            
            
            319,353
            
            
            4,583,792
            
            
            780,600Provision
                for income taxes (Note 9):Current
            
            
            (437,901
            )
            
            (194,181
            )
            
            (1,174,843
            )
            
            (492,366
            )Deferred -
                Intangible-related
            
            
            (236,772
            )
            
            -
            
            
            (710,315
            )
            
            -Deferred -
                Other
            
            
            102,066
            
            
            75,841
            
            
            96,341
            
            
            204,016Total
                income taxes
            
            
            (572,607
            )
            
            (118,340
            )
            
            (1,788,817
            )
            
            (288,350
            )Net
                income for the period
            
            $
            892,699
            
            $
            201,013
            
            $
            2,794,975
            
            $
            492,250Weighted
                average shares outstanding, basic
            
            
            9,527,000
            
            
            9,635,000
            
            
            9,527,000
            
            
            8,859,469Net
                income per share, basic
            
            $
            0.09
            
            $
            0.02
            
            $
            0.29
            
            $
            0.06Weighted
                average shares outstanding, diluted
            
            
            9,683,634
            
            
            9,635,000
            
            
            11,420,944
            
            
            8,859,469Net
                income per share, diluted
            
            $
            0.09
            
            $
            0.02
            
            $
            0.24
            
            $
            0.06




See
      Notes
      to Unaudited Condensed Consolidated Financial Statements


3


**Highbury
      Financial Inc. and Subsidiary**


**Condensed
      Consolidated Statements of Cash Flows**


*(unaudited)*




**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Cash
                flows from operating activities:Net
                income for the period
            
            $
            892,699
            
            $
            201,013
            
            $
            2,794,975
            
            $
            492,250Adjustments
                to reconcile net income to net cash used in operating
                activities:(Increase)
                / decrease in deferred taxes
            
            
            134,706
            
            
            (75,843
            )
            
            613,974
            
            
            (204,018
            )Depreciation
                and other amortization
            
            
            46,345
            
            
            -
            
            
            126,568
            
            
            -Minority
                interest
            
            
            947,709
            
            
            -
            
            
            3,535,525
            
            
            -Changes
                in operating assets and liabilities:(Increase)
                / decrease in short-term investments
            
            
            (41,478
            )
            
            -
            
            
            (3,106,981
            )
            
            -(Increase)
                / decrease in marketable securities
            
            
            473
            
            
            -
            
            
            (50,221
            )
            
            -(Increase)
                / decrease in accounts receivable
            
            
            188,163
            
            
            -
            
            
            490,963
            
            
            -(Increase)
                / decrease in prepaid expenses
            
            
            (121,687
            )
            
            26,560
            
            
            25,440
            
            
            (78,795
            )(Increase)
                / decrease in other current assets
            
            
            -
            
            
            -
            
            
            13,670
            
            
            -(Increase)
                / decrease in other long term assets
            
            
            (1,108
            )
            
            -
            
            
            (2,123
            )
            
            -(Increase)
                / decrease in accounts payable and accrued expenses
            
            
            (524,334
            )
            
            402,421
            
            
            633,810
            
            
            139,612(Increase)
                / decrease in trust account
            
            
            -
            
            
            (533,586
            )
            
            -
            
            
            (1,134,926
            )Increase
                / (decrease) in deferred investment income
            
            
            -
            
            
            72,397
            
            
            -
            
            
            185,192Increase
                / (decrease) in income taxes payable
            
            
            265,301
            
            
            194,181
            
            
            413,703
            
            
            262,366Increase
                / (decrease) in deferred rent
            
            
            88,470
            
            
            -
            
            
            244,994
            
            
            -Increase
                / (decrease) in minority interest
            
            
            -
            
            
            -
            
            
            213,099
            
            
            -Net
                cash used in operating activities
            
            
            1,875,259
            
            
            287,143
            
            
            5,947,396
            
            
            (338,319
            )Cash
                flows from investing activities:Purchase
                of investments
            
            
            -
            
            
            -
            
            
            (1,400,010
            )
            
            -Sale
                of investments
            
            
            201,332
            
            
            -
            
            
            1,253,274
            
            
            -Cash
                held in trust fund
            
            
            -
            
            
            -
            
            
            -
            
            
            (43,289,567
            )Payment
                of costs of the acquisition
            
            
            -
            
            
            (384,041
            )
            
            -
            
            
            (384,041
            )Capital
                expenditures
            
            
            (10,232
            )
            
            -
            
            
            (114,722
            )
            
            -Net
                cash used in investing activities
            
            
            191,100
            
            
            (384,041
            )
            
            (261,458
            )
            
            (43,673,608
            )Cash
                flows from financing activities: (Note 2)Proceeds
                from sale of shares of common stock
            
            
            -
            
            
            -
            
            
            -
            
            
            47,460,000Proceeds
                from issuance of option
            
            
            -
            
            
            -
            
            
            -
            
            
            100Payments
                of notes payable, stockholders
            
            
            -
            
            
            -
            
            
            -
            
            
            (70,000
            )Payments
                of costs of public offering
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,944,987
            )Distributions
                paid to minority interest holders
            
            
            (991,992
            )
            
            -
            
            
            (2,374,717
            )
            
            -Repurchase
                of underwriters’ purchase option
            
            
            (1,300,000
            )
            
            -
            
            
            (1,300,000
            )
            
            -Net
                cash provided by financing activities
            
            
            (2,291,992
            )
            
            -
            
            
            (3,674,717
            )
            
            44,445,113Net
                increase / (decrease) in cash
            
            
            (225,633
            )
            
            (96,898
            )
            
            2,011,221
            
            
            433,186Cash
                at beginning of period
            
            
            8,485,559
            
            
            566,986
            
            
            6,248,705
            
            
            36,902Cash
                at end of period
            
            $
            8,259,926
            
            $
            470,088
            
            $
            8,259,926
            
            $
            470,088Supplemental
                schedule of non-cash financing and investing activities:Accrual
              of deferred acquisition costs
            
            $
            265,616
            
            $
            (4,584
            )
            $
            265,616
            
            $
            752,381Accrual
              of deferred underwriting fees
            
            
            -
            
            
            -
            
            
            -
            
            
            673,333Deferred
                rent and leasehold improvements recorded in connection with construction
                allowance
            
            
            -
            
            
            -
            
            
            522,360
            
            
            -Supplemental
              disclosure of cash flow information:Cash
                paid for taxes
            
            $
            172,600
            
            $
            -
            
            $
            761,139
            
            $
            232,146




See
      Notes
      to Unaudited Condensed Consolidated Financial Statements


4


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


**1.
      Basis of Presentation**





The
      accompanying condensed consolidated financial statements as of September 30,
      2007 and for the three and nine months ended September 30, 2007 and September 30,
      2006
      are unaudited and include the accounts of Highbury Financial Inc. (“Highbury” or
      the “Company”) and its 65%-owned subsidiary, Aston Asset Management LLC
      (“Aston”). The Company has selected December 31 as its fiscal year
      end.





In
      the
      opinion of management, all adjustments (consisting of normal accruals) have
      been
      made that are necessary to present fairly the consolidated financial position
      of
      the Company as of September 30, 2007 and the consolidated results of operations
      and consolidated cash flows for the three and nine months ended September 30,
      2007 and September 30, 2006. Operating results for the interim periods presented
      are not necessarily indicative of the results to be expected for a full year.
      The accompanying December 31, 2006 consolidated balance sheet has been derived
      from the audited consolidated financial statements. The condensed consolidated
      financial statements should be read in conjunction with the consolidated
      financial statements and notes thereto included in our Annual Report on Form
      10-K for the year ended December 31, 2006.





The
      accompanying consolidated financial statements and related notes have been
      prepared pursuant to the rules and regulations of the U.S. Securities and
      Exchange Commission. Accordingly, certain information and footnote disclosures
      normally included in financial statements prepared in accordance with United
      States generally accepted accounting principles have been omitted pursuant
      to
      such rules and regulations.





Highbury
      is an investment management holding company providing permanent capital
      solutions to mid-sized investment management firms. The Company pursues
      acquisition opportunities and seeks to establish accretive partnerships with
      high quality investment management firms. Highbury’s strategy is to provide
      permanent equity capital to fund buyouts from corporate parents, buyouts of
      founding or departing partners, growth initiatives, or exit strategies for
      private equity funds. This strategy includes leaving material equity interests
      with management teams to align the interests of management and Highbury’s
      shareholders and, in general, does not include integrating future acquisitions,
      although Highbury may execute add-on acquisitions for its current or future
      affiliates. The Company seeks to augment and diversify its sources of revenue
      by
      management team, asset class, investment style, distribution channel and client
      type.




**2.
      Initial Public Offering**





Highbury
      was incorporated in Delaware on July 13, 2005 to acquire, or acquire control
      of,
      operating businesses in the financial services industry that may provide
      significant opportunities for growth, with a particular focus on investment
      management and securities firms (“Business Combination”).





The
      registration statement for the Company's initial public offering ("Offering")
      was declared effective January 25, 2006. The Company consummated the Offering,
      including full exercise of the over-allotment option, on January 31, 2006 and
      February 3, 2006, respectively. Simultaneously with the Offering, all of the
      Company's stockholders prior to the Offering (the “Initial Stockholders”),
      including all of the officers and directors of the Company, purchased an
      aggregate of 166,667 units from the Company in a private placement (the “Private
      Placement”). The units sold in the Private Placement were identical to the units
      sold in the Offering, but the purchasers in the Private Placement waived their
      rights to conversion and to receipt of distribution on liquidation in the event
      the Company did not complete a Business Combination.





The
      Company sold 7,910,000 units ("Units") in the Private Placement and the
      Offering, which included the 1,010,000 Units subject to the underwriters’
over-allotment option. Each Unit consists of one share of the Company's common
      stock, $0.0001 par value (“Common Stock”), and two redeemable common stock
      purchase warrants ("Warrants"). Each Warrant entitles the holder to purchase
      from the Company one share of Common Stock at an exercise price of $5.00
      commencing January 25, 2007 and expiring four years from the effective date
      of
      the Offering (January 25, 2010). The Warrants will be redeemable, at the
      Company's option, at a price of $0.01 per Warrant upon 30 days' notice after
      the
      Warrants become exercisable, only in the event that the last sale price of
      the
      Common Stock is at least $8.50 per share for any 20 trading days within a 30
      trading day period ending on the third day prior to the date on which notice
      of
      redemption is given. Separate trading of the Common Stock and Warrants
      underlying the Company’s Units was permitted on February 21, 2006 and commenced
      on March 1, 2006.




5




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


Under
      the
      terms of the Warrants, the Company is required to use its best efforts to
      maintain the effectiveness of the registration statement covering the shares
      of
      Common Stock underlying the Warrants. However, the Company is not obligated
      to
      deliver securities, and there are no contractual penalties for failure to
      deliver securities, if a registration statement is not effective at the time
      of
      exercise. Additionally, in the event that a registration statement is not
      effective at the time of exercise, the holder of such Warrant shall not be
      entitled to exercise such Warrant. The Company entered into an Amended and
      Restated Clarification Agreement on December 15, 2006, which clarifies that
      in
      no event (whether in the case of a registration statement not being effective
      or
      otherwise) is the Company required to net cash settle the Warrants.
      Consequently, the Warrants will expire unexercised and unredeemed if there
      is no
      effective registration statement covering the shares of Common Stock issuable
      upon exercise of the Warrants.





In
      connection with the Offering, the Company issued an option, for $100, to the
      underwriters to purchase 336,667 Units at an exercise price of $7.50 per Unit.
      In July 2007, the Company entered into Unit Purchase Option Repurchase
      Agreements with the underwriters of the Offering pursuant to which the Company
      repurchased the option from the underwriters for aggregate cash payments of
      $1,300,000. The unit purchase option was cancelled upon its
      repurchase.





The
      Company received proceeds from the Private Placement and the Offering, net
      of
      the underwriters’ discount and commissions and offering expenses, of
      $43,783,582. An amount of $42,616,234 of the net proceeds of the Offering and
      the Private Placement and $673,333 of compensation for the underwriters of
      the
      Offering, which was deferred until the consummation of a Business Combination
      (net of approximately $0.11 for each share of common stock converted in
      connection with the Business Combination as described below) but which would
      be
      forfeited if a Business Combination was not consummated, was placed in an
      interest-bearing trust account ("Trust Account") until the earlier of (i) the
      consummation of a Business Combination or (ii) liquidation of the Company.
      Under
      the agreement governing the Trust Account, funds were only invested in United
      States "government securities" within the meaning of Section 2(a)(16) of the
      Investment Company Act of 1940 with a maturity of 180 days or less. The
      remaining net proceeds (not held in the Trust Account) have been used to pay
      for
      business, legal and accounting due diligence on prospective acquisitions and
      general and administrative expenses of the Company.




On
      April
      20, 2006, the Company and Aston (together with Highbury, the “Highbury
      Entities”), entered into an Asset Purchase Agreement (“Asset Purchase
      Agreement”) with AAAMHI, ABN AMRO Investment Fund Services, Inc. (“AAIFS”), ABN
      AMRO Asset Management, Inc., (“AAAMI”), Montag & Caldwell, Inc., (“Montag”),
      Tamro Capital Partners LLC, (“TAMRO”), Veredus Asset Management LLC,
      (“Veredus”), and River Road Asset Management, LLC, (“River Road” and together
      with AAAMHI, AAIFS, AAAMI, Montag, TAMRO and Veredus individually referred
      to as
      a “Seller” and collectively as “Sellers”) to acquire substantially all of the
      Sellers’ business of providing investment advisory, administration, distribution
      and related services to the U.S. mutual funds (the “Target Funds”) specified in
      the Asset Purchase Agreement (collectively, the “Business”). After entering into
      the Asset Purchase Agreement, Highbury submitted the transaction for stockholder
      approval.





The
      Initial Stockholders agreed to vote their 1,725,000 founding shares of common
      stock (Note 8), as well as the 166,667 shares of common stock included in the
      units they purchased in the Private Placement, in accordance with the vote
      of
      the majority in interest of all other stockholders of the Company ("Public
      Stockholders") with respect to any Business Combination. After the consummation
      of the Business Combination, these voting safeguards are no longer applicable.




6


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




With
      respect to the Business Combination, any Public Stockholder who voted against
      the Business Combination had the right to demand that the Company convert his
      shares. The per share conversion price was equal to the amount in the Trust
      Account, net of taxes payable, calculated as of two business days prior to
      the
      consummation of the Business Combination, divided by the number of shares of
      common stock held by Public Stockholders at the consummation of the Offering.
      Such Public Stockholders were entitled to receive their per-share interest,
      net
      of taxes payable, in the Trust Account computed excluding the shares held by
      Initial Stockholders.





The
      stockholders approved the Business Combination at the Company’s annual meeting
      of stockholders on November 27, 2006, and the Business Combination was
      subsequently consummated on November 30, 2006. The Company used $40,459,312
      of
      the proceeds of the Offering and the Private Placement to consummate the
      Business Combination with the Sellers. In connection with the consummation
      of
      the Business Combination, the Company converted 108,000 shares to cash for
      one
      Public Stockholder at a cost of $618,972, or approximately $5.73 per share.
      These shares were subsequently retired by the Company. On November 30, 2006,
      the
      Company paid the underwriters $678,606, inclusive of the deferred interest,
      net
      of taxes payable, and less approximately $11,670 for the shares of common stock
      which were converted. The Company recorded the deferred underwriting fees
      payable to the underwriters as an expense of the public offering resulting
      in a
      charge directly to stockholders' equity. ****




**3.
      Significant Accounting Policies**





*Use
      of Estimates*





The
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States of America, which require
      management to make assumptions and estimates that affect the amounts reported
      in
      the financial statements and accompanying notes, including intangible assets
      and
      goodwill, liabilities for losses and contingencies and income taxes. Management
      believes that the estimates used are reasonable, although actual amounts could
      differ from the estimates and the differences could have a material impact
      on
      the consolidated financial statements.





*Cash
      and Cash Equivalents*





The
      Company considers all highly liquid investments, including money market mutual
      funds, with original maturities of three months or less to be cash equivalents.
      Certain cash accounts are maintained at large financial institutions and, at
      times, may exceed federally insured limits.





*Short-Term
      Investments*





Short-term
      investments include (i) a zero coupon U.S. Treasury Bill with a maturity of
      October 11, 2007 carried on the Company’s financial statements at $1,550,608 as
      of September 30, 2007 and (ii) a zero coupon U.S. Treasury Bill with a maturity
      of January 10, 2008 carried on the Company’s financial statements at $1,556,373
      as of September 30, 2007.





*Marketable
      Securities*





In
      March
      2007, Highbury invested $1,000,010 of initial seed capital in the Aston/River
      Road Small-Mid Cap Fund, a new mutual fund started by Aston. During the second
      quarter, Highbury liquidated this investment as new assets flowed into the
      fund
      generating total proceeds to Highbury of $1,051,942. The change in the value
      of
      this investment is included in investment income on the statements of operations
      for the nine months ended September 30, 2007.





In
      June
      2007, Highbury invested $200,000 in the Aston/River Road Small-Mid Cap Fund
      Class I and $200,000 in the Aston/River
      Road Dynamic Equity Fund Class I .
      Each of
      these investments provided the initial seed capital for a new mutual fund share
      class within the two existing funds. In July, 2007 Highbury liquidated its
      investment in the Aston/River Road Small-Mid Cap Fund Class I as new assets
      flowed into the fund generating total proceeds to Highbury of $201,332. Highbury
      continues to hold its investment in the Aston/River Road Dynamic Equity Fund
      Class I. As of September 30, 2007, this investment was valued at $196,957.
      This
      balance is reflected on the balance sheet as of September 30, 2007 in the line
      item investments, and the change in the value of these investments is included
      in investment income on the statement of operations for the three and nine
      months ended September 30, 2007. Securities underlying the amounts reflected
      on
      the balance sheet include investments in common stock of corporations and
      cash.




7


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


*Fixed
      Assets*





Fixed
      assets are recorded at cost and depreciated using the straight-line method
      over
      their estimated useful lives. The estimated useful lives of office equipment
      and
      furniture and fixtures generally range from three to eleven years. Computer
      software developed or obtained for internal use is amortized using the
      straight-line method over the estimated useful life of the software, generally
      three years or less. The costs of improvements that extend the life of a fixed
      asset are capitalized, while the cost of repairs and maintenance are expensed
      as
      incurred. Leasehold improvements are amortized over the shorter of their
      expected useful lives or the remaining term of the lease for which they are
      incurred. Under the terms of Highbury’s credit facility (Note 6), these fixed
      assets are collateral for borrowings under the credit facility.





*Goodwill
      and Intangible Assets*





The
      purchase price and the capitalized transaction costs incurred in connection
      with
      the acquisition of the Business are allocated based on the fair value of the
      assets acquired, which is primarily the acquired mutual fund advisory contract.
      In determining the allocation of the purchase price to the acquired mutual
      fund
      advisory contract, Highbury analyzed the present value of the acquired business’
mutual fund advisory contract based on a number of factors including: the
      acquired business’ historical and potential future operating performance; the
      historical and potential future rates of new business from new and existing
      clients and attrition among existing clients; the stability and longevity of
      existing advisory and sub-advisory relationships; the acquired business’ recent,
      as well as long-term, investment performance; the characteristics of the
      acquired business’ products and investment styles; the stability and depth of
      the management team; and the acquired business’ history and perceived franchise
      or brand value.




