UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,D.C.20549









FORM
10-Q




(Mark
One)


þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the quarterly period ended December 31, 2008




OR




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: 1-9728











EPOCH
HOLDING CORPORATION


(Exact
name of registrant as specified in its charter)




Delaware
            
            20-1938886(State
      or other jurisdiction
            
            (I.R.S.
      employerof
      incorporation or organization)
            
            identification
      no.)




640
Fifth Avenue, New York, NY 10019


(Address
of principal executive offices)




212-303-7200


(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 Securities Exchange Act of 1934
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   þ   Noo





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,” “accelerated
filer,” “non-accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.





Large
      AcceleratedFilero
            Accelerated
      Filerþ
            Non-Accelerated
      Filero
              (Do
      not check if SmallerReporting
      Company)
            Smaller
      ReportingCompanyo




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





As
of February 5, 2009, there were 22,308,474 shares of the Company's common stock,
$.01 par value per share, outstanding.









EPOCH
HOLDING CORPORATION AND SUBSIDIARIES


FORM 10-Q FOR THE FISCAL QUARTER
ENDED DECEMBER 31, 2008





TABLE OF
CONTENTS




Page
      No.Part I.
              Financial
      InformationItem 1.
              Financial
      Statements.
              2Condensed
      Consolidated Balance Sheets – December 31, 2008 (Unaudited)
      and
              2June 30,
      2008Condensed Consolidated Statements of
      Operations (Unaudited) – Three and Six
              3Months Ended December 31, 2008
      and 2007Condensed
      Consolidated Statements of Changes in Stockholders' Equity – For
      the
              4Year Ended June
      30, 2008 and Six Months Ended December 31, 2008
      (Unaudited)Condensed
      Consolidated Statements of Cash Flows (Unaudited) – Six Months
      Ended
              5December 31, 2008 and
      2007Notes to
      Condensed Consolidated Financial Statements
      (Unaudited)
              6-14Item 2.
              Management's Discussion and
      Analysis of Financial Condition and Results of
              15-32Operations.Item 3.
              Quantitative and Qualitative
      Disclosures About Market Risk.
              33Item 4.
              Controls and
      Procedures.
              34Part II.
              Other
      InformationItem 1.
              Legal
      Proceedings.
              35Item 1a.
              Risk
      Factors.
              35Item 2.
              Unregistered Sales of Equity
      Securities and Use of Proceeds.
              35Item 4.
              Submission of Matters to a Vote
      of Security Holders.
              36Item 6.
              Exhibits.
              37Signature
              
              38




Items
other than those listed above have been omitted because they are not
applicable.




1





PART I.
FINANCIAL INFORMATION


Item 1. Financial
Statements.




EPOCH
HOLDING CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (in
thousands)


December
      31,
              
              
              June
      30,2008
              
              
              2008ASSETS
              
              (Unaudited)Current
      assets:Cash
      and cash equivalents
              
              $
              41,479
              
              
              $
              37,436Accounts
      receivable
              
              
              5,266
              
              
              
              6,391Prepaid
      and other current assets
              
              
              1,347
              
              
              
              926Total
      current assets
              
              
              48,092
              
              
              
              44,753Property
      and equipment (net of accumulated depreciation of $1,580 and $1,369,
      respectively)
              
              
              1,494
              
              
              
              1,689Security
      deposits
              
              
              1,116
              
              
              
              1,104Deferred
      income taxes
              
              
              2,528
              
              
              
              2,844Other
      investments (cost of $3,521 and $4,187, respectively) - (Note 5)
              
              
              2,747
              
              
              
              3,959Total
      assets
              
              $
              55,977
              
              
              $
              54,349LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued liabilities
              
              $
              638
              
              
              $
              884Accrued
      compensation and benefits
              
              
              5,100
              
              
              
              5,630Dividends
      payable - (Note
      13)
              
              
              2,641
              
              
              