The
      Company has determined that the acquired mutual fund advisory contract meets
      the
      indefinite life criteria outlined in FAS No. 142, "Goodwill and Other Intangible
      Assets" ("FAS 142"), because the Company expects both the contract and the
      cash
      flows generated by the contract to continue indefinitely due to the likelihood
      of continued renewal at little or no cost. Accordingly, the Company does not
      amortize this intangible asset, but instead assesses, each reporting period,
      whether events or circumstances have occurred which indicate that the indefinite
      life criteria are no longer met. If the Company determines the indefinite life
      criteria are no longer met, the Company will amortize the asset over its
      remaining useful life. The Company reviews this asset for impairment at least
      annually, or more frequently whenever events or circumstances occur indicating
      that the recorded intangible asset may be impaired. If Highbury concludes that
      the carrying value of the asset exceeds its fair value, an impairment loss
      will
      be recorded in an amount equal to any such excess.





The
      excess of purchase price for the acquisition of the Business over the fair
      value
      of net assets acquired, including the acquired mutual fund advisory contract,
      is
      reported as goodwill. Goodwill is not amortized, but is instead reviewed for
      impairment. The Company assesses goodwill for impairment at least annually,
      or
      more frequently whenever events or circumstances occur indicating that the
      recorded goodwill may be impaired. If the carrying amount of goodwill exceeds
      the fair value, an impairment loss would be recorded in an amount equal to
      that
      excess.




8


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


*Restricted
      Cash*





Under
      the
      terms of the letter of credit provided to the lessor in connection with Aston’s
      lease agreement, the Company is required to maintain $150,000 on deposit with
      the bank. This balance is included in other long-term assets on the balance
      sheet.





*Deferred
      Income Taxes*





Deferred
      income taxes reflect the expected future tax consequences of temporary
      differences between the bases of assets and liabilities for financial reporting
      and income tax purposes. During the Company’s development stage, which ended on
      November 30, 2006, many of its expenses were not currently deductible for income
      tax purposes. Since the Company is no longer in the development stage, most
      of
      its expenses are currently deductible for income tax purposes. The Company
      will
      amortize the capitalized expenses it incurred during its development stage
      for
      income tax purposes over the next 15 years. A valuation allowance may be
      established when necessary to reduce deferred tax assets to the amount expected
      to be realized. Highbury’s deferred income taxes principally relate to the
      amortization of intangible assets and development stage expenses.





*Minority
      Interest*





Highbury
      owns 65% of Aston and is its manager member. Highbury has a contractual
      arrangement with Aston whereby a percentage of revenue is allocable to fund
      Aston’s operating expenses, including compensation (the Operating Allocation),
      while the remaining portion of revenue (the Owners' Allocation) is allocable
      to
      the Company and the other members, with a priority to Highbury. The portion
      of
      the income or loss of Aston allocated to owners other than Highbury is included
      in minority interest in the Consolidated Statements of Income. Minority interest
      on the Consolidated Balance Sheets includes capital and undistributed income
      owned by the Management Members. Additionally as of September 30, 2007,
      approximately $947,709 of undistributed Owners’ Allocation owed to the
      Management Members is included as a distribution payable within accounts payable
      and accrued expenses on the Consolidated Balance Sheets. This amount was
      subsequently paid to the Management Members in October 2007.





*Revenue
      Recognition*





Highbury
      derives its operating revenues from Aston, its majority-owned subsidiary.
      Highbury also earns interest income on its cash balances and investment income
      on its investments in the Aston Funds.





Aston
      earns investment advisory and administrative fees for services provided to
      the
      Aston Funds, six money market funds advised by AAAMHI and a limited number
      of
      separately managed accounts. These fees are primarily based on predetermined
      percentages of the market value of the assets under management and are billed
      in
      arrears of the period in which they are earned. These fees are recognized over
      the period in which services are performed unless facts and circumstances would
      indicate that collectibility of the fees is not reasonably assured. Expense
      reimbursements to certain of the Aston Funds in accordance with agreements
      are
      reported as an offset to investment advisory fees.





Substantially
      all of Aston’s revenues are derived from the Aston Funds for which Aston is the
      investment advisor. Management has determined that no allowance for doubtful
      accounts is necessary due to all fees being collected within one month from
      the
      date of invoice.





*Distribution
      and Advisory Costs*





Included
      in distribution and advisory costs in the accompanying financial statements
      are
      fees paid to nine institutional investment management firms pursuant to
      contracts related to the management and distribution of the Aston Funds and
      managed account assets. Such costs are recorded in the period incurred. Aston
      pays investment sub-advisory fees pursuant to management contracts with these
      entities under which these firms provide investment sub-advisory services to
      certain Aston Funds. Aston has also entered into nearly 400 selling/service
      agreements through which independent third parties sell the Aston Funds and/or
      provide other services to their clients in exchange for certain payments. Unless
      paid pursuant to the Aston Funds’ Rule 12b-1 Plan, these payments, as well as
      certain sales and marketing costs, are included within distribution and
      sub-advisory costs.




9


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


*Leases*





Aston
      currently leases office space for its primary office in Chicago and for two
      satellite offices in New Jersey and California under various leasing
      arrangements. As these leases expire, it can be expected that in the normal
      course of business they will be renewed or replaced. All leases and subleases
      are accounted for under Statement of Financial Accounting Standard ("FAS")
      No.
      13, "Accounting for Leases." These leases are classified as operating leases.
      Most lease agreements classified as operating leases contain renewal options,
      rent escalation clauses or other inducements provided by the landlord. Rent
      expense is accrued to recognize lease escalation provisions and inducements
      provided by the landlord, if any, on a straight-line basis over the lease
      term.





*Loss
      Contingencies*





Highbury
      accrues estimates for loss contingencies related to legal actions,
      investigations and proceedings when it is probable that a liability has been
      incurred and the amount of loss can be reasonably estimated. Currently, the
      Company is unaware of any legal actions, investigations or proceedings which
      could result in a loss to Highbury. As such, the Company has not accrued for
      any
      such contingencies.





*Income
      Per Common Share*





Income
      per share is computed by dividing net income by the weighted average number
      of
      shares of common stock outstanding during the period. The dilutive effect of
      the
      Company’s 15,820,000 outstanding Warrants has been included in diluted income
      per share calculations for the three and nine months ended September 30, 2007.
      The dilutive effect of the Warrants is calculated using the treasury stock
      method and the weighted average stock price for the period. The Warrants have
      not been considered for the three and nine months ended September 30, 2006
      because the Warrants were not exercisable until the later of the completion
      of
      the Business Combination and January 25, 2007.




*Fair
      Value*





Financial
      Accounting Standard No. 107 ("FAS 107"), "Disclosures about Fair Value of
      Financial Instruments," requires Highbury to disclose the estimated fair values
      for certain of its financial instruments.





Financial
      instruments include items such as accounts receivable, accounts payable, loans,
      interest rate contracts, notes payable and other items as defined in FAS 107.





Fair
      value of a financial instrument is the amount at which the instrument could
      be
      exchanged in a current transaction between willing parties, other than in a
      forced or liquidation sale. Quoted market prices are used when available;
      otherwise, management estimates fair value based on prices of financial
      instruments with similar characteristics or by using valuation techniques such
      as discounted cash flow models. Valuation techniques involve uncertainties
      and
      require assumptions and judgments regarding prepayments, credit risk and
      discount rates. Changes in these assumptions will result in different valuation
      estimates. The fair value presented would not necessarily be realized in an
      immediate sale nor are there typically plans to settle liabilities prior to
      contractual maturity. Additionally, FAS 107 allows companies to use a wide
      range
      of valuation techniques; therefore, it may be difficult to compare the Company's
      fair value information to other companies' fair value information.




The
      carrying amounts of cash and equivalents, accounts receivable and accounts
      payable approximates fair value because of the short-term nature of these
      instruments.




10




**Highbury
      Financial Inc. and Subsidiary**





**Notes
      to Unaudited Condensed Consolidated Financial Statements**




*Segment
      Information*





SFAS
      No.
      131, “Disclosures about Segments of an Enterprise and Related Information,”
establishes disclosure requirements relating to operating segments in annual
      and
      interim financial statements. Management has determined that the Company
      operates in one business segment, namely as an investment adviser managing
      mutual funds and separate accounts.





*Share-Based
      Compensation*





In
      December 2004, the Financial Accounting Standards Board issued SFAS No. 123R,
      “Share-Based Payment”, (“SFAS No. 123R” or the “Statement”). This Statement is a
      revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS
      123”), and supersedes Accounting Principles Board Opinion No. 25, “Accounting
      for Stock Issued to Employees” (“APB No. 25”) and its related implementation
      guidance. On January 1, 2006, the Company adopted the provisions of SFAS No.
      123R using the modified prospective method. The Statement requires entities
      to
      recognize compensation expense for awards of equity instruments to employees
      based on the grant-date fair value of those awards (with limited exceptions).
      SFAS No. 123R also requires the benefits of tax deductions in excess of
      recognized compensation expense to be reported as financing cash flows.





*Recent
      Accounting Pronouncements*





**Fair
      Value Option for Financial Assets and Financial
      Liabilities:**


In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value
      Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value. The objective of the statement is to improve financial reporting
      by providing entities with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions. The provisions of SFAS
      No.
      159 are effective for fiscal years beginning after November 15, 2007. Management
      is currently evaluating this standard and its impact, if any, on the Company’s
      consolidated financial statements.





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




**4.
      Lease Commitments**





Aston
      currently leases office space for its primary office in Chicago and for two
      satellite offices in New Jersey and California under various leasing
      arrangements. The lease for the office in New Jersey expires in May 2008. The
      lease for the office in California is on a month-to-month basis. At September
      30, 2007, the Company's aggregate future minimum payments for the Chicago lease,
      which carries an eleven year term, are payable as follows:




Year
                ending December 31,
            
            Required
              Minimum
              Payments
            
            Annual
              Lease
              Expense2007
            
            $
            17,412
            
            $
            206,5642008
            
            
            215,474
            
            
            219,1742009
            
            
            222,003
            
            
            219,1742010
            
            
            228,533
            
            
            219,1742011
            
            
            235,062
            
            
            219,174Thereafter
            
            
            1,279,257
            
            
            1,114,481Total
            
            $
            2,197,741
            
            $
            2,197,741




11




**Highbury
      Financial Inc. and Subsidiary**





**Notes
      to Unaudited Condensed Consolidated Financial Statements**




In
      addition to the base rent, Aston is required to pay its pro rata share of the
      real estate taxes and operating expenses of its building. The figures in the
      table above reflect the base annual rent payments and the base annual rent
      expense on a straight line basis in accordance with SFAS 13. During the
      three and nine months ended September 30, 2007, Aston recognized $54,793 and
      $151,770, respectively, of rent expense in connection with this lease. Under
      the
      terms of Aston’s lease, Aston is entitled to an abatement of the base rent and
      real estate taxes and operating expenses for a period of 11 months at the
      beginning of the lease term. This abatement period will end in December
      2007. Management has estimated that the abatement relating to rent expense
      is approximately $189,000 and that the abatement related to real estate taxes
      and operating expenses is approximately $190,000. In addition, the lessor
      contributed $522,360 to the construction costs in connection with the build-out
      of the office space. This construction allowance, certain leasehold improvements
      incurred by Aston in connection with the build-out of the office space and
      the
      aforementioned abatement of the real estate taxes and operating expenses have
      been recorded as deferred rent and are being amortized as a reduction to rent
      expense over the term of the lease in accordance with SFAS 13. The amortization
      of these deferred rent amounts are not included in the annual rent expense
      schedule above. Also, Aston has an option to extend the lease under the same
      terms and conditions for a single additional five-year period.




**5.
      Accounts Payable and Accrued Expenses**





Accounts
      payable and accrued expenses consisted of the following:





At
              September
                30,
            
            At
              December
                31,2007
            
            2006Payable
                to sub-advisors
            
            $
            1,059,033
            
            $
            1,556,961Payable
                to brokers
            
            
            489,388
            
            
            239,949Payable
                to Management Members
            
            
            947,709
            
            
            -Other
                payables
            
            
            1,833,574
            
            
            472,560$
            4,329,704
            
            $
            2,269,470




**6.
      Credit Facility**





Highbury
      entered into a credit agreement with City National Bank on August 21, 2006,
      which provides for a revolving line of credit of up to $12.0 million. On
      November 9, 2006, the Company entered into a new credit agreement with City
      National Bank which amended and restated the initial credit agreement to amend
      the definitions of debt and net worth to exclude the effects of accounting
      for
      the Company’s outstanding common stock warrants and the underwriters’ unit
      purchase option as liabilities. Highbury subsequently determined that it should
      account for these securities as equity. The credit facility will be used for
      working capital, general corporate purposes and repurchases of the Company’s
      outstanding securities, if appropriate.





The
      Company’s borrowing under the credit facility bears interest, at Highbury’s
      option, at either the fluctuating prime rate minus 0.50% or LIBOR plus 1.50%.
      In
      addition, Highbury will pay annually a fee of 0.25% on the average daily balance
      of the unused portion of the credit facility. The Company will have to make
      interest payments monthly for any prime rate borrowings. For any LIBOR
      borrowings, interest payments will be made at the end of any LIBOR contract
      or
      quarterly, whichever is sooner. Any outstanding principal is due at maturity
      on
      October 31, 2007.




12




**Highbury
      Financial Inc. and Subsidiary**





**Notes
      to Unaudited Condensed Consolidated Financial Statements**





The
      credit facility is secured by all of our assets and contains customary and
      appropriate affirmative and negative covenants for financings of its type
      (subject to customary exceptions). The financial covenants include a maximum
      total leverage ratio of 2.0x Adjusted EBITDA and a minimum net worth of $20
      million. Other covenants will, among other things, limit our ability to incur
      liens or other encumbrances, make certain investments, dispose of assets, enter
      into mergers or acquisitions and incur indebtedness.





There
      were no borrowings outstanding under this facility at any point in 2006 or
      in
      the first nine months of 2007, including at September 30, 2007. Highbury has
      maintained compliance with the applicable covenants of this facility in 2006
      and
      in the first nine months of 2007.





On
      October 31, 2007, Highbury and City National Bank executed an amendment to
      the
      credit agreement which provides for an extension of the agreement through
      October 31, 2008 and modifies certain provisions of the agreement. The amendment
      increases the maximum total leverage ratio (including debt from all sources)
      to
      5.0x Adjusted EBITDA, although borrowings under the credit agreement continue
      to
      be limited to 2.0x Adjusted EBITDA, and incorporates a minimum fixed charge
      coverage ratio of 1.25x.




**7.
      Commitments and Contingencies**





The
      Asset
      Purchase Agreement provides for a contingent adjustment payment payable in
      cash
      shortly after the second anniversary of the closing of the Business Combination.
      In the event the annualized investment advisory fee revenue generated under
      investment advisory contracts between Aston and the Target Funds or any other
      funds advised by Aston and sub-advised by the Sellers for the six months prior
      to the second anniversary of the date of the closing of the acquisition, or
      the
      Target Revenue:





·
            exceeds
                $41.8 million, Aston and Highbury will collectively pay to AAAMHI
                the
                difference between the Target Revenue and $41.8 million, up to a
                total
                aggregate payment of $3.8 million; or





·
            is
                less than $34.2 million, AAAMHI will pay to Aston and Highbury the
                difference between the $34.2 million and the Target Revenue, up to
                a total
                aggregate payment of $3.8 million.





The
      future annualized revenue will be determined based on the definition of
“Approved Target Funds” which includes the existing funds and new funds or
      classes of funds which are advised by Aston and sub-advised by the Sellers.
      As a
      result, in the event that Highbury were to acquire other mutual fund investment
      managers and the trustees of those mutual funds were to retain sub-advisers
      affiliated with the Sellers, such revenues would be counted for purposes of
      calculation of the future annualized revenue. For the six month period ended
      September 30, 2007, the annualized investment advisory fee revenue generated
      under investment advisory contracts between Aston and the Target Funds was
      approximately $35.5 million. As such, Highbury has not accrued any liability
      for
      this contingency.




The
      Company presently occupies office space provided by an affiliate of several
      of
      our Initial Stockholders. Such affiliate has agreed that it will make such
      office space, as well as certain office and secretarial services, available
      to
      the Company, as may be required by the Company from time to time. The Company
      agreed to pay such affiliate $7,500 per month for such services commencing
      on
      January 26, 2006. In October 2007 as a result of additional financial reporting
      services being provided by such affiliate, the Company agreed to increase the
      monthly payment to $10,000 beginning in November 2007. The statements of
      operations for the three month periods ended September 30, 2007 and September
      30, 2006 each include $22,500 related to this agreement. For the nine month
      periods ended September 30, 2007 and September 30, 2006, the statements of
      operations include $67,500 and $61,452, respectively, related to this agreement.
      The agreement is terminable by either party upon six months’ prior notice.




13


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




The
      Initial Stockholders are entitled to registration rights with respect to the
      shares of common stock and warrants of the Company owned by them. The holders
      of
      the majority of the founding shares are entitled to make up to two demands
      that
      the Company register these shares and any other warrants or shares of the
      Company owned by them (excluding the shares purchased in the Private Placement)
      at any time commencing on the date the founding shares are released from escrow.
      In addition, the Initial Stockholders have certain "piggy-back" registration
      rights with respect to such securities on registration statements filed
      subsequent to the date the founding shares are released from escrow. The holders
      of a majority of the units purchased in the Private Placement are entitled
      to
      make up to two demands that the Company register the shares, warrants and shares
      underlying the warrants comprising such units at any time commencing on the
      date
      the Company consummates a Business Combination. In addition, the Initial
      Stockholders have certain "piggy-back" registration rights with respect to
      such
      securities on registration statements filed subsequent to the date the Company
      consummates a Business Combination. The Company will bear the expenses incurred
      in connection with the filing of any of the foregoing registration
      statements.





The
      founding shares have been placed in escrow until the earliest of: (1) January
      25, 2009; (2) the Company's liquidation; and (3) the consummation of a
      liquidation, merger or stock exchange, stock purchase or other similar
      transaction which results in all of the Company's stockholders having the right
      to exchange their shares of common stock for cash, securities or other property.
      During the escrow period, the Initial Stockholders may not sell or transfer
      their founding shares except among the Initial Stockholders, to their spouses
      and children or trusts established for their benefit, by virtue of the laws
      of
      decent and distribution upon the death of any Initial Stockholder or pursuant
      to
      a qualified domestic relations order, but the Initial Stockholders retain all
      other rights as stockholders, including, without limitation, the right to vote
      their shares and receive cash dividends, if declared.





The
      Company paid fees and issued securities to the underwriters in the Offering
      as
      described above in Note 2.





Highbury
      and Aston are subject to claims, legal proceedings and other contingencies
      in
      the ordinary course of their business activities. Each of these matters is
      subject to various uncertainties, and it is possible that some of these matters
      may be resolved in a manner unfavorable to the Company or Aston. Highbury and
      Aston establish accruals for matters for which the outcome is probable and
      can
      be reasonably estimated. Management is not aware of any claims, legal
      proceedings and other contingencies that could result in a loss to Highbury
      or
      Aston. As such, no contingencies have been accrued.




**8.
      Stockholders’ Equity**





*Preferred
      Stock*





The
      Company is authorized to issue 1,000,000 shares of preferred stock, par value
      $0.0001 per share, with such designations, voting and other rights and
      preferences as may be determined from time to time by the Board of Directors.
      As
      of September 30, 2007, no shares of preferred stock have been
      issued.




*Common
      Stock*





The
      Company’s initial stockholders purchased 1,500,000 common shares for $25,000 on
      August 1, 2005. On January 13, 2006, the Board of Directors authorized a stock
      dividend of 0.15 shares of common stock for each share of common stock
      outstanding, bringing the initial outstanding shares to 1,725,000. All
      references in the accompanying financial statements to the number of shares
      of
      stock outstanding have been retroactively restated to reflect the stock
      dividend. The Company sold 7,910,000 Units in the Private Placement and the
      Offering, which included all of the 1,010,000 Units subject to the underwriters’
over-allotment option. Included in these Units were one share of common stock
      and two warrants to purchase shares of common stock. In connection with the
      consummation of the Business Combination, the Company repurchased 108,000 shares
      from one Public Stockholder. As of September 30, 2007, 9,527,000 shares of
      common stock, par value $0.0001 per share, were issued and
      outstanding.




14


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




*Common
      Stock Commitments*





At
      September 30, 2007, 15,820,000 shares of common stock were reserved for issuance
      upon exercise of redeemable Warrants.




**9.
      Income Taxes**





We
      adopted the provisions of Financial Standards Accounting Board Interpretation
      No. 48 Accounting for Uncertainty in Income Taxes ("FIN 48") an interpretation
      of FASB Statement No. 109 ("SFAS 109") on January 1, 2007. As a result of the
      implementation of FIN 48, we recognized no material adjustment in the liability
      for unrecognized income tax benefits. At the adoption date of January 1, 2007,
      we had no unrecognized tax benefits, and at September 30, 2007, we continue
      to
      have no unrecognized tax benefits. We will recognize interest and penalties
      related to uncertain tax positions in income tax expense, if any. As of
      September 30, 2007, we do not have any accrued interest related to uncertain
      tax
      positions. The tax years 2005 and 2006 remain open to examination by the major
      taxing jurisdictions to which we are subject.





The
      provisions for income taxes for the three and nine months ended September 30,
      2007 and September 30, 2006 consist of the following:




**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**CurrentFederal
            
            $
            370,185
            
            $
            169,919
            
            $
            963,976
            
            $
            430,847State
            
            
            67,716
            
            
            24,262
            
            
            210,867
            
            
            61,519DeferredFederal
            
            
            108,540
            
            
            (66,365
            )
            
            494,710
            
            
            (177,730
            )State
            
            
            26,166
            
            
            (9,476
            )
            
            119,264
            
            
            (25,377
            )Reversal
                of Valuation Allowance
            
            
            -
            
            
            -
            
            
            -
            
            
            (909
            )$
            572,607
            
            $
            118,340
            
            $
            1,788,817
            
            $
            288,350




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




**September
                30,****2007**Amortization
                of goodwill and intangibles for income tax purposes
            
            $
            785,304Amortization
                of deferred expenses
            
            
            9,494Deferred
                rent
            
            
            (95,548
            )Depreciation
                methods used for income tax purposes
            
            
            (8,193
            )Unrecognized
                investment loss for income tax purposes
            
            
            (1,187
            )Expenses
                deferred for income tax purposes
            
            
            (163,172
            )Net
                deferred income taxes
            
            $
            526,698




15


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




During
      2006, the Company began to generate taxable income and therefore is no longer
      recording a valuation allowance against its deferred tax assets. Deferred tax
      liabilities are primarily the result of tax deductions for the Company's
      intangible assets. The Company amortizes its acquired intangible assets over
      a
      15-year period for tax purposes only, reducing its tax basis below its carrying
      value for financial statement purposes and generating deferred taxes each
      reporting period. Highbury amortized $607,107 and $1,821,321 related to the
      goodwill and intangible assets in the three and nine months ended September
      30,
      2007, respectively. Additionally, at November 30, 2006, when Highbury ceased
      to
      be a corporation in the development stage, the Company had total deferred
      expenses of $440,342 that are being amortized for tax purposes over a 15-year
      period. These expenses were currently deductible for financial statement
      purposes during Highbury’s development stage but were not deductible for tax
      purposes. Highbury amortized $7,339 and $22,017 of this deferred expense in
      the
      three and nine months ended September 30, 2007, respectively. The
      primary source of the timing difference is Aston’s lease which requires no cash
      payments during the first 11 months of the lease although rent expense is
      recorded for financial reporting purposes. This lease arrangement is further
      discussed in Note 4.




**10.
      Earnings Per Share**





The
      calculation of basic earnings per share is based on the weighted average number
      of shares of the Company's common stock outstanding during the period. Diluted
      earnings per share is similar to basic earnings per share, but adjusts for
      the
      effect of the potential issuance of incremental shares of the Company's common
      stock. The following is a reconciliation of the numerator and denominator used
      in the calculation of earnings per share available to common stockholders.





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2007
            
            2006
            
            2007
            
            2006Numerator:Net
                income
            
            $
            892,699
            
            $
            201,013
            
            $
            2,794,975
            
            $
            492,250Denominator:Average
                shares outstanding - basic
            
            
            9,527,000
            
            
            9,635,000
            
            
            9,527,000
            
            
            8,859,469Dilutive
                effect of Warrants
            
            
            156,634
            
            
            —
            
            
            1,893,944
            
            
            —Average
                shares outstanding - diluted
            
            
            9,683,634
            
            
            9,635,000
            
            
            11,420,944
            
            
            8,859,469





As
      of
      September 30, 2007, the Company’s dilutive instruments outstanding include
      15,820,000 Warrants which became eligible to be exercised on January 25, 2007.
      There are no effects of dilutive instruments included in the calculation for
      the
      three and nine months ended September 30, 2006 because the Warrants were not
      exercisable until the later of the completion of the Business Combination and
      January 25, 2007. The dilutive effect of the Warrants is calculated using the
      treasury stock method and the average share price during the period. The
      Warrants are described in more detail in Note 2.





**11.
      Related Party Transactions**





Highbury’s
      Board of Directors has adopted certain policies and procedures for the review,
      approval and ratification of related party transactions, which the Company
      refers to as the Related Person Policy. Among other things, the Related Party
      Policy provides that any transaction, arrangement or relationship (or any series
      of similar transactions, arrangements or relationships) in which Highbury
      (including any of its subsidiaries) was, is or will be a participant and the
      amount involved exceeds $120,000, and in which any related person had, has
      or
      will have a direct or indirect material interest, must be reported to the
      Company’s board of directors prior to the consummation or amendment of the
      transaction. A related person, as defined in the Related Party Policy, means
      any
      person who is, or at any time since the beginning of the Company’s last fiscal
      year was, a director or executive officer of the Company or a nominee to become
      a director of the Company; any person who is known to be the beneficial owner
      of
      more than 5% of any class of Highbury’s voting securities; any immediate family
      member of any of the foregoing persons, which means any child, stepchild,
      parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
      daughter-in-law, brother-in-law, or sister-in-law of the director, executive
      officer, nominee or more than 5% beneficial owner, and any person (other than
      a
      tenant or employee) sharing the household of such director, executive officer,
      nominee or more than 5% beneficial owner; and any firm, corporation or other
      entity in which any of the foregoing persons is employed or is a general partner
      or principal or in a similar position or in which such person has a 5% or
      greater beneficial ownership interest. The Company’s Board of Directors reviews
      these related party transactions and considers all of the relevant facts and
      circumstances available to the board, including (if applicable) but not limited
      to: the benefits to Highbury; the availability of other sources of comparable
      products or services; the terms of the transaction; and the terms available
      to
      unrelated third parties or to employees generally. The Board of Directors may
      approve only those related party transactions that are in, or are not
      inconsistent with, the best interests of the Company and its stockholders,
      as
      the board determines in good faith. At the beginning of each fiscal year, the
      board will review any previously approved or ratified related party transactions
      that remain ongoing and have a remaining term of more than six months. The
      Board
      will consider all of the relevant facts and circumstances and will determine
      if
      it is in the best interests of Highbury and its stockholders to continue, modify
      or terminate these related party transactions.




16


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




Aston
      is
      the investment advisor to the Aston Funds, a Delaware business trust. Aston’s
      Chief Executive Officer, is the Chairman of the Board of Trustees of the Aston
      Funds. Aston’s President, is the President and Chief Executive Officer of the
      Aston Funds. Aston’s Chief Financial Officer and Chief Compliance Officer, is
      the Senior Vice President, Secretary, Treasurer, Chief Financial Officer, Chief
      Operating Officer and Chief Compliance Officer of the Aston Funds. As a result
      of these relationships, the Aston Funds may be considered related parties as
      such are defined in Financial Accounting Standard No. 57 (“FAS 57”), “Related
      Party Disclosures.” In the three and nine months ended September 30, 2007, Aston
      earned advisory fees of $8,660,761 and $27,217,354, respectively, and
      administrative fees of $1,077,026 and $3,306,678, respectively, from the Aston
      Funds. These fees, in total, accounted for approximately 95% and 96% of Aston’s
      total revenue for each of the three and nine months ended September 30, 2007,
      respectively. As of September 30, 2007, the Company’s balance sheet includes
      accounts receivable of $2,931,604 associated with these fees, as Aston is
      generally paid in the first week of the month following the month in which
      fees
      were earned. There were no comparable fees or receivables recorded in the three
      and nine months ended September 30, 2006.





In
      the
      first quarter of 2007, Highbury engaged Berkshire Capital Securities LLC
      (“Berkshire Capital”) to act as a non-exclusive financial advisor in connection
      with possible future acquisitions. In such capacity, Berkshire Capital will
      assist the Company in structuring, negotiating and completing acquisitions
      of
      targets identified by Highbury and acknowledged by both Highbury and Berkshire
      Capital as being subject to Berkshire Capital’s engagement. If the Company
      enters into an agreement to acquire such a target company during the term of
      Berkshire Capital’s engagement or within two years thereafter, and such
      acquisition is completed, then the Company will pay Berkshire Capital a success
      fee at closing equal to the greater of (a) the sum of 3.0% of the first $15
      million of the aggregate consideration in such transaction and 1.0% of the
      aggregate consideration in such transaction in excess of $15 million, and (b)
      $600,000. Upon the execution of a definitive agreement with respect to an
      acquisition, Highbury will pay Berkshire Capital $200,000 which will be credited
      against the success fee. Highbury will also reimburse Berkshire Capital for
      its
      reasonable expenses in performing its services under the engagement letter
      and
      will indemnify Berkshire Capital for liabilities it incurs in performing such
      services, unless such liabilities are attributable to Berkshire Capital’s gross
      negligence or willful misconduct.




The
      Company presently occupies office space provided by Berkshire Capital. Berkshire
      Capital has agreed that it will make such office space, as well as certain
      office and secretarial services, available to the Company, as may be required
      by
      the Company from time to time. The Company agreed to pay Berkshire Capital
      $7,500 per month for such services commencing on January 26, 2006. In October
      2007 as a result of additional financial reporting services being provided
      by
      Berkshire Capital, the Company agreed to increase the monthly payment to $10,000
      beginning in November 2007. The statements of operations for the three month
      periods ended September 30, 2007 and September 30, 2006 each include $22,500
      related to this agreement. For the nine month periods ended September 30, 2007
      and September 30, 2006, the statements of operations include $67,500 and
      $61,452, respectively, related to this agreement. The agreement is terminable
      by
      either party upon six months’ prior notice.


17


**U.S.
      Mutual Fund Business of**


**ABN
      AMRO Asset Management Holdings, Inc.**




**Combined
      Statements of Financial Condition**





**September
                30,**
            
            **December 31,****2006**
            
            **2005*****(Unaudited)*****Assets**Cash
                and cash equivalents
            
            **$**
            **7,218,817**
            
            $
            5,239,747Advisory
                and administrative fees receivable
            
            
            **3,284,200**
            
            
            4,074,486Goodwill
            
            
            **10,518,750**
            
            
            10,518,750Other
                intangible assets
            
            
            **22,045,000**
            
            
            22,045,000Other
                assets
            
            
            **1,635**
            
            
            1,635Total
                assets
            
            **$**
            **43,068,402**
            
            $
            41,879,618**Liabilities
                and owner’s equity**Accounts
                payable—affiliates
            
            **$**
            **1,459,012**
            
            $
            2,266,559Accrued
                compensation and benefits
            
            
            **288,511**
            
            
            648,625Other
                accrued liabilities
            
            
            **875,143**
            
            
            954,318Total
                liabilities
            
            
            **2,622,666**
            
            
            3,869,502Owner’s
                equity
            
            
            **40,445,736**
            
            
            38,010,116Total
                liabilities and owner’s equity
            
            **$**
            **43,068,402**
            
            $
            41,879,618





*See
      accompanying notes.*


18


**U.S.
      Mutual Fund Business of**


**ABN
      AMRO Asset Management Holdings, Inc.**




**Combined
      Statements of Operations**


***(Unaudited)***




**Nine
                  Months Ended**
                **September
                  30,**
              
              **Three
                  Months Ended**
                **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****Revenues**Advisory
                  fees, net
              
              **$**
              **30,594,808**
              
              $
              35,753,511
              
              **$**
              **9,547,025**
              
              $
              10,753,861Administration
                  fees
              
              
              **1,035,174**
              
              
              1,143,016
              
              
              **342,627**
              
              
              210,230Total
                  revenues
              
              
              **31,629,982**
              
              
              36,896,527
              
              
              **9,889,652**
              
              
              10,964,091**Operating
                  expenses**Distribution
                  and advisory costs:Affiliates
              
              
              **17,508,916**
              
              
              22,315,324
              
              
              **5,263,632**
              
              
              6,618,465Other
              
              
              **5,599,279**
              
              
              8,598,644
              
              
              **1,857,843**
              
              
              2,619,157Total
                  distribution and advisory costs
              
              
              **23,108,195**
              
              
              30,913,968
              
              
              **7,121,475**
              
              
              9,237,622Compensation
                  and related expenses
              
              
              **3,248,940**
              
              
              3,830,626
              
              
              **1,028,777**
              
              
              1,218,046Related
                  party expense allocations
              
              
              **1,910,933**
              
              
              1,870,326
              
              
              **637,428**
              
              
              630,173Other
                  operating expenses
              
              
              **851,427**
              
              
              549,768
              
              
              **273,076**
              
              
              258,517Total
                  operating expenses
              
              
              **29,119,495**
              
              
              37,164,688
              
              
              **9,060,756**
              
              
              11,344,358Operating
                  income (loss)
              
              **$**
              **2,510,487**
              ****
              $
              (268,161
              )
              **$**
              **828,896**
              
              $
              (380,267
              )Interest
                  income
              
              
              **242,878**
              
              
              83,893
              
              
              **92,599**
              
              
              34,980Net
                  income (loss) before taxes
              
              **$**
              **2,753,365**
              ****
              $
              (184,268
              )
              **$**
              **921,495**
              
              $
              (345,287
              )Income
                  tax provision
              
              
              **—**
              
              
              —
              
              
              **—**
              
              
              —Net
                  income (loss)
              
              **$**
              **2,753,365**
              
              $
              (184,268
              )
              **$**
              **921,495**
              
              $
              (345,287
              )




*See
      accompanying notes.*


19


**U.S.
      Mutual Fund Business of**


**ABN
      AMRO Asset Management Holdings, Inc.**




**Combined
      Statements of Changes in Owner’s Equity**


***(Unaudited)***




**Nine
      Months Ended September 30, 2006 and 2005**




Owner’s
                equity at January 1, 2005
            
            $
            59,421,138Net
                loss
            
            
            (184,268
            )Net
                transfers from AAAMHI
            
            
            678,715Owner’s
                equity at September 30, 2005
            
            $
            59,915,585Owner’s
                equity at January 1, 2006
            
            **$**
            **38,010,116**Net
                income
            
            
            **2,753,365**Net
                transfers to AAAMHI
            
            
            **(317,745**
            **)**Owner’s
                equity at September 30, 2006
            
            **$**
            **40,445,736**




**Three
      Months Ended September 30, 2006 and 2005**




Owner’s
                equity at July 1, 2005
            
            $
            59,463,057Net
                loss
            
            
            (345,287
            )Net
                transfers to AAAMHI
            
            
            797,815Owner’s
                equity at September 30, 2005
            
            $
            59,915,585Owner’s
                equity at July 1, 2006
            
            **$**
            **39,390,071**Net
                income
            
            
            **921,495**Net
                transfers to AAAMHI
            
            
            **134,170**Owner’s
                equity at September 30, 2006
            
            **$**
            **40,445,736**




*See
      accompanying notes.*


20


**U.S.
      Mutual Fund Business of**


**ABN
      AMRO Asset Management Holdings, Inc.**




**Combined
      Statements of Cash Flows**


***(Unaudited)***


**Nine
                  Months Ended**
                **September
                  30,**
              
              **Three
                  Months Ended**
                **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****Operating
                  activities**Net
                  income
              
              **$**
              **2,753,365**
              
              $
              (184,268
              )
              **$**
              **921,495**
              
              $
              (345,287
              )Adjustments
                  to reconcile net income (loss) to net cash flow provided by operating
                  activities:Changes
                  in assets and liabilities:(Increase)
                  decrease in advisory and administrative fees receivable
              
              
              **790,286**
              
              
              90,768
              
              
              **366,718**
              
              
              11,468(Increase)
                  decrease in other assets
              
              
              **—**
              
              
              1,524
              
              
              **—**
              
              
              **—**Increase
                  (decrease) in accounts payable—affiliates
              
              
              **(807,547**
              **)**
              
              (779,311
              )
              
              **50,324**
              
              
              (279,417
              )Increase
                  (decrease) in accrued compensations and benefits
              
              
              **(360,114**
              **)**
              
              389,417
              
              
              **(189,036**
              **)**
              
              271,604Increase
                  (decrease) in other accrued liabilities
              
              
              **79,175**
              
              
              552,328
              
              
              **109,531**
              
              
              129,302Net
                  cash flow provided by (used in) operating activities
              
              
              **2,296,815**
              
              
              70,458
              
              
              **1,259,032**
              
              
              (212,330
              )**Financing
                  activities**Transfers
                  (to) from AAAMHI, net
              
              
              **(317,745**
              **)**
              
              678,715
              
              
              **134,170**
              
              
              797,815Net
                  cash provided by (used in) financing activities
              
              
              **(317,745**
              **)**
              
              678,715
              
              
              **134,170**
              
              
              797,815Net
                  increase in cash and cash equivalents
              
              
              **1,979,070**
              
              
              749,173
              
              
              **1,393,202**
              
              
              585,485Cash
                  and cash equivalents at beginning of period
              
              
              **5,239,747**
              
              
              3,158,266
              
              
              **5,825,615**
              
              
              3,321,954Cash
                  and cash equivalents at end of period
              
              **$**
              **7,218,817**
              
              $
              3,907,439
              
              **$**
              **7,218,817**
              
              $
              3,907,439
 *See
        accompanying notes.*


21


**U.S.
        Mutual Fund Business of**
 **ABN
        AMRO Asset Management Holdings, Inc.**
  **Notes
        to Combined Financial Statements**
 ***(Unaudited)***


**1.
      Basis of Presentation**





The
      accompanying combined financial statements include the U.S. Mutual Fund Business
      of ABN AMRO Asset Management Holdings, Inc. (AAAMHI) (the Business). The
      principal operations of the Business relate to investment advisory,
      administrative and distribution services provided to certain registered
      investment companies comprising ABN AMRO Funds (the Funds) and a small number
      of
      managed accounts of AAAMHI. The Business is included in the consolidated
      financial statements of AAAMHI, a wholly owned subsidiary of ABN AMRO Asset
      Management Holding N.V. (AAAMHNV), which is a wholly owned subsidiary of ABN
      AMRO Bank N.V. (ABN AMRO). Pursuant to an Asset Purchase Agreement (the
      Agreement), dated as of April 20, 2006, AAAMHI and its wholly-owned subsidiaries
      and certain other affiliated entities (ABN AMRO Investment Fund Services, Inc.,
      ABN AMRO Asset Management, Inc. (AAAM), Montag & Caldwell, Inc. (Montag),
      TAMRO Capital Partners LLC (TAMRO), Veredus Asset Management LLC (Veredus)
      and
      River Road Asset Management, LLC (River Road)) agreed to sell the Business
      to
      Highbury Financial Inc. (Highbury) for an aggregate cash purchase price of
      $38.6
      million. Upon completion of the sale transaction, certain members of the
      Business’ management and staff will join Highbury. Additionally, a newly formed
      subsidiary of Highbury, Aston Asset Management LLC, will become adviser to
      the
      Funds, which will be re-named the Aston Funds. AAAMHI and certain affiliates
      who
      are currently the advisers to the Funds will continue to provide advisory
      services to the Funds after completion of the sale but in a sub-advisory
      capacity. A senior officer of AAAMHI and three other individuals not involved
      in
      the Business have also agreed to join Highbury in connection with the
      Acquisition of the Business.




The
      combined financial statements have been prepared from AAAMHI’s historical
      accounting records on a carve-out basis to include the historical financial
      position, results of operations, and cash flows applicable to the Business.
      The
      combined financial statements exclude all continuing operations of AAAMHI and
      its affiliated entities listed in the preceding paragraph that will be retained
      by the sellers. The combined financial statements have been prepared as if
      the
      Business had been a stand-alone operation, though they are not necessarily
      representative of results had the Business operated as a stand-alone operation,
      and it is not practicable to estimate what those expenses would have been on
      a
      stand-alone basis. Revenues, expenses, assets, and liabilities were derived
      from
      amounts associated with the Business in the AAAMHI financial records. The
      financial results include allocations based on methodologies that management
      believes are reasonable of corporate expenses from AAAMHI and allocations of
      other corporate expenses from AAAMHI’s parent company that may be different from
      comparable expenses that would have been incurred if the Business operated
      as a
      stand-alone business. Specifically, ABN AMRO Services Company, Inc., a
      wholly-owned subsidiary of AANAHC (see Note 7), provides the Business with
      certain IT, infrastructure and e-mail services. LaSalle Bank Corporation, also
      a
      wholly-owned subsidiary of AANAHC, provides the Business with payroll, benefits,
      general ledger maintenance, internal audit and accounts payable services. These
      services are charged based upon utilized quantities (typically number of
      employees, number of transactions processed, hours worked). AAAMHI provides
      the
      Business with executive management, finance, human resources and personal trade
      compliance services. These services are charged based upon employee count or
      management time incurred. AAAMHI’s parent and its parent companies provide other
      executive management, technology, sales support, finance, compliance and human
      resources support services. These services are charged out on a formula basis
      that considers Assets Under Management, number of employees and non-interest
      expense. The cost of these services is included under the caption “Related-party
      expense allocations” in the accompanying combined statements of operations.
      Certain cash receipts and cash payments related to the Business were handled
      through AAAMHI and affiliate cash accounts, which are not included in the
      carve-out financial statements. These amounts have been accounted for as net
      capital contributions or distributions to or from the Business and are reflected
      as “Net transfers (to) from AAAMHI” in the combined statements of changes in
      owner’s equity and the combined statements of cash flows reflects these cash
      transactions.




Preparation
      of the combined financial statements in conformity with accounting principles
      generally accepted in the United States (GAAP) requires management to make
      estimates and assumptions that affect the reported financial statement amounts
      and accompanying notes. Management believes that the estimates utilized in
      preparing its financial statements are reasonable and prudent. Actual results
      could differ from those estimates.




22


**U.S.
        Mutual Fund Business of**
 **ABN
        AMRO Asset Management Holdings, Inc.**
  **Notes
        to Combined Financial Statements**
 ***(Unaudited)***


**2.
      Summary of Significant Accounting Policies**





**Principles
      of Combination**





The
      accompanying combined statements of financial condition, operations, cash flows
      and owner's equity of the Business for the three and nine months ended September
      30, 2006 and 2005 have been prepared on a carve-out basis (see
      Note 1).





**Cash
      and Cash Equivalents**





Cash
      and
      cash equivalents represent cash in banks and investments in money market mutual
      funds.





**Goodwill
      and Intangible Assets**





The
      Business has adopted the provisions of SFAS No. 142, “Goodwill and Other
      Intangible Assets” (FAS 142). Intangible assets, comprising the estimated value
      of investment management contracts, and goodwill, included in the combined
      financial statements of the Business relate to the acquisition of certain AAAMHI
      affiliates including the Business. These amounts reflect management’s best
      estimate of a reasonable allocation to the Business of such amounts included
      in
      the financial records of AAAMHI. The provisions of SFAS No. 142 require that
      goodwill and other intangible assets with indefinite lives no longer be
      amortized, but instead be tested at least annually for impairment and require
      reporting units to be identified for the purpose of assessing potential future
      impairments of goodwill. The Business’ acquired intangible management contract
      asset relate to the provision of investment advisory services to the Funds
      in
      exchange for fees that are based on a percentage of the average daily net assets
      of the funds. These management contracts were acquired in 2001 as part of the
      acquisition of certain AAAMHI affiliates. The management contracts are subject
      to annual renewal by the Funds’ board of trustees which is expected to continue
      indefinitely since this has been the experience for the Funds as well as for
      the
      mutual fund industry as a whole. Accordingly, the Business’ acquired intangible
      assets related to the Funds are considered to be of an indefinite life as there
      is no foreseeable limit on the contract period. The Business conducts its annual
      testing of goodwill and intangible assets for impairment annually in the fourth
      quarter, unless events warrant more frequent testing.





**Revenue
      Recognition**





The
      Business derives its revenues from investment advisory and administrative
      services provided to the Funds and a limited number of managed accounts of
      AAAMHI. Based on the terms of the advisory and administrative agreements in
      place that set out fees to be earned as a stated percentage of assets under
      management, advisory and administrative fees are recognized in revenue in the
      period such services are performed unless facts and circumstances would indicate
      that collectibility of the fees are not reasonably assured. Expense
      reimbursements to certain of the Funds in accordance with agreements are
      reported as an offset to investment advisory fees. Such reimbursements totaled
      $1,733,234 and $1,558,315 for the nine months ended September 30, 2006 and
      September 30, 2005, respectively, and totaled $586,248 and $533,332 for the
      three months ended September 30, 2006 and September 30, 2005,
      respectively.





**Distribution
      and Advisory Costs**





Included
      in distribution and advisory costs in the accompanying financial statements
      are
      fees paid to AAAMHI and its affiliates and other non-affiliated entities
      pursuant to contracts related to the management and distribution of the Funds
      and managed account assets. Such costs are recorded in the period
      incurred.




The
      Funds
      pay five affiliates of AAAMHI (Montag, AAAM, TAMRO, Veredus and River Road)
      investment advisory fees pursuant to management contracts with these entities
      under which the affiliates provide investment advisory services to the Funds.
      AAAM also pays two third-party investment management firms, MFS Institutional
      Advisors, Inc. and Optimum Investment Advisors, LLC, investment sub-advisory
      fees pursuant to management contracts with these entities under which these
      independent firms provide investment sub-advisory services to two of the Funds.
      The Business, generally through ABN AMRO Distribution Services (USA) Inc. (the
      Distributor), has entered into nearly 400 selling/service agreements through
      which independent third parties sell the Business’ Funds and/or provide other
      services to their clients in exchange for certain payments. Unless paid by
      the
      Distributor pursuant to the Funds’ Rule 12b-1 Plan, these payments, as well as
      certain sales and marketing costs, are included within distribution and advisory
      costs.




23


**U.S.
        Mutual Fund Business of**
 **ABN
        AMRO Asset Management Holdings, Inc.**
  **Notes
        to Combined Financial Statements**
 ***(Unaudited)***


**Income
      Taxes**





The
      Business is a component of AAAMHI, and as such was a component of the
      consolidated income tax return of AAAMHI, or an affiliate of AAAMHI, for the
      periods presented in these financial statements. However, for the purpose of
      the
      preparation of these financial statements, the Business is considered a
      stand-alone entity and any required provision for federal and state income
      taxes
      has been determined accordingly. The provision for federal and state income
      taxes is comprised of two components, current and deferred income taxes.
      Deferred tax assets and liabilities are determined based on temporary
      differences between the financial and tax reporting bases of assets and
      liabilities and are measured using currently enacted rates and laws. Deferred
      tax assets are recognized subject to management’s judgment that realization is
      more likely than not.





**Fair
      Value of Financial Instruments**





The
      carrying value of financial assets and liabilities included in the accompanying
      combined statements of financial condition approximate fair values due to their
      short-term nature.





**3.
      Goodwill and Intangible Assets**





Goodwill
      and intangible assets at September 30, 2006 and December 31, 2005 included
      in
      the accompanying combined statements of financial condition are shown net of
      accumulated amortization of $1,553,200 and $2,113,467 recorded prior to 2002
      and
      the adoption of FAS 142. Impairment charges of approximately $10.4 million
      of
      intangible assets and $13.3 million of goodwill were recorded by the Business
      in
      2005 in accordance with FAS 142.




The
      facts
      and circumstances leading to the impairment charges to goodwill and intangible
      assets relate to management’s assessment of declines in net assets in the Funds
      resulting from net share redemptions and unfavorable investment performance
      trends. The fair value of the Business used to determine the impairment of
      goodwill was determined with reference to the expected proceeds to be received
      upon the sale of the Business. The fair value of the intangible asset related
      to
      the investment management contracts used to determine the amount of impairment
      of the intangible asset, was determined based on a discounted cash flow analysis
      of the acquired contracts. No impairment of goodwill or intangibles was
      determined to be required for periods prior to 2005.





**4.
      Distribution and Advisory Costs**





Distribution
      and advisory costs in the accompanying combined statement of operations consist
      of the following:


**Nine
                    Months Ended**
                  **September 30,**
                
                **Three
                    Months Ended**
                  **September 30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**Advisory
                    costs:AAAMHI
                    affiliates
                
                
                **16,993,344**
                
                
                21,829,187
                
                
                **5,093,799**
                
                
                7,254,565Third
                    party sub-advisers
                
                
                **2,115,662**
                
                
                1,865,924
                
                
                **703,324**
                
                
                672,714Total
                    advisory costs
                
                
                **19,109,006**
                
                
                23,695,111
                
                
                **5,797,123**
                
                
                7,927,279Distribution
                    costs:AAAMHI
                    affiliates
                
                
                **515,572**
                
                
                486,137
                
                
                **169,833**
                
                
                (636,100
                )Non-affiliates
                
                
                **3,483,617**
                
                
                6,732,720
                
                
                **1,154,519**
                
                
                1,946,443Total
                    distribution costs
                
                
                **3,999,190**
                
                
                7,218,857
                
                
                **1,324,353**
                
                
                1,310,343Total
                    distribution and advisory costs
                
                
                **23,108,195**
                
                
                30,913,968
                
                
                **7,121,475**
                
                
                9,237,622
 
 24
 **U.S.
          Mutual Fund Business of**
 **ABN
          AMRO Asset Management Holdings, Inc.**
  **Notes
          to Combined Financial Statements**
 ***(Unaudited)***
  **5.
        Income Taxes**





A
      reconciliation of the differences between the total income tax provision
      (benefit) and the amounts computed at the statutory federal tax rate of 35%
      for
      the three and nine month periods ended September 30, 2006 and 2005, is as
      follows:




**Nine
                    Months Ended**
                  **September
                    30,**
                
                
                **Three
                    Months Ended**
                  **September
                    30,****2006**
                
                
                **2005**
                
                
                **2006**
                
                
                **2005**Income
                    tax provision (benefit) at statutory federal income tax
                    rate
                
                **$**
                **963,678**
                
                **$**
                (64,494
                )
                **$**
                **322,523**
                
                **$**
                (120,850
                )Increase
                    (decrease) in taxes resulting from:State
                    income taxes, net of federal benefit
                
                
                **137,668**
                
                
                (9,213
                )
                
                **46,075**
                
                
                (17,264
                )Valuation
                    allowance adjustment
                
                
                **(1,101,346**
                **)**
                
                73,707
                
                
                **(368,598**
                **)**
                
                138,114Provision
                    for income taxes
                
                **$**
                **—**
                
                **$**
                **—**
                
                **$**
                **—**
                
                **$**
                —


The
      current and deferred portion of the total provision for income taxes was $0
      for
      each of the respective periods.




The
      components of the net deferred tax balances as of September 30, 2006 and
      December 31, 2005, are as follows:




**September 30,
                2006**
            
            **December 31,
                2005**Deferred
                tax assets:Net
                operating loss carryforwards
            
            **$**
            **6,696,036**
            
            $
            6,560,728Goodwill
                and intangibles
            
            
            **1,907,833**
            
            
            3,107,833Other
            
            
            **—**
            
            
            36,654Less
                valuation allowance
            
            
            **(8,603,869**
            **)**
            
            (9,705,215
            )Net
                deferred taxes
            
            **$**
            **—**
            
            $
            —




The
      need
      for a valuation allowance to reduce federal and state deferred tax assets and
      net operating losses has been determined as if the Business was a stand-alone
      entity. As such, management believes it is more likely than not that these
      items
      will not be realized.




25


**U.S.
        Mutual Fund Business of**
 **ABN
        AMRO Asset Management Holdings, Inc.**
  **Notes
        to Combined Financial Statements**
 ***(Unaudited)***




**6.
      Benefit Plans**





**Pension
      Plans**





ABN
      AMRO
      Bank sponsors a non-contributory defined benefit pension plan covering
      substantially all U.S. salaried employees. Assets held by the plan consist
      primarily of shares of registered investment companies and pooled trust funds.
      The allocated expense of the Business totaled $61,365 and $158,227 for the
      nine
      months ended September 30, 2006 and 2005, respectively, and totaled $16,521
      and
      $22,836 for the three months ended September 30, 2006 and 2005,
      respectively.





**Profit
      Sharing and Savings Plan**





ABN
      AMRO
      Bank sponsors a profit sharing and savings plan under Section 401(k) of the
      Internal Revenue Code, covering substantially all U.S. salaried employees.
      Under
      the plan, employee contributions are partially matched by the respective ABN
      AMRO Bank subsidiary. In addition, the respective ABN AMRO Bank subsidiary
      may
      allocate a portion of its net profits to employees’ accounts in the plan. The
      allocated expense of the Business totaled $97,035 and $106,962 for the nine
      months ended September 30, 2006 and 2005, respectively, and totaled $22,125
      and
      $26,669 for the three months ended September 30, 2006 and 2005,
      respectively. ****





**Group
      Welfare Plan**





ABN
      AMRO
      Bank provides welfare and life insurance benefits to substantially all U.S.
      salaried employees and their dependents. The amount charged to expense includes
      welfare benefits paid to participants, net of participant contributions, and
      administrative costs. Life insurance premiums paid to insurance companies are
      recognized as an expense when paid. The allocated expense of the Business
      totaled $142,358 and $183,093 for the nine months ended September 30, 2006
      and
      2005, respectively, and totaled $80,361 and $59,367 for the three months ended
      September 30, 2006 and 2005, respectively.





**7.
      Related Party Transactions**





ABN
      AMRO
      is a Dutch bank with operations around the world. With respect to its asset
      management business in the United States, ABN AMRO has two primary wholly-owned
      subsidiaries, ABN AMRO North America Holding Company (AANAHC) and AAAMHNV.
      AAAMHNV owns 100% of AAAMHI, and the assets of the Business are owned in their
      entirety by AAAMHI.




In
      the
      ordinary course of business, the Business utilizes investment advisory services
      provided by several affiliated entities. Five subsidiaries of AAAMHI, including
      Montag (100% owned), AAAM (100% owned), TAMRO (100% owned), Veredus (50% owned)
      and River Road (45% owned), currently serve as investment advisors to the Funds.
      The Funds pay the investment advisors an advisory fee, net of any fee waivers
      and expense reimbursements, and the advisors pay the Business a fixed percentage
      of the net advisory fees for administrative and distribution services. The
      payments made to affiliated entities, which provide advisory and distribution
      services to certain mutual funds and separate account assets of AAAMHI are
      included under the caption “Distribution and advisory costs” in the accompanying
      combined statements of operations (See Note 4).




The
      Business also utilizes operational and support services provided by several
      affiliated entities. ABN AMRO Services Company, Inc., a wholly-owned subsidiary
      of AANAHC, provides the Business with certain IT, infrastructure and e-mail
      services. LaSalle Bank Corporation, also a wholly-owned subsidiary of AANAHC,
      provides the Business with payroll, benefits, general ledger maintenance,
      internal audit and accounts payable services. AAAMHI provides the Business
      with
      executive management, finance, human resources and personal trade compliance
      services. The cost of these services is included under the caption
“Related-party expense allocations” in the accompanying combined statements of
      operations. Payables to affiliates related to distribution, advisory or other
      services provided to the Business are included in “Accounts payable -
      affiliates” in the accompanying combined statements of financial
      condition.




26





**ITEM
      2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**




*You
      should read this discussion and analysis of our financial condition and results
      of operations in conjunction with the consolidated financial statements and
      the
      notes thereto included in this Quarterly Report on Form 10-Q and our Annual
      Report on Form 10-K for the fiscal year ended December 31, 2006 filed with
      the
      Securities and Exchange Commission on March 23, 2007.*





*Unless
      otherwise provided in this Quarterly Report, references to the “Company,” the
“Registrant,” the “Issuer,” “we,” “us,” and “our” refer to Highbury Financial
      Inc. and its subsidiary. References to Highbury refer solely to Highbury
      Financial Inc. and references to Aston refer solely to Aston Asset Management
      LLC, a subsidiary of Highbury.*





**Forward
      Looking Statements**





*This
      Quarterly Report on Form 10-Q includes forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995, as amended,
      Section 27A of the Securities Act of 1933, as amended, or the Securities Act,
      and Section 21E of the Securities Exchange Act of 1934, as amended, or the
      Exchange Act. We have based these forward-looking statements on our current
      expectations and projections about future events. These forward-looking
      statements are subject to known and unknown risks, uncertainties and assumptions
      about us that may cause our actual results to be materially different from
      historical results and results expressed or implied by such forward-looking
      statements. In some cases, you can identify forward-looking statements by
      terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,”
“anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms
      or other similar expressions. Factors that might cause or contribute to such
      a
      discrepancy include, but are not limited to, the following:*





*·*
            our
                performance is directly affected by changing conditions in global
                financial markets generally and in the**equity
                markets particularly, and a decline or a lack of sustained growth
                in these
                markets may result in decreased advisory fees and administrative
                fees and
                a corresponding decline (or lack of growth) in our operating results
                and
                in the cash flow distributable to us from our existing or future
                affiliates;





*·*
            we
                cannot be certain that we will be successful in finding or investing
                in
                additional investment management firms on favorable terms, or that
                existing and future affiliates will have favorable operating results;





*·*
            we
                may need to raise capital by making long-term or short-term borrowings
                or
                by selling shares of our common stock or other securities in order
                to
                finance investments in additional****investment
                management firms or additional investments in our existing affiliate,
                and
                we cannot be sure that such capital will be available to us on acceptable
                terms, if at all; and





*·*
            those
                certain other factors discussed under the caption “Risk Factors” in this
                Quarterly Report and in our Annual Report on Form 10-K for the year
                ended
                December 31, 2006, filed with the Securities and Exchange Commission
                on
                March 23, 2007, and in any other filings we make with the Securities
                and
                Exchange Commission from time to time.





*We
      will not undertake and we specifically disclaim any obligation to release
      publicly the result of any revisions which may be made to any forward-looking
      statements to reflect events or circumstances after the date of such statements
      or to reflect the occurrence of events, whether or not anticipated. In that
      respect, we wish to caution readers not to place undue reliance on any such
      forward-looking statements, which speak only as of the date
      made.*




27




**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 management team, asset class, investment
      style, distribution channel and client type. We intend to fund future
      acquisitions with retained net income or the issuance of debt or
      equity.




Highbury
      was formed on July 13, 2005, for the purpose of acquiring or acquiring
      control of, through a merger, capital stock exchange, asset acquisition, stock
      purchase or other similar business combination, one or more financial services
      businesses. Highbury closed its initial public offering on January 31,
      2006. After deducting the underwriting discounts and commissions and the
      offering expenses, the total net proceeds to Highbury from the offering and
      the
      private placement that Highbury closed contemporaneously with its initial public
      offering, were approximately $43,783,582. Highbury deposited $42,616,234 of
      the
      net proceeds and the non-accountable expense allowance of $673,333, which the
      underwriters agreed to defer until consummation of our initial business
      combination, into a trust account at Lehman Brothers, Inc., or the trust
      account, maintained by Continental Stock Transfer & Trust Company
      acting as trustee, for an initial total of $43,289,567 in the trust account.
      On
      November 30, 2006, upon consummation of the acquisition, the trust account
      was liquidated.




*Business
      Combination* .
      On
      April 20, 2006, Highbury and Aston entered into an asset purchase
      agreement, dated as of April 20, 2006, referred to in this Quarterly Report
      on Form 10-Q as the asset purchase agreement, among Highbury, Aston and ABN
      AMRO
      Asset Management Holdings, Inc., or AAAMHI, ABN AMRO Investment Fund Services,
      Inc., ABN AMRO Asset Management, Inc., Montag & Caldwell, Inc., Tamro
      Capital Partners LLC, Veredus Asset Management LLC, and River Road Asset
      Management, LLC, collectively referred to herein as the sellers. Pursuant to
      the
      asset purchase agreement, on November 30, 2006, we acquired substantially all
      of
      the sellers’ business of providing investment advisory, administration,
      distribution and related services to the target funds specified in the asset
      purchase agreement. In connection with the consummation of this transaction,
      referred to in this Quarterly Report as the acquisition, Aston entered into
      agreements with each of the sellers that managed the target funds prior to
      the
      acquisition, pursuant to which each such seller now acts as a sub-adviser to
      the
      applicable target fund, each of which is now rebranded an Aston Fund. Pursuant
      to the asset purchase agreement, the sellers have agreed not to terminate these
      agreements for a period of five years following the consummation of the
      acquisition.




Pursuant
      to the asset purchase agreement, Highbury and Aston paid $38.6 million in cash
      to AAAMHI. The asset purchase agreement provides for a contingent adjustment
      payment in cash on the second anniversary of the date of the closing of the
      acquisition, as follows: in the event the annualized investment advisory fee
      revenue generated under investment advisory contracts between Aston and the
      sellers applicable to the target funds for the six months prior to the second
      anniversary of the date of the closing of the acquisition, or the target
      revenue, (x) exceeds $41.8 million, we will pay to AAAMHI the difference
      between the target revenue and $41.8 million, up to a total aggregate payment
      of
      $3.8 million, or (y) is less than $34.2 million, AAAMHI will pay to us the
      difference between the $34.2 million and the target revenue, up to a total
      aggregate payment of $3.8 million.





The
      acquired business was founded in 1993 within Alleghany Asset Management, Inc.
      by
      employees of Aston to manage open-end investment funds for retail and
      institutional clients in the United States. Originally, the acquired business
      employed investment advisers affiliated with its parent to manage the assets
      of
      the funds, while it centralized the distribution, marketing, reporting and
      other
      operations of the fund family. As the business developed, the acquired business
      created new mutual funds managed by experienced independent investment advisers.
      As of September 30, 2007, Aston managed 22 no-load mutual funds, comprised
      of 18
      equity funds and four fixed income funds, with approximately $5.0 billion of
      mutual fund assets under management. Aston also managed approximately $137
      million of separate account portfolios. Historically, the acquired business
      utilized seven different entities to manage the equity funds, of which five
      were
      affiliates of the sellers and two were independent. Upon consummation of the
      acquisition, Aston entered into long-term contracts with each of these entities
      pursuant to which they continue to sub-advise the funds. The contracts with
      the
      sellers’ affiliates will not be terminable by the sub-advisers for five years.
      One existing fixed income manager and two new managers have been retained to
      manage three fixed income funds. Aston’s relationship with the sub-advisers is
      supported by limited non-compete provisions and certain capacity guarantees
      in
      certain products to benefit Aston. This arrangement is intended to ensure that
      the investment philosophies and processes guiding the mutual funds in the future
      are consistent with their historical investment philosophies and
      processes.




28




Aston
      intends to expand its assets under management with a combination of internal
      growth, new product development and accretive acquisitions. The Company believes
      the development of new products will provide growth in the future.





New
      products may include:




·
            additional
                open-end mutual funds with current or new
                sub-advisers;





·
            funds
                of funds;




·
            closed-end
                funds;




·
            wrap
                accounts; or




·
            an
                expanded separate account management
                program.




A
      fund of
      funds is a fund that invests in other commingled investment funds. Closed-end
      funds are funds that do not offer daily liquidity for investor purchases and
      sales at net asset value, but rather are typically listed on an exchange and
      traded in the secondary market. Wrap accounts are accounts offered by retail
      distribution firms that provide access to institutional investment management
      services without the use of a registered investment company. A separate account
      is an account managed for a single investor not commingled with the assets
      of
      other investors.




Since
      the
      consummation of the acquisition, Aston has opened five new equity mutual funds.
      The Aston/Optimum Large Cap Opportunity Fund opened in December 2006, and the
      Aston/River Road Small-Mid Cap Fund opened in March 2007. In August 2007, the
      Aston/Neptune International Fund, the Aston/Resolution Global Equity Fund and
      the Aston/ABN AMRO Global Real Estate Fund commenced operations. During the
      balance of 2007, Aston expects to open five additional mutual funds,
      including:




A
      mid-cap
      growth fund subadvised by Montag & Caldwell Investment Counsel;




A
      mid-cap
      growth fund subadvised by ClariVest Asset Management;




A
      mid-cap
      value fund subadvised by Cardinal Capital;




An
      international small-cap fund subadvised by Strategic Global Advisors; and




An
      international large-cap fund subadvised by Baring Asset Management.





In
      addition, Aston will continue discussions with existing sub-advisers and
      additional investment management firms to create a variety of new mutual funds.





In
      addition, Aston may be able to develop new distribution channels
      including:




29




·
            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 individuals, who were previously employed by ABN AMRO and the
      acquired business, were admitted as members of Aston (collectively referred
      to in this Quarterly Report as the Aston management members). Highbury owns
      65%
      of the membership interests of Aston, and the Aston management members own
      35%
      of the membership interests of Aston.




Pursuant
      to the limited liability company agreement, 72% of the revenues, or the
      Operating Allocation, of Aston is used to pay operating expenses of Aston,
      including salaries and bonuses of all employees of Aston (including the Aston
      management members). The remaining 28% of the revenues, or Owners’ Allocation,
      of Aston is allocated to the owners of Aston. The Owners’ Allocation is
      allocated among the members of Aston according to their relative ownership
      interests. **** Currently,
      18.2% of total revenue is allocated to Highbury and 9.8% of total revenue is
      allocated to the Aston management members.




Highbury’s
      contractual share of revenues has priority over the distributions to the Aston
      management members in the event Aston’s actual operating expenses exceed the
      Operating Allocation. As a result, excess expenses first reduce the portion
      of
      the Owners’ Allocation allocated to the Aston management members until the Aston
      management members’ allocation is eliminated before Highbury’s allocation is
      reduced. Any reduction in the distribution of revenues to be paid to Highbury
      is
      required to be paid to Highbury out of any future excess Operating Allocation
      and the portion of future Owners’ Allocation allocated to the Aston management
      members, with interest.




*Business
      Overview* .
      Commencing with the acquisition on November 30, 2006 of the acquired business,
      we derive most of our revenue from the provision of investment management and
      related services. Aston generates revenue by charging mutual funds an advisory
      fee and an administrative fee based on a percentage of invested assets. A
      portion of the fees are paid to the sub-advisers, to a third-party
      sub-administrator and to third-party distribution partners. Each fund typically
      bears all expenses associated with its operation and the issuance and redemption
      of its securities. In particular, each fund pays investment advisory fees (to
      Aston), shareholder servicing fees and expenses, fund accounting fees and
      expenses, transfer agent fees, custodian fees and expenses, legal and auditing
      fees, expenses of preparing, printing and mailing prospectuses and shareholder
      reports, registration fees and expenses, proxy and annual meeting expenses
      and
      independent trustee fees and expenses. Aston has guaranteed many of the funds
      that their expenses will not exceed a specified percentage of their net assets.
      Aston absorbs all advisory fees and other mutual fund expenses in excess of
      these self-imposed limits in the form of expense reimbursements or fee waivers
      and collects as revenue the advisory fee less reimbursements and waivers. As
      of
      September 30, 2007, Aston was reimbursing 17 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 22 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 22 funds, Aston/Montag & Caldwell Growth and
      Aston/Optimum Mid Cap each accounted for more than 10% of the revenues of Aston
      in the most recent fiscal quarter. Additionally, the assets under management
      that Aston sources through independent financial advisers using Schwab and
      Fidelity, as custodians, each generate more than 10% of revenues received by
      Aston. These various client concentrations leave us vulnerable to any adverse
      change in the financial condition of any of our major clients. The loss of
      any
      of these relationships may have a material adverse impact on our
      revenues.




30




Our
      level
      of profitability will depend on a variety of factors, including:




·
            those
                affecting the global financial markets generally and the equity markets
                particularly, which could potentially result in considerable increases
                or
                decreases in our assets under management;





·
            the
                level of revenue, which is dependent on our ability to maintain or
                increase assets under management by maintaining existing investment
                advisory relationships and fee structures, marketing our services
                successfully to new clients and obtaining favorable investment results;




·
            our
                ability to maintain certain levels of operating profit margins;




·
            the
                availability and cost of the capital with which we finance our existing
                and new acquisitions;




·
            our
                success in making new acquisitions and the terms upon which such
                transactions are completed;




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




·
            the
                level of expenses incurred for holding company operations; and




·
            the
                level of taxation to which we are
                subject.




**Key
      Operating Measures**




We
      use
      the following key measures to evaluate and assess our business:




·
            *Assets
                Under Management*.
                Aston is the investment manager for 22 open-end mutual funds, comprised
                of
                18 equity and four fixed income funds. Aston generates revenues by
                charging each fund investment advisory and administrative fees (collected
                in monthly installments), each of which are equal to a percentage
                of the
                daily weighted average assets under management of the fund. Assets
                under
                management change on a daily basis as a result of client investments
                and
                withdrawals and changes in the market value of securities held in
                the
                mutual funds. We carefully review net asset flows into the mutual
                funds,
                trends in the equity markets and the investment performance of the
                mutual
                funds, both absolutely and relative to their peers, to monitor their
                effects on the overall level of assets under
                management.





·
            *Total
                Revenue*.
                Total revenue for Aston is equal to the sum of the advisory fees
                and the
                administrative fees and money market service fees earned by the business
                in a given period. We operate Aston under a revenue sharing structure
                through which Highbury receives a fixed percentage (18.2%) of the
                total
                revenue earned by Aston. In addition, Highbury earns interest income
                on
                its cash balances which we recognize as non-operating income on the
                financial statements.





·
            *Weighted
                Average Fee Basis*.
                The weighted average fee basis is equal to the total revenue, net
                of Aston
                sub-administration fees, 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. In the third
                quarter of 2007, we modified our calculation of this key operating
                measure
                to more accurately reflect the formula used to calculate Aston’s Owners’
                Allocation.





·
            *Total
                Operating Expenses*.
                The total operating expenses include the operating expenses of Aston
                as
                well as Highbury. At the Aston level, we monitor total operating
                expenses
                relative to Aston’s total revenue to ensure there is sufficient operating
                margin to cover expenses. We expect total operating expenses (including
                distribution and sub-advisory costs) to equal approximately 72% of
                the
                total revenue of Aston, as provided in Aston’s limited liability company
                agreement. At the Highbury level, we incur operating expenses in
                connection with our pursuit of accretive acquisitions, including
                expenses
                for travel, entertainment and due diligence. We also incur legal
                and
                accounting expenses in connection with our SEC filing requirements
                and
                expenses of directors’ and officers’
insurance.




31




**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.




·
            *Distribution
                and Sub-advisory Costs*.
                Aston has contracted on a non-exclusive basis with nearly 400 different
                institutions to sell its mutual funds, in exchange for a distribution
                fee,
                to retail and institutional investors. These distribution fees are
                generally equal to a fixed percentage of the assets invested by the
                retail
                or institutional investor. In addition, Aston employs third-party
                investment managers to perform the security research and investment
                selection processes for each of its mutual funds. Under this arrangement,
                Aston pays the third-party investment manager a sub-advisory fee,
                generally equal to 50% of the advisory fees for the mutual fund,
                net of
                fee waivers, expense reimbursements, and applicable distribution
                fees paid
                under the distribution agreements discussed above. Total distribution
                and
                sub-advisory fees represent the largest component of expenses for
                Aston.
                Since these fees are generally based on total assets under management,
                they increase or decrease proportionately with total assets under
                management.





·
            *Compensation
                and Related Expenses*.
                As of September 30, 2007, Aston employed 36 full-time employees.
                The
                compensation and related expenses of Aston include the base salaries,
                incentive compensation, health insurance, retirement benefits and
                other
                costs related to the employees. These expenses increase and decrease
                with
                the addition or termination of employees. Highbury currently has
                no
                employees and provides no compensation to its officers or
                directors.




·
            *Other
                Operating Expenses*.
                The most significant components of other operating expenses include
                professional fees, insurance, occupancy, marketing and advertising,
                voice
                and data communication and travel and entertainment
                expenses.





**Critical
      Accounting Policies**




The
      Company’s discussion and analysis of its financial condition and results of
      operations for the purposes of this document are based upon its consolidated
      financial statements, which have been prepared in accordance with accounting
      principles generally accepted in the United States of America, or GAAP. The
      preparation of these financial statements requires management to make estimates
      and assumptions that affect the reported amounts of assets, liabilities,
      revenues, expenses and related disclosures. Actual results could differ from
      those estimates.




32





The
      Company’s significant accounting policies are presented in Note 3 to its
      condensed consolidated financial statements included elsewhere herein, and
      the
      following summaries should be read in conjunction with the financial statements
      and the related notes. While all accounting policies affect the financial
      statements, certain policies may be viewed as critical. Critical accounting
      policies are those that are both most important to the portrayal of the
      financial statements and results of operations and that require management’s
      most subjective or complex judgments and estimates. We believe the policies
      that
      fall within this category are the policies related to principles of combination,
      goodwill and intangible assets, valuation and income taxes.




*Principles
      of Consolidation* .
      The
      consolidated financial statements include the accounts of Highbury and Aston,
      in
      which Highbury has a controlling financial interest. Generally, an entity is
      considered to have a controlling financial interest when it owns a majority
      of
      the voting interest in an entity. Highbury is the manager member of Aston and
      owns 65% of Aston. Highbury has a contractual arrangement with Aston whereby
      a
      percentage of revenue is allocable to fund Aston’s operating expenses (referred
      to as the Operating Allocation), while the remaining portion of revenue
      (referred to as the Owners' Allocation) is allocable to Highbury and the other
      members, with a priority to Highbury. The portion of the income of Aston
      allocated to owners other than Highbury is included in minority interest in
      the
      Consolidated Statements of Income. Minority interest on the Consolidated Balance
      Sheets includes capital and undistributed income owned by the management members
      of Aston. All material intercompany balances and transactions have been
      eliminated.




*Goodwill
      and Intangible Assets* .
      The
      purchase price and the capitalized transaction costs incurred in connection
      with
      the acquisition of the acquired business are allocated based on the fair value
      of the assets acquired, which is primarily the acquired mutual fund advisory
      contract. In determining the allocation of the purchase price to the acquired
      mutual fund advisory contract, we have analyzed the present value of the
      acquired business’ existing mutual fund advisory contracts based on a number of
      factors including: the acquired business’ historical and potential future
      operating performance; the historical and potential future rates of new business
      from new and existing clients and attrition among existing clients; the
      stability and longevity of existing advisory and sub-advisory relationships;
      the
      acquired business’ recent, as well as long-term, investment performance; the
      characteristics of the acquired business’ products and investment styles; the
      stability and depth of the management team; and the acquired business’ history
      and perceived franchise or brand value.




We
      have
      determined that the acquired mutual fund advisory contract meets the indefinite
      life criteria outlined in Statement of Financial Accounting Standards No. 142,
      "Goodwill and Other Intangible Assets" ("SFAS 142"), because we expect both
      the
      contract and the cash flows generated by the contract to continue indefinitely
      due to the likelihood of continued renewal at little or no cost. Accordingly,
      we
      do not amortize this intangible asset, but instead review this asset at least
      annually for impairment. If the carrying amount of this intangible asset exceeds
      the fair value, an impairment loss would be recorded in an amount equal to
      that
      excess. Additionally, each reporting period, we assess whether events or
      circumstances have occurred which indicate that the indefinite life criteria
      are
      no longer met. If the indefinite life criteria are no longer met, we will
      amortize the intangible asset over its remaining useful life.




The
      excess of purchase price for the acquisition of the acquired business over
      the
      fair value of net assets acquired, including the acquired mutual fund advisory
      contract, is reported as goodwill. Goodwill is not amortized, but is instead
      reviewed for impairment. Highbury assesses goodwill for impairment at least
      annually, or more frequently whenever events or circumstances occur indicating
      that the recorded goodwill may be impaired. If the carrying amount of goodwill
      exceeds the fair value, an impairment loss would be recorded in an amount equal
      to that excess.





*Valuation.* In
      allocating the purchase price of the acquisition and testing our assets for
      impairment, we make estimates and assumptions to determine the value of our
      acquired client relationships. In these valuations, we make assumptions of
      the
      growth rates and useful lives of existing and prospective client accounts.
      Additionally, we make assumptions of, among other factors, projected future
      earnings and cash flow, valuation multiples, tax benefits and discount rates.
      The impacts of many of these assumptions are material to our financial condition
      and operating performance and, at times, are subjective. If we used different
      assumptions, the carrying value of our intangible assets and the related
      amortization could be stated differently and our impairment conclusions could
      be
      modified.




33





*Income
      Taxes.* Deferred
      tax assets and liabilities are primarily the result of timing differences
      between the carrying value of assets and liabilities and the deductibility
      of
      operating expenses for financial reporting and income tax purposes. Deferred
      tax
      liabilities are primarily the result of tax deductions for the Company's
      intangible assets. We amortize acquired intangible assets over a 15-year period
      for tax purposes only, reducing their tax basis below their carrying value
      for
      financial statement purposes and generating deferred taxes each reporting
      period. We amortized $607,107 and $1,821,321 related to goodwill and intangible
      assets in the three and nine months ended September 30, 2007, respectively.
      Additionally, at November 30, 2006, when Highbury ceased to be a corporation
      in
      the development stage, we had total deferred expenses of $440,342 that are
      being amortized for tax purposes over a 15-year period. These expenses
      were currently deductible for financial statement purposes during Highbury’s
      development stage but were not deductible for tax purposes. Highbury amortized
      $7,339 and $22,017 of this deferred expense in the three and nine months ended
      September 30, 2007. During the three and nine months ended September 30, 2007,
      we incurred $101,529 and $281,222, respectively, of rent, taxes and operating
      expenses in connection with Aston’s lease for financial reporting purposes.
      Under the terms of the lease, Aston made no cash payments during either period,
      resulting in a deferred tax asset.





We
      adopted the provisions of Financial Standards Accounting Board Interpretation
      No. 48 Accounting for Uncertainty in Income Taxes ("FIN 48") an interpretation
      of FASB Statement No. 109 ("SFAS 109") on January 1, 2007. As a result of the
      implementation of FIN 48, we recognized no material adjustment in the liability
      for unrecognized income tax benefits. At the adoption date of January 1, 2007,
      we had no unrecognized tax benefits, and at September 30, 2007, we continue
      to
      have no unrecognized tax benefits. We will recognize interest and penalties
      related to uncertain tax positions in income tax expense. As of September 30,
      2007, we do not have any accrued interest related to uncertain tax positions.
      The tax years 2005 and 2006 remain open to examination by the major taxing
      jurisdictions to which we are subject.




*Principles
      of Combination* .
      The
      accompanying combined statements of operations, cash flows and owner’s equity
      for the acquired business for the three and nine months ended September 30,
      2006
      have been prepared on a carve-out basis. The combined financial statements
      have
      been prepared from AAAMHI’s historical accounting records on a carve-out basis
      to include the historical financial position, results of operations and cash
      flows applicable to the acquired business. The combined financial statements
      have been prepared as if the business had been a stand-alone operation, though
      they are not necessarily representative of results had the acquired business
      operated as a stand-alone operation. Revenues, expenses, assets and liabilities
      were derived from amounts associated with the acquired business in the AAAMHI
      financial records. The financial results include allocations based on
      methodologies that management believes are reasonable of corporate expenses
      from
      AAAMHI and allocations of other corporate expenses from AAAMHI’s parent company
      that may be different from comparable expenses that would have been incurred
      if
      the acquired business operated as a stand-alone business. Specifically, ABN
      AMRO
      Services Company, Inc., a wholly-owned subsidiary of ABN AMRO North America
      Holding Company, or AANAHC, provided the acquired business with certain IT,
      infrastructure and e-mail services. LaSalle Bank Corporation, also a
      wholly-owned subsidiary of AANAHC, provided the acquired business with payroll,
      benefits, general ledger maintenance, internal audit and accounts payable
      services. These services were charged based upon utilized quantities (typically
      number of employees, number of transactions processed, or hours worked). AAAMHI
      provided the acquired business with executive management, finance, human
      resources and personal trade compliance services. These services were charged
      based upon employee count or management time incurred. AAAMHI’s parent and its
      parent companies provided other executive management, technology, sales support,
      finance, compliance and human resources support services. These services were
      charged out on a formula basis that considers assets under management, number
      of
      employees and non-interest expense. The cost of these services is included
      under
      the caption “Related-party expense allocations” in the accompanying combined
      statements of operations of the acquired business.




34




Certain
      cash receipts and cash payments related to the acquired business were handled
      through AAAMHI and affiliate cash accounts which are not included in the
      carve-out financial statements. “Net transfers from AAAMHI” in the combined
      statements of changes in owner’s equity reflects these cash
      transactions.





The
      discussion and analysis of the acquired business’ financial condition and
      results of operations for the purposes of this document are based upon its
      consolidated financial statements, which have been prepared in accordance with
      GAAP. The acquired business’ significant accounting policies are presented in
      Note 2 to its combined financial statements included elsewhere herein, and
      the
      following summaries should be read in conjunction with the financial statements
      and the related notes included in this prospectus. The acquired business’
management believes the policies that fall within this category are the policies
      related to principles of combination and goodwill and intangible
      assets.




**Recently
      Issued Accounting Pronouncements**




In
      February 2007, FASB issued Statement of Financial Accounting Standards No.
      159,
“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS
      No. 159”). SFAS No. 159 permits entities to choose to measure many financial
      instruments and certain other items at fair value. The objective of the
      statement is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. The provisions of SFAS No. 159 are effective for fiscal
      years beginning after November 15, 2007. We are currently evaluating this
      standard and its impact, if any, on our consolidated financial statements.




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




**Summary
      Financials**





Highbury
      was formed July 13, 2005 to acquire or acquire control of one or more businesses
      in the financial services industry. On November 30, 2006, the Company completed
      its acquisition of the U.S. mutual fund business of ABN AMRO, or the acquired
      business. Selected financial information is presented below for the acquired
      business and for the Company for the three and nine months ended September
      30,
      2006. The Company’s consolidated financial results for the three and nine months
      ended September 30, 2007 include the operations of the acquired
      business.




Three
                Months Ended
              September
                30, 2006
            
            Three
                Months
              Ended
              September
                30, 2007Acquired
              Business
            
            The
              Company
            
            Combined(1)
            
            The
                Company**Statement
                of Income Data**Operating
                revenue
            
            $
            9,889,652
            
            $
            —
            
            $
            9,889,652
            
            $
            10,157,568Distribution
                and advisory costs
            
            
            (7,121,475
            )
            
            —
            
            
            (7,121,475
            )
            
            (4,735,347
            )Compensation
                and related expenses
            
            
            (1,028,777
            )
            
            —
            
            
            (1,028,777
            )
            
            (1,777,417
            )Amortization
                of intangible assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —Depreciation
                and other amortization
            
            
            —
            
            
            —
            
            
            —
            
            
            (46,345
            )Other
                expenses
            
            
            (910,504
            )
            
            (147,649
            )
            
            (1,058,153
            )
            
            (1,320,117
            )Operating
                income (loss)
            
            $
            828,896
            
            $
            (147,649
            )
            $
            681,247
            
            $
            2,278,342Interest
                and investment income
            
            
            92,599
            
            
            467,002
            
            
            559,601
            
            
            134,673Minority
                interest
            
            
            —
            
            
            —
            
            
            —
            
            
            (947,709
            )Income
                taxes
            
            
            —
            
            
            (118,340
            )
            
            (118,340
            )
            
            (572,607
            )Net
                income (loss)
            
            $
            921,495
            
            $
            201,013
            
            $
            1,122,508
            
            $
            892,699Earnings
                per share - basic
            
            
            n/a
            
            $
            0.02
            
            
            
            
            $
            0.09Average
                shares outstanding - basic
            
            
            n/a
            
            
            9,635,000
            
            
            
            
            
            9,527,000Earnings
                per share - diluted
            
            
            n/a
            
            $
            0.02
            
            
            
            
            $
            0.09Average
                shares outstanding - diluted
            
            
            n/a
            
            
            9,635,000
            
            
            
            
            
            9,683,634




35




Nine
                Months Ended
              September
                30, 2006
            
            Nine
                Months
              Ended
              September
                30, 2007Acquired
              Business
            
            The
              Company
            
            Combined(1)
            
            The
                Company**Statement
                of Income Data**Operating
                revenue
            
            $
            31,629,982
            
            $
            —
            
            $
            31,629,982
            
            $
            31,829,001Distribution
                and advisory costs
            
            
            (23,108,195
            )
            
            —
            
            
            (23,108,195
            )
            
            (14,992,086
            )Compensation
                and related expenses
            
            
            (3,248,940
            )
            
            —
            
            
            (3,248,940
            )
            
            (5,091,841
            )Amortization
                of intangible assets
            
            
            —
            
            
            —
            
            
            —
            
            
            —Depreciation
                and other amortization
            
            
            —
            
            
            —
            
            
            —
            
            
            (126,568
            )Other
                expenses
            
            
            (2,762,360
            )
            
            (408,323
            )
            
            (3,170,683
            )
            
            (3,891,330
            )Operating
                income (loss)
            
            $
            2,510,487
            
            $
            (408,323
            )
            $
            2,102,164
            
            $
            7,727,176Interest
                and investment income
            
            
            242,878
            
            
            1,188,923
            
            
            1,431,801
            
            
            392,141Minority
                interest
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,535,525
            )Income
                taxes
            
            
            —
            
            
            (288,350
            )
            
            (288,350
            )
            
            (1,788,817
            )Net
                income (loss)
            
            $
            2,753,365
            
            $
            492,250
            
            $
            3,245,615
            
            $
            2,794,975Earnings
                per share - basic
            
            
            n/a
            
            $
            0.06
            
            
            
            
            $
            0.29Average
                shares outstanding - basic
            
            
            n/a
            
            
            8,859,469
            
            
            
            
            
            9,527,000Earnings
                per share - diluted
            
            
            n/a
            
            $
            0.06
            
            
            
            
            $
            0.24Average
                shares outstanding - diluted
            
            
            n/a
            
            
            8,859,469
            
            
            
            
            
            11,420,944




(1)
            The
                information presented in the “Combined” columns for the three and nine
                months ended September 30, 2006 is the arithmetic sum of the operating
                results of the Company and the acquired business for period, which
                is
                prior to the date of the acquisition. No pro forma or other adjustments
                have been made in the presentation of the “Combined” financial results.





**Basis
      of Presentation**





In
      the
“Results of Operations” section to follow, we discuss the actual consolidated
      financial results for the Company for the three and nine months ended September 30,
      2007
      and September 30, 2006. In addition, we compare the combined results, as defined
      above in the Summary Financials, for the three and nine months ended September
      30, 2006 with the Company’s actual results for the three and nine months ended
      September 30, 2007. The financial statements for the acquired business for
      the
      three and nine months ended September 30, 2006 are presented on a carve-out
      basis.





36




We
      do not
      believe that the financial statements for the acquired business are comparable
      to the financial statements for the Company for periods following the business
      combination. Prior to the completion of the business combination, the acquired
      business was a division of AAAMHI and was not a separate legal entity.
      Historically, the acquired business utilized two sub-advisers and five advisers
      affiliated with AAAMHI. Because the Aston Funds were introduced over a period
      of
      13 years and were managed by five different affiliates of AAAMHI, the historical
      fee sharing agreements between the acquired business and each investment adviser
      with respect to each Aston Fund varied among the funds and over time. In
      addition, since the acquired business and the investment advisers were part
      of a
      commonly controlled corporate entity, the historical fee sharing arrangements
      were not reflective of market terms but rather internal allocations that also
      varied.





Subsequent
      to the completion of the business combination, the investment adviser affiliates
      of AAAMHI continue to perform the same investment management services for the
      Aston Funds as they had previously provided. However, as a result of the new
      sub-advisory agreements, they receive a smaller share of the net advisory fees
      after payments of third-party distribution fees than they received historically.
      These new sub-advisory agreements were determined based on arm’s length
      negotiation between the sub-advisers affiliated with AAAMHI and us and reflect
      market terms.




In
      addition, certain amounts included in the acquired business’ financial
      statements were allocated from AAAMHI or other related entities. We believe
      that
      these allocations are reasonable, but not necessarily indicative of costs that
      would have been incurred by the acquired business had it operated as a stand
      alone business for the same periods. For these reasons, the revenue and expenses
      of the acquired business as it operates within the Company are not consistent
      with the revenue and expenses of the acquired business on a historical basis.
      As
      such, it may be difficult to draw conclusions from a comparison of operating
      results from before and after the acquisition.




**Results
      of Operations**





*Three
      months ended September 30, 2007 compared to three months ended September 30,
      2006 for the Company*





For
      the
      three months ended September 30, 2007, the Company earned net income of $892,699
      on total operating revenue of $10,157,568. 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
              September
                30, 2007Fees
            
            
            Weighted
                Average
              Assets
                Under
              Management
                ($M)
            
            
            
            Weighted
                Average
              Fee
                Basis
              (Annualized)Net
                advisory fees
            
            $
            8,935,607
            
            $
            5,094
            (1
            )
            
            0.70
            %Administrative
                fees, net(2)
            
            
            546,645
            
            
            8,099
            (3
            )
            
            0.03
            %Money
                market service fees
            
            
            144,936
            
            
            3,137
            
            
            
            0.02
            %
            (4
            )Total
            
            $
            9,627,188
            
            
            5,094
            (5
            )
            
            0.76
            %
            (5
            )





(1)
            Includes
                long-term mutual fund and separate account assets under
                management.(2)
            Excludes
                $530,380 paid as sub-administrative fees.(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.(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).




37




As
      of
      September 30, 2007, the Company had approximately $5.1 billion of total assets
      under management, compared to approximately $5.2 billion as of June 30, 2007.
      As
      of September 30, 2007, mutual fund assets under management were approximately
      $5.0 billion, compared to approximately $5.1 billion as of June 30, 2007, a
      decline of approximately 2%. This decline resulted from net client cash
      outflows, which represent aggregate contributions from new and existing clients
      less withdrawals, of $246 million, offset by positive market appreciation of
      $137 million. The net outflows during the quarter primarily resulted from
      redemptions in the Aston/ABN AMRO Growth Fund and the Aston/Montag &
Caldwell Growth Fund. The Company believes these outflows are the result of
      investors’ concerns about the relative investment performance of these funds as
      compared to other similar funds. The Company believes that an improvement in
      the
      relative investment performance could stem these outflows. Additionally, Aston
      is actively developing new products to attract new assets. Since the
      consummation of the acquisition, Aston has created five new equity mutual funds.
      The Aston/Optimum Large Cap Opportunity Fund opened in December 2006, and the
      Aston/River Road Small-Mid Cap Fund opened in March 2007. In August 2007, the
      Aston/Neptune International Fund, the Aston/Resolution Global Equity Fund and
      the Aston/ABN AMRO Global Real Estate Fund commenced operations. During the
      balance of 2007, Aston expects to open five additional mutual funds, including
      a
      mid-cap growth fund subadvised by Montag & Caldwell Investment Counsel; a
      mid-cap growth fund subadvised by ClariVest Asset Management; a mid-cap value
      fund subadvised by Cardinal Capital; an international small-cap fund subadvised
      by Strategic Global Advisors; and an international large-cap fund subadvised
      by
      Baring Asset Management. During the three months ended September 30, 2007,
      separate account assets under management increased from $136 million to $137
      million.




The
      Company incurred $7,879,226 of total operating costs for the three months ended
      September 30, 2007. During the period, Aston incurred total distribution and
      sub-advisory expenses of $4,735,347, including $3,851,255 payable to the
      sub-advisers (approximately 43% of the net advisory fees for the period) and
      $884,092 payable pursuant to third-party distribution agreements (approximately
      10% of the net advisory fees for the period). Aston incurred employee
      compensation and related expenses of $1,777,417 during the period. Highbury
      has
      no employees and did not pay compensation of any kind to its directors or
      officers during the period. The Company incurred $46,345 of depreciation expense
      relating to Aston’s fixed assets and $1,320,117 of other operating expenses
      during the period. These expenses include the operating expenses of Aston and
      Highbury for the period and consist primarily of legal, accounting, insurance,
      occupancy and administrative fees. Aston’s direct operating expenses for the
      three months ended September 30, 2007 were $934,033, and Highbury’s direct
      operating expenses for the three months ended September 30, 2007 were as
      follows:





Professional
                fees
            
            $
            187,745Insurance
            
            
            59,418Administrative
                fees
            
            
            22,500Travel
                and entertainment
            
            
            70,002Other
                expenses
            
            
            46,419$
            386,084





Non-operating
      income consists primarily of earnings on cash and cash equivalent balances
      and
      short-term investments in U.S. Treasury bills. For the three months ended
      September 30, 2007, Highbury earned interest income on these balances and
      investments of $135,146. In June 2007, Highbury invested $200,000 in the
      Aston/River Road Small-Mid Cap Fund Class I and $200,000 in the Aston/River
      Road
      Dynamic Equity Fund Class I. Each of these investments provided the initial
      seed
      capital for a new mutual fund share class within the two existing funds. In
      July, 2007 Highbury liquidated its investment in the Aston/River Road Small-Mid
      Cap Fund Class I as new assets flowed into the fund generating total proceeds
      to
      Highbury of $201,332. As of September 30, 2007, Highbury’s investment in the
      Aston/River Road Dynamic Equity Fund Class I was valued at $196,957. This
      balance is reflected on the balance sheet as of September 30, 2007 in the line
      item investments, and the change in the value of the investment since June
      30,
      2007 is included in investment income on the statement of operations for the
      three months ended September 30, 2007.




38





The
      Company recorded income of $2,413,015 before minority interest and provisions
      for income taxes for the three months ended September 30, 2007. As a result
      of
      the Aston management members’ interest in Aston, the Company recorded a minority
      interest expense of $947,709 for the period.





Highbury
      earned net income of $201,013 in the three months ended September 30, 2006.
      However, since the Company had not completed the acquisition at that time,
      the
      Company did not earn any operating revenue during the period. During the period,
      Highbury’s activities were focused exclusively on identifying targets for an
      initial business combination. Highbury incurred $147,649 of operating expenses
      during the period, primarily relating to legal, accounting, insurance and
      administrative fees and earned interest and investment income of $467,002 on
      its
      cash balances held in its trust account and outside of the trust account during
      the period. Highbury recorded income before provisions for income taxes of
      $319,353 for the three months ended September 30, 2006.





The
      following table outlines Highbury’s income tax expenses for the three months
      ended September 30, 2007 and June 30, 2006.





Three
                Months Ended
              September
                30,2007
            
            2006Current
            
            $
            437,901
            
            $
            194,181Deferred -
                intangible related
            
            
            236,772
            
            
            -Deferred
                - other
            
            
            (102,066
            )
            
            (75,841
            )Total
            
            $
            572,607
            
            $
            118,340





The
      sources of the Company’s deferred tax liability are as
      follows:




**September
                30,****2007**Amortization
                of goodwill and intangibles for income tax purposes
            $
            785,304Amortization
                of deferred expenses
            
            9,494Deferred
                rent
            
            (95,548
            )Depreciation
                methods used for income tax purposes
            
            (8,193
            )Unrecognized
                investment loss for income tax purposes
            
            (1,187
            )Expenses
                deferred for income tax purposes
            
            (163,172
            )Net
                deferred income taxes
            $
            526,698




For
      further discussion of the Company’s income taxes, please refer to Note 9 of the
      condensed consolidated financial statements included elsewhere in this
      document.





The
      Company had net income of $892,699 for the three months ended September 30,
      2007
      compared to net income of $201,013 for the three months ended September 30,
      2006. Highbury’s basic and diluted earnings per share increased from $0.02 and
      $0.02, respectively, for the three months ended September 30, 2006 to $0.09
      and
      $0.09, respectively, for the three months ended September 30, 2007.





39




*Three
      months ended September 30, 2007 for the Company compared to combined results
      of
      the Company and the acquired business in the three months ended September 30,
      2006*





Combined
      operating revenue of the Company and the acquired business during the three
      months ended September 30, 2006 was $9,889,652, as compared to $10,157,568
      for
      the Company during the three months ended September 30, 2007. This increase
      in
      revenue was largely attributable to revenues from Aston’s Administrative,
      Marketing and Compliance Agreement with ABN AMRO, whereby Aston provides certain
      administrative services to six money market mutual funds managed by ABN AMRO,
      but was offset by the overall decline in mutual fund assets under management
      from approximately $5.4 billion as of September 30, 2006 to approximately $5.0
      billion as of September 30, 2007. Net advisory fees decreased from $9,547,025
      in
      2006 to $8,935,607 in 2007, primarily as a result of lower average mutual fund
      balances. Average mutual fund balances declined as a result of continuing net
      asset outflows from the Aston Funds, offset in part by positive market
      appreciation. The administration fees earned by the acquired business increased
      from $342,627 in 2006 to $1,077,026 in 2007, primarily as a result of the
      additional services provided to the money market mutual funds and a change
      in
      the presentation of the administration fees. The acquired business accrued
      revenue from administration fees net of certain sub-administration fees paid
      to
      a third-party provider. The Company has determined it is appropriate to record
      the revenues on a gross basis and include the associated sub-administration
      expenses within other operating costs. The administration fees earned by the
      Company in the three months ended September 30, 2007, net of all
      sub-administration fees paid, were $546,645. This represents an increase of
      $204,018, on a comparable basis, over the fees earned by the acquired business
      in the prior period. This increase is primarily attributable to the additional
      administrative services provided to the money market mutual funds. Aston also
      earned money market service fees from ABN AMRO of $144,936 in the three months
      ended September 30, 2007 under this agreement. There were no corresponding
      fees
      in the three months ended September 30, 2006.





Distribution
      and advisory costs declined from $7,121,475 for the acquired business in the
      three months ended September 30, 2006 to $4,735,347 for the Company in the
      corresponding period in 2007. This decline is partially attributable to the
      decline in mutual fund assets under management from 2006 to 2007, as these
      expenses are directly related to the value of assets under management. In
      addition, the new sub-advisory agreements into which Aston entered at the
      closing of the acquisition provide for substantially lower payments to the
      sub-advisers affiliated with AAAMHI than the historical fee-sharing agreements.
      These new agreements have substantially decreased the sub-advisory costs from
      pre-acquisition levels.




Combined
      compensation and related expenses were $1,028,777 for the three months ended
      September 30, 2006. Compensation and related expenses for the Company were
      $1,777,417 for the three months ended September 30, 2007. This increase is
      largely attributable to the increased operating profitability of Aston as a
      result of the changes in the sub-advisory contracts and other changes to the
      acquired business since the acquisition. The Aston management team participates
      directly in this increased profitability through their retention of any excess
      operating allocation which is paid as compensation. The increase also reflects
      the addition of three employees at Aston at the time of the acquisition that
      were not reflected in the compensation expense for the three months ended
      September 30, 2006.





Combined
      other operating expenses were $1,058,153 for the three months ended September
      30, 2006. During the three months ended September 30, 2007, the Company incurred
      $1,320,117 of other operating expenses. This increase of $261,964 is largely
      attributable to the increase in Highbury’s direct operating costs between the
      periods from $147,649 to $386,084, a difference of $238,435, and supplemented
      by
      an increase of approximately $23,529 in Aston’s other operating costs. During
      the three months ended September 30, 2006, Highbury was in the process of
      preparing and revising the public disclosure documents for its initial business
      combination. A majority of the expenses incurred during this period were
      deferred and capitalized in connection with the other costs of the transaction.
      During the three months ended September 30, 2007, Highbury incurred $265,616
      of
      costs relating to a potential acquisition during the three months ended
      September 30, 2007. These costs were not recognized as operating expenses,
      but
      are reflected on the balance sheet as of September 30, 2007 as deferred
      acquisition costs. If the potential acquisition is consummated, these expenses
      will be capitalized in the costs of the transaction, but will be recognized
      as
      expenses if not.




40




The
      Company generated operating income of $2,278,342 during the three months ended
      September 30, 2007 as compared to combined operating income of $681,247 in
      the
      three months ended September 30, 2006 for the Company and the acquired business.
      While operating revenues were similar between the periods, the increase in
      operating income is primarily attributable to the Administrative, Marketing
      and
      Compliance Agreement with ABN AMRO and to the new sub-advisory contracts signed
      at the time of the acquisition which reduced Aston’s payments to sub-advisors
      affiliated with ABN AMRO.




Because
      of the different capital structures and ownership structures of the acquired
      business before and after the acquisition, comparisons of the differences in
      interest income, minority interest and income taxes are not
      meaningful.




*Nine
      months ended* *September*  *30,
      2007 compared to nine months ended* *September*  *30,
      2006 for the Company*





For
      the
      nine months ended September 30, 2007, the Company earned net income of
      $2,794,975 on total operating revenue of $31,829,001. As of September 30, 2007,
      the Company had approximately $5.1 billion of total assets under management,
      compared to approximately $5.7 billion as of December 31, 2006. As of September
      30, 2007, mutual fund assets under management were approximately $5.0 billion,
      compared to approximately $5.5 billion as of December 31, 2006, a decline of
      approximately 9%. This decline resulted from net client cash outflows, which
      represent aggregate contributions from new and existing clients less
      withdrawals, of $976 million, offset by positive market appreciation of $503
      million. During the first nine months of 2007, separate account assets under
      management declined from $199 million to $137 million.




The
      Company incurred $24,101,825 of total operating costs for the nine months ended
      September 30, 2007. During the period, Aston incurred total distribution and
      sub-advisory expenses of $14,992,086, including $12,116,888 payable to the
      sub-advisers (approximately 43% of the net advisory fees for the period) and
      $2,875,198 payable pursuant to third-party distribution agreements
      (approximately 10% of the net advisory fees for the period). Aston incurred
      employee compensation and related expenses of $5,091,841 during the period.
      Highbury has no employees and did not pay compensation of any kind to its
      directors or officers during the period. The Company incurred $126,568 of
      depreciation expense relating to Aston’s fixed assets and $3,891,330 of other
      operating expenses during the period. These expenses include the operating
      expenses of Aston and Highbury for the period and consist primarily of legal,
      accounting, insurance, occupancy and administrative fees. Aston’s direct
      operating expenses for the nine months ended September 30, 2007 were $2,644,607,
      and Highbury’s direct operating expenses for the nine months ended September 30,
      2007 were as follows:





Professional
                fees
            
            $
            723,038Insurance
            
            
            187,239Administrative
                fees
            
            
            67,500Travel
                and entertainment
            
            
            127,631Other
                expenses
            
            
            141,315$
            1,246,723





Non-operating
      income consists primarily of earnings on cash and cash equivalent balances
      and
      short-term investments in U.S. Treasury bills. For the nine months ended
      September 30, 2007, Highbury earned interest income on these balances and
      investments of $341,920. Highbury invested $1,000,010 in the Aston/River Road
      Small-Mid Cap Fund, a new mutual fund opened by Aston in March 2007. The
      investment was liquidated prior to September 30, 2007 for a total of $1,051,942.
      The Company recognized $51,932 of investment income related to this investment
      in the nine months ended September 30, 2006. In September 2007, Highbury
      invested $200,000 in the Aston/River Road Small-Mid Cap Fund Class I and
      $200,000 in the Aston/River Road Dynamic Equity Fund Class I. Each of these
      investments provided the initial seed capital for a new mutual fund share class
      within the two existing funds. In July, 2007 Highbury liquidated its investment
      in the Aston/River Road Small-Mid Cap Fund Class I as new assets flowed into
      the
      fund generating total proceeds to Highbury of $201,332. As of September 30,
      2007, Highbury’s investment in the Aston/River Road Dynamic Equity Fund Class I
      was valued at $196,957. This balance is reflected on the balance sheet as of
      September 30, 2007 in the line item investments, and the change in the value
      of
      the investment is included in investment income on the statement of operations
      for the nine months ended September 30, 2007.




41




The
      Company recorded income of $8,119,317 before minority interest and provisions
      for income taxes for the nine months ended September 30, 2007. As a result
      of
      the Aston management members’ interest in Aston, the Company recorded a minority
      interest expense of $3,535,525 for the period.





Highbury
      earned net income of $492,250 in the nine months ended September 30, 2006.
      However, since the Company had not completed the acquisition at that time,
      the
      Company did not earn any operating revenue during the period. During the period,
      Highbury’s activities were focused exclusively on identifying targets for an
      initial business combination and negotiating and executing the transaction
      documents with ABN AMRO. Highbury incurred $408,323 of operating expenses during
      the period, primarily relating to legal, accounting, insurance and
      administrative fees and earned interest and investment income of $1,188,923
      on
      its cash balances held in its trust account and outside of the trust account
      during the period. Highbury recorded income before provisions for income taxes
      of $780,600 for the nine months ended September 30, 2006.





The
      following table outlines Highbury’s income tax expenses for the nine months
      ended September 30, 2007 and September 30, 2006.





Nine
                Months Ended
              September
                30,2007
            
            2006Current
            
            $
            1,174,843
            
            $
            492,366Deferred
                - intangible related
            
            
            710,315
            
            
            -Deferred
                - other
            
            
            (96,341
            )
            
            (204,016
            )Total
            
            $
            1,788,817
            
            $
            288,350





For
      further discussion of the Company’s income taxes, please refer to Note 9 of the
      condensed consolidated financial statements included elsewhere in this
      document.





The
      Company had net income of $2,794,795 for the nine months ended September 30,
      2007 compared to net income of $492,250 for the nine months ended September
      30,
      2006. Highbury’s basic and diluted earnings per share increased from $0.06 and
      $0.06, respectively, for the nine months ended September 30, 2006 to $0.29
      and
      $0.24, respectively, for the nine months ended September 30, 2007.





*Nine
      months ended September 30, 2007 for the Company compared to combined results
      of
      the Company and the acquired business in the nine months ended September 30,
      2006*





Combined
      operating revenue of the Company and the acquired business during the nine
      months ended September 30, 2006 was $31,629,982, as compared to $31,829,001
      for
      the Company during the nine months ended September 30, 2007. This increase
      in
      revenue was largely attributable to the revenues from Aston’s Administrative,
      Marketing and Compliance Agreement with ABN AMRO, whereby Aston provides certain
      administrative services to six money market mutual funds managed by ABN AMRO,
      but was offset by the overall decline in mutual fund assets under management
      from approximately $5.4 billion as of September 30, 2006 to approximately $5.0
      billion as of September 30, 2007. Net advisory fees decreased from $30,594,808
      in 2006 to $28,083,917 in 2007, primarily as a result of lower average mutual
      fund balances. Average mutual fund balances declined as a result of continuing
      net asset outflows from the Aston Funds, offset in part by positive market
      appreciation. As of September 30, 2007, the Company’s total mutual fund assets
      under management were approximately $5.0 billion, as compared to approximately
      $5.4 billion as of September 30, 2006 for the acquired business. However, the
      administration fees earned by the acquired business increased from $1,035,174
      in
      2006 to $3,306,678 in 2007, primarily as a result of the additional services
      provided to the money market mutual funds and a change in the presentation
      of
      the administration fees. The acquired business accrued revenue from
      administration fees net of certain sub-administration fees paid to a third-party
      provider. The Company has determined it is appropriate to record the revenues
      on
      a gross basis and include the associated sub-administration expenses within
      other operating costs. The administration fees earned by the Company in the
      nine
      months ended September 30, 2007, net of all sub-administration fees paid, were
      $1,683,146. This represents an increase of $647,972, on a comparable basis,
      over
      the fees earned by the acquired business in the prior period. This increase
      is
      primarily attributable to the additional administrative services provided to
      the
      money market mutual funds. Aston also earned money market service fees from
      ABN
      AMRO of $438,406 in the nine months ended September 30, 2007 under this
      agreement. There were no corresponding fees in the three months ended September
      30, 2006.




42





Distribution
      and advisory costs declined from $23,108,195 for the acquired business in the
      three months ended September 30, 2006 to $14,992,086 for the Company in the
      corresponding period in 2007. This decline is partially attributable to the
      decline in mutual fund assets under management from 2006 to 2007, as these
      expenses are directly related to the value of assets under management. In
      addition, the new sub-advisory agreements into which Aston entered at the
      closing of the acquisition provide for substantially lower payments to the
      sub-advisers affiliated with AAAMHI than the historical fee-sharing agreements.
      These new agreements have substantially decreased the sub-advisory costs from
      pre-acquisition levels.





Combined
      compensation and related expenses were $3,248,940 for the nine months ended
      September 30, 2006. Compensation and related expenses for the Company were
      $5,091,841 for the nine months ended September 30, 2007. This increase is
      largely attributable to the increased operating profitability of Aston as a
      result of the changes in the sub-advisory contracts and other changes to the
      acquired business since the acquisition. The Aston management team participates
      directly in this increased profitability through their retention of any excess
      operating allocation which is paid as compensation. The increase also reflects
      the addition of three employees at Aston at the time of the acquisition that
      were not reflected in the compensation expense for the first nine months of
      2006.





Combined
      other operating expenses were $3,170,683 for the nine months ended September
      30,
      2006. During the nine months ended September 30, 2007, the Company incurred
      $3,891,330 of other operating expenses. This increase of $720,647 is largely
      attributable to the increase in Highbury’s direct operating costs between the
      periods from $408,323 to $1,246,723, a difference of $838,400, and offset by
      a
      decline of approximately $117,753 in Aston’s other operating costs. During the
      nine months ended September 30, 2006, Highbury was in the process of identifying
      targets for the initial business combination, negotiating and executing the
      acquisition agreements for its initial business combination and preparing and
      revising the associated public disclosure documents. A majority of the expenses
      incurred during this period were deferred and capitalized in connection with
      the
      other costs of the transaction. During the nine months ended September 30,
      2007,
      Highbury has recognized the majority of its expenses.




The
      Company generated operating income of $7,727,176 during the nine months ended
      September 30, 2007 as compared to combined operating income of $2,102,164 in
      the
      nine months ended September 30, 2006 for the Company and the acquired business.
      While operating revenues were similar between the periods, the increase in
      operating income is primarily attributable to the Administrative, Marketing
      and
      Compliance Agreement with ABN AMRO and to the new sub-advisory contracts signed
      at the time of the acquisition which reduced Aston’s payments to sub-advisors
      affiliated with ABN AMRO.




Because
      of the different capital structures and ownership structures of the acquired
      business before and after the acquisition, comparisons of the differences in
      interest income, minority interest and income taxes are not
      meaningful.




43




***Supplemental
      Non-GAAP Performance Measure***





As
      supplemental information, we provide a non-GAAP performance measure that we
      refer to as Cash Net Income. This measure is provided in addition to, but not
      as
      a substitute for, GAAP Net Income. Cash Net Income means the sum of (a) net
      income determined in accordance with GAAP, plus (b) amortization of intangible
      assets, plus (c) deferred taxes related to intangible assets, plus (d) affiliate
      depreciation, plus (e) other non-cash expenses. We consider Cash Net Income
      an
      important measure of our financial performance, as we believe it represents
      operating performance before non-cash expenses relating to the acquisition
      of
      our interest in our affiliated investment management firm. Cash Net Income
      is
      not a measure of financial performance under GAAP and, as calculated by us,
      may
      not be consistent with computations of Cash Net Income by other companies.
      Cash
      Net Income is used by our management and board of directors as a performance
      benchmark.




Since
      our
      acquired assets do not generally depreciate or require replacement by us, and
      since they generate deferred tax expenses that are unlikely to reverse, we
      add
      back these non-cash expenses to Net Income to measure operating performance.
      We
      will add back amortization attributable to acquired client relationships because
      this expense does not correspond to the changes in value of these assets, which
      do not diminish predictably over time. The portion of deferred taxes generally
      attributable to intangible assets (including goodwill) that we do not amortize
      but which generates tax deductions is added back, because these accruals would
      be used only in the event of a future sale of Aston or an impairment charge,
      which we consider unlikely. We 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
              September
                30,
            
            Nine
                Months Ended
              September
                30,2007
            
            2006
            
            2007
            
            2006**Net
                Income**
            
            $
            892,699
            
            $
            201,013
            
            $
            2,794,975
            
            $
            492,250Intangible-related
                deferred taxes
            
            
            236,772
            
            
            —
            
            
            710,315
            
            
            —Other
                non-cash expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            —Intangible
                amortization
            
            
            —
            
            
            —
            
            
            —
            
            
            —Affiliate
                depreciation
            
            
            46,345
            
            
            —
            
            
            126,568
            
            
            —**Cash
                Net Income**
            
            $
            1,175,816
            
            $
            201,013
            
            $
            3,631,858
            
            $
            492,250




**Liquidity
      and Capital Resources**




Since
      its
      inception, Highbury has funded its business activities almost exclusively
      through cash flows from financing, including the debt and equity provided by
      the
      initial shareholders and the funds raised in our initial public offering. Going
      forward, Highbury expects to fund its business activities with a combination
      of
      operating income and the interest income earned on its cash balances and to
      fund
      future acquisitions with retained net income or the issuance of debt or equity.
      As of September 30, 2007, Highbury had no borrowings outstanding. In the future,
      however, we will closely review our ratio of debt to Adjusted EBITDA (our
      "leverage ratio") as an important gauge of our ability to service debt, make
      new
      investments and access capital. The leverage covenant of our credit facility
      currently limits our leverage ratio to 2.0x 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. The amendment to our credit agreement dated October
      31, 2007 increases the limit on our leverage ratio to 5.0x Adjusted EBITDA.
      For
      further information about the amendment to our credit facility, please refer
      to
      the section entitled “Credit Facility.”




Historically,
      the acquired business funded its business activities almost exclusively with
      operating cash flow. We expect Aston will also fund its business activities
      almost exclusively with operating cash flow. Highbury may occasionally provide
      capital to Aston to help finance the development of new products or execute
      accretive acquisitions. Because Aston, like most investment management
      businesses, does not require a high level of capital expenditures, such as
      for
      purchases of inventory, property, plant or equipment, liquidity is less of
      a
      concern than for a company that sells physical assets. Historically, the amount
      of cash and cash equivalents held on the balance sheet of the acquired business
      was primarily influenced by the policies of its parent, AAAMHI. Prior to the
      acquisition, AAAMHI owned 100% of the acquired business and continues to own
      several other affiliates which also have low capital requirements. As such,
      cash
      balances often accumulated in the affiliates until AAAMHI decided to transfer
      them. These periodic cash transfers cause the value of cash and equivalents
      held
      by the business to fluctuate widely and without correlation to the underlying
      operations of the acquired business.




44




As
      of
      September 30, 2007, the Company had $8,259,926 of cash and equivalents,
      $3,106,981 of short-term investments, $196,957 of other investments and
      $3,155,459 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 September 2007. Aston receives its revenues generally
      within the first week of the month following the month in which they are earned.
      At September 30, 2007, the Company had accounts payable of $4,329,704, 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 $947,709 of distributions payable to the Aston management
      members which were subsequently paid in October 2007. Because Aston is able
      to
      finance its day-to-day operations with operating cash flow, it does not need
      to
      retain a significant amount of cash on its balance sheet. Going forward, we
      expect Aston will distribute all of its excess cash on a quarterly basis to
      its
      owners, so we do not expect large cash balances to accrue within Aston. Highbury
      will retain its cash, and we expect our cash balances will increase over time
      until the cash is used to fund acquisitions, service debt, if any, or repurchase
      our securities, if appropriate.




Management
      believes our existing liquid assets, together with the expected continuing
      cash
      flow from operations, our borrowing capacity under the current credit facility
      and our ability to issue debt or equity securities will be sufficient to meet
      our present and reasonably foreseeable operating cash needs and future
      commitments. In particular, we expect to finance future acquisitions through
      operating cash flows and the issuance of debt or equity securities.




*Cash
      Flow from Operating Activities* .
      Cash
      flow from operations generally represents net income plus non-cash charges
      for
      amortization, deferred taxes and depreciation as well as the changes in our
      consolidated working capital. For the three months ended September 30, 2007,
      the
      Company received $1,875,259 of net cash flow from its operating activities.
      In
      addition to net income of $892,699, the Company benefited from $134,706 of
      deferred taxes related primarily to the amortization of goodwill and intangible
      assets acquired in the acquisition for income tax purposes. Accounts payable
      decreased by $524,334 which reduced net cash flow. In the first nine months
      of
      2007, the Company received $5,947,396 of net cash flow from its operating
      activities. In addition to net income of $2,794,975, the Company benefited
      from
      $613,974 of deferred taxes related primarily to the amortization of goodwill
      and
      intangible assets acquired in the acquisition for income tax purposes. Accounts
      receivable decreased by $490,963 which provided additional cash flow. Accounts
      payable and accrued expenses increased by $633,810, primarily as a result of
      the
      accumulation of the quarterly distribution owed to the Aston management members
      and certain legal and accounting expenses incurred by Highbury in connection
      with our public reporting requirements. During the period, the Company also
      purchased $3,106,981 in treasury securities with a current maturity in excess
      of
      three months.




*Cash
      Flow from Investing Activities* .
      Changes
      in net cash flow from investing activities will result primarily from capital
      expenditures, investments in new affiliates or, from time to time, in new mutual
      funds created by Aston. In March 2007, Highbury invested $1,000,010 in the
      Aston/River Road Small-Mid Cap Fund. During the second quarter of 2007, Highbury
      liquidated this investment as new assets flowed into the fund generating total
      proceeds to Highbury of $1,051,942. In June 2007, Highbury invested $200,000
      in
      the Aston/River Road Small-Mid Cap Fund Class I and $200,000 in the Aston/River
      Road Dynamic Equity Fund Class I. Each of these investments provided the initial
      seed capital for a new mutual fund share class within the two existing funds.
      In
      July 2007 Highbury liquidated its investment in the Aston/River Road Small-Mid
      Cap Fund Class I as new assets flowed into the fund generating total proceeds
      to
      Highbury of $201,332. In addition, Aston purchased $10,232 and $114,722 in
      fixed
      assets in the three and nine months ended September 30, 2007,
      respectively.




45




*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 or the payment of distributions to Aston’s minority interest holders.
      During the three and nine months ended June 30, 2007, the Company distributed
      $991,992 and $2,374,717 to the Aston management members. Additionally, in July
      2007, Highbury entered into Unit Purchase Option Repurchase Agreements with
      the
      underwriters of our initial public offering pursuant to which we repurchased
      the
      option from the underwriters for aggregate cash payments of $1,300,000. The
      unit
      purchase option was cancelled upon its repurchase. For more information about
      the unit purchase option, please refer to Note 2 in the accompanying financial
      statements. Highbury did not have any cash flows related to financing activities
      in the three months ended September 30, 2006. In the nine months ended September
      30, 2006, Highbury received net cash flow of $44,445,113 from financing
      activities as a result of our initial public offering and private placement
      in
      January 2006.




***Credit
      Facility***




We
      entered into a credit agreement with City National Bank on August 21, 2006,
      which provides for a revolving line of credit of up to $12.0 million. On
      November 9, 2006, we entered into a new credit agreement with City National
      Bank which amended and restated our initial credit agreement to amend the
      definitions of debt and net worth to exclude the effects of accounting for
      our
      outstanding common stock warrants and the underwriters’ unit purchase option as
      liabilities. We subsequently determined that we should account for these
      securities as equity. The credit facility will be used for working capital,
      general corporate purposes and repurchases of our outstanding securities, if
      appropriate.




Borrowings
      under our credit facility will bear interest, at our option, at either the
      fluctuating prime rate minus one-half of one percent (0.50%) per year or the
      LIBOR interest rate plus one and one-half percent (1.50%) per year. In addition,
      we will be required to pay annually a fee of one quarter of one percent (0.25%)
      on the average daily balance of the unused portion of the credit facility.
      We
      will have to make interest payments monthly for any prime rate borrowings.
      For
      any LIBOR borrowings, interest payments will be made at the end of any LIBOR
      contract or quarterly, whichever is sooner. Any outstanding principal is due
      at
      maturity on October 31, 2007. For so long as certain events of default
      continue, upon notice by City National Bank, the interest rate on any
      outstanding loans will increase by three percent (3%). As of September 30,
      2007,
      we had no borrowings outstanding.




Our
      credit facility is secured by all of our assets. Our credit facility contains
      customary negative covenants which, among other things, limit indebtedness,
      asset sales, loans, investments, liens, mergers and acquisitions, sale and
      leaseback transactions and purchases of equity, other than repurchases of our
      outstanding securities. Our credit facility also contains affirmative covenants
      as to, among other things, financial statements, taxes, corporate existence
      and
      legal compliance. We are also required to maintain a minimum net worth and
      ratio
      of debt to Adjusted EBITDA. As of September 30, 2007, we were in compliance
      with
      all of the covenant requirements under this credit facility.





On
      October 31, 2007, Highbury and City National Bank executed an amendment to
      the
      credit agreement which provides for an extension of the agreement through
      October 31, 2008 and modifies certain provisions of the agreement. The amendment
      increases the maximum total leverage ratio (including debt from all sources)
      to
      5.0x Adjusted EBITDA, although borrowings under the credit agreement continue
      to
      be limited to 2.0x Adjusted EBITDA, and incorporates a minimum fixed charge
      coverage ratio of 1.25x.




***Contractual
      Obligations***




There
      have been no material changes to the Company’s contractual obligations as
      disclosed in the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2006, filed with the Securities and Exchange Commission on March
      23, 2007.




46




***Supplemental
      Non-GAAP Liquidity Measure***




As
      supplemental information, we provide information regarding Adjusted EBITDA,
      a
      non-GAAP liquidity measure. This measure is provided in addition to, but not
      as
      a substitute for, cash flow from operations. Adjusted EBITDA means the sum
      of
      (a) net income determined in accordance with GAAP, plus (b) amortization of
      intangible assets, plus (c) interest expense, plus (d) depreciation, plus (e)
      other non-cash expenses, plus (f) income tax expense. This definition of
      Adjusted EBITDA is consistent with the definition of EBITDA used in our credit
      facility. Adjusted EBITDA, as calculated by us, may not be consistent with
      computations of Adjusted EBITDA by other companies. As a measure of liquidity,
      we believe that Adjusted EBITDA is useful as an indicator of our ability to
      service debt, make new investments and meet working capital requirements. We
      provide this non-GAAP measure because our management uses this information
      when
      analyzing the Company’s financial position.





The
      following table provides a reconciliation of net income to Adjusted EBITDA:





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2007
            
            2006
            
            2007
            
            2006**Net
                Income (GAAP)**
            
            $
            892,699
            
            $
            201,013
            
            $
            2,794,975
            
            $
            492,250Income
                tax expense
            
            
            572,607
            
            
            118,340
            
            
            1,788,817
            
            
            288,350Interest
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —Intangible
                amortization
            
            
            —
            
            
            —
            
            
            —
            
            
            —Depreciation
                and other amortization
            
            
            46,345
            
            
            —
            
            
            126,568
            
            
            —Other
                non-cash expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            —**Adjusted
                EBITDA**
            
            $
            1,511,651
            
            $
            319,353
            
            $
            4,710,360
            
            $
            780,600





The
      following table provides a supplemental reconciliation of cash flow from
      operations to Adjusted EBITDA:





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2007
            
            2006
            
            2007
            
            2006**Cash
                Flow from Operations**
            
            $
            1,875,259
            
            $
            287,143
            
            $
            5,947,396
            
            $
            (338,319
            )Interest
                expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —Current
                income tax provision
            
            
            437,901
            
            
            194,181
            
            
            1,174,843
            
            
            492,366Changes
                in assets and liabilities
            
            
            (801,509
            )
            
            (161,971
            )
            
            (2,198,780
            )
            
            626,553Changes
                in minority interest
            
            
            —
            
            
            —
            
            
            (213,099
            )
            
            —**Adjusted
                EBITDA**
            
            $
            1,511,651
            
            $
            319,353
            
            $
            4,710,360
            
            $
            780,600




**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. See Note 2 to our financial statements
      for
      a discussion of the warrants.




47





**Agreements
      with Berkshire Capital**




Highbury
      occupies office space provided by Berkshire Capital Securities LLC, or Berkshire
      Capital. Messrs. Cameron, Foote and Forth, our executive officers, are
      affiliated with Berkshire Capital. Berkshire Capital has agreed to make such
      office space, as well as certain office and secretarial services, available
      to
      Highbury, as may be required by Highbury from time to time. Highbury has agreed
      to pay Berkshire Capital $7,500 per month for such services indefinitely. The
      agreement is terminable by either party upon six months’ prior notice. The
      statements of operations for the three months ended September 30, 2007 and
      September 30, 2006 each include $22,500 related to this agreement. The
      statements of operations for the nine months ended September 30, 2007 and
      September 30, 2006 include $67,500 and $61,452, respectively, related to this
      agreement. In October 2007 as a result of additional financial reporting
      services being provided by Berkshire Capital, we agreed to increase the monthly
      payment to $10,000 beginning in November 2007.





We
      have
      engaged Berkshire Capital to act as our non-exclusive financial advisor in
      connection with possible future acquisitions. In such capacity, Berkshire
      Capital will assist us in structuring, negotiating and completing acquisitions
      of targets identified by us and acknowledged by both us and Berkshire Capital
      as
      being subject to Berkshire Capital’s engagement. If we enter into an agreement
      to acquire such a target company during the term of Berkshire Capital’s
      engagement or within two years thereafter, and such acquisition is completed,
      then we will pay Berkshire Capital a success fee at closing equal to the greater
      of (a) the sum of 3.0% of the first $15 million of the aggregate consideration
      in such transaction and 1.0% of the aggregate consideration in such transaction
      in excess of $15 million, and (b) $600,000. Upon the execution of a definitive
      agreement with respect to an acquisition, we will pay Berkshire Capital $200,000
      which will be credited against the success fee. We will also reimburse Berkshire
      Capital for its reasonable expenses in performing its services under the
      engagement letter and will indemnify Berkshire Capital for liabilities it incurs
      in performing such services, unless such liabilities are attributable to
      Berkshire Capital’s gross negligence or willful misconduct. The statements of
      operations for the three and nine months ended September 30, 2007 include only
      reimbursements of Berkshire Capital for its expenses incurred under this
      agreement.




**Impact
      of Inflation**




Our
      revenue is directly linked to the total assets under management within the
      22
      mutual funds and the separate accounts managed by Aston. Our total assets under
      management increase or decrease on a daily basis as a result of fluctuations
      in
      the financial markets and net asset flows from investors. While long-term
      returns in the financial markets have historically exceeded the rate of
      inflation, this may not be the case going forward. Our operating expenses are
      likely to be directly affected by inflation. Furthermore, we earn interest
      income on our cash balances. While the current interest rates available to
      us
      exceed the rate of inflation, this may not be the case going forward. In such
      cases, the impact of inflation will erode our purchasing power.




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





**** There
      have been no significant changes to our Quantitative and Qualitative Disclosures
      About Market Risk in the nine months ended September 30, 2007.  Please
      refer to Item 7A in our Annual Report on Form 10-K for the fiscal year ended
      December 31, 2006, filed with the Securities and Exchange Commission on March
      23, 2007.




**ITEM
      4. CONTROLS AND PROCEDURES.**




We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our chief executive officer and chief financial
      officer, of the effectiveness of our disclosure controls and procedures as
      of
      September 30, 2007. Based on that evaluation, our chief executive officer and
      chief financial officer concluded that our disclosure controls and procedures
      are effective as of the end of the period covered by this report to ensure
      that
      information required to be disclosed by us in reports that we file or submit
      under the Securities Exchange Act of 1934 is recorded, processed, summarized
      and
      reported within the time periods specified in Securities and Exchange
      Commission’s rules and forms.




48




During
      the most recently completed fiscal quarter, there has been no significant change
      in our internal control over financial reporting that has materially affected,
      or is reasonably likely to materially affect, our internal control over
      financial reporting.





**PART
      II.**


**OTHER
      INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**





Neither
      Highbury nor Aston is currently subject to any material legal proceedings,
      nor,
      to our knowledge, is any material legal proceeding threatened against either
      of
      them. From time to time, we may be a party to certain legal proceedings
      incidental to the normal course of our business. While the outcome of these
      legal proceedings cannot be predicted with certainty, we do not expect that
      these proceedings will have a material effect upon our financial condition
      or
      results of operations.





**ITEM
      1A. RISK FACTORS**





In
      addition to the other information included in this Quarterly Report on Form
      10-Q
      and the risk factors contained in our Annual Report on Form 10-K for the fiscal
      year ended December 31, 2006, filed with the Securities and Exchange Commission
      on March 23, 2007, you should consider the following risk factors in evaluating
      our business and future prospects. If any of the risks contained in this Report
      or our Annual Report occur, our business, financial condition and results of
      operations may be materially adversely affected. In that event, the trading
      price of our securities could decline, and our stockholders could lose all
      or a
      part of their investment.





***If
      we are unable to maintain a current prospectus relating to the common stock
      underlying our warrants, our warrants may have little or no value and the market
      for our warrants may be limited.***




No
      warrants will be exercisable and we will not be obligated to issue shares of
      common stock unless at the time a holder seeks to exercise such warrant, a
      prospectus relating to the common stock issuable upon exercise of the warrants
      is current and the common stock has been registered or qualified or deemed
      to be
      exempt under the securities laws of the state of residence of the holder of
      the
      warrants. Under the terms of the warrant agreement between Continental Stock
      Transfer & Trust Company, as warrant agent, and us, we have agreed to
      use our best efforts to maintain a current prospectus relating to the common
      stock issuable upon exercise of our warrants until the expiration of our
      warrants. However, we cannot assure you that we will be able to do so. If the
      prospectus relating to the common stock issuable upon exercise of the warrants
      is not current or if the common stock is not qualified or exempt from
      qualification in the jurisdictions in which the holders of the warrants reside,
      our warrants may not be exercisable before they expire, and we will not net-cash
      settle the warrants. Thus, our warrants may be deprived of any value. The market
      for our warrants may be limited, and the warrants may expire worthless and
      unredeemed. Even if warrant holders are not able to exercise their warrants
      because there is no current prospectus or the common stock is not qualified
      or
      exempt from qualification in the jurisdictions in which the holders of the
      warrants reside, we can exercise our redemption rights.





***If
      our stockholders who acquired their shares prior to our initial public offering
      exercise their registration rights, it may have an adverse effect on the market
      price of our common stock.***





Our
      stockholders who acquired their shares prior to our initial public offering,
      or
      our initial stockholders, are entitled to demand that we register the resale
      of
      their 1,725,000 shares of common stock owned prior to our initial public
      offering. The holders of the majority of these shares may elect to exercise
      these registration rights at any time after the date on which their shares
      of
      common stock are released from escrow, which will be January 31, 2009. In
      addition, our initial stockholders hold 166,667 shares that they purchased
      in a
      private placement contemporaneously with our initial public offering that are
      now eligible for registration. If all these shares are registered, there will
      be
      an additional 166,667 shares of common stock eligible for trading in the public
      market (and potentially another 333,334 shares of common stock issuable to
      our
      initial stockholders upon exercise of warrants). The presence of this additional
      number of shares of common stock eligible for trading in the public market
      may
      have an adverse effect on the market price of our common stock.




49




**ITEM
      6. EXHIBITS**





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





50


**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:
                November 7, 2007
            By: /s/
                Richard S.
                FooteRichard
                S. Foote
              President
                and Chief Executive Officer
              (Principal
                Executive Officer)







Dated:
                November 7, 2007
            By:
                /s/ R. Bradley
                ForthR.
                Bradley Forth
              Executive
                Vice President, Chief Financial Officer and Secretary
              (Principal
                Financial and Accounting Officer)




51


**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.




52