              -Income
      taxes payable
              
              
              -
              
              
              
              1,447Total
      current liabilities
              
              
              8,379
              
              
              
              7,961Deferred
      rent
              
              
              771
              
              
              
              813Subtenant
      security deposit
              
              
              232
              
              
              
              230Total
      liabilities
              
              
              9,382
              
              
              
              9,004Commitments
      and contingencies - (Note 6)Stockholders'
      equity:Preferred
      stock - (Note
      7)
              
              
              -
              
              
              
              10Common
      stock
              
              
              222
              
              
              
              203Additional
      paid-in capital
              
              
              54,078
              
              
              
              50,047Retained
      earnings
              
              
              286
              
              
              
              698Unearned
      share-based compensation
              
              
              (5,661
              )
              
              
              (5,302
              )Accumulated
      other comprehensive loss
              
              
              (774
              )
              
              
              (228
              )Treasury
      stock, at cost - (Note
      6)
              
              
              (1,556
              )
              
              
              (83
              )Total
      stockholders' equity
              
              
              46,595
              
              
              
              45,345Total
      liabilities and stockholders' equity
              
              $
              55,977
              
              
              $
              54,349
  The
accompanying notes are an integral part of these condensed consolidated
financial statements.




2
 Table of
Contents




EPOCH
HOLDING CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 (in
thousands, except per share data)




Three
      Months Ended
              
              
              Six
      Months EndedDecember
      31,
              
              
              December
      31,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenues:Investment
      advisory and management fees
              
              $
              6,768
              
              
              $
              8,551
              
              
              $
              15,246
              
              
              $
              16,428Performance
      fees
              
              
              -
              
              
              
              172
              
              
              
              -
              
              
              
              172Total
      revenue
              
              
              6,768
              
              
              
              8,723
              
              
              
              15,246
              
              
              
              16,600Operating
      expenses:Employee
      related costs (excluding share-based compensation)
              
              
              3,887
              
              
              
              4,563
              
              
              
              8,004
              
              
              
              8,812Share-based
      compensation
              
              
              791
              
              
              
              1,029
              
              
              
              2,121
              
              
              
              2,104General,
      administrative and occupancy
              
              
              1,195
              
              
              
              1,342
              
              
              
              2,547
              
              
              
              2,726Professional
      fees and services
              
              
              458
              
              
              
              582
              
              
              
              1,177
              
              
              
              1,339Depreciation
      and amortization
              
              
              105
              
              
              
              107
              
              
              
              211
              
              
              
              211Total
      operating expenses
              
              
              6,436
              
              
              
              7,623
              
              
              
              14,060
              
              
              
              15,192Operating
      income
              
              
              332
              
              
              
              1,100
              
              
              
              1,186
              
              
              
              1,408Other
      income (loss): - (Note 9)Realized
      gains on investments
              
              
              4,424
              
              
              
              2,551
              
              
              
              4,168
              
              
              
              3,417Interest
      and other income
              
              
              251
              
              
              
              545
              
              
              
              542
              
              
              
              1,062Total
      other income
              
              
              4,675
              
              
              
              3,096
              
              
              
              4,710
              
              
              
              4,479Income
      before income taxes
              
              
              5,007
              
              
              
              4,196
              
              
              
              5,896
              
              
              
              5,887Provision
      for income taxes - (Note
      10)
              
              
              2,034
              
              
              
              1,649
              
              
              
              2,340
              
              
              
              1,243Net
      income
              
              
              2,973
              
              
              
              2,547
              
              
              
              3,556
              
              
              
              4,644Preferred
      stock dividends - (Note
      11)
              
              
              -
              
              
              
              (115
              )
              
              
              -
              
              
              
              (230
              )Net
      income available to commonstockholders
      for basic earnings per share
              
              $
              2,973
              
              
              $
              2,432
              
              
              $
              3,556
              
              
              $
              4,414Earnings
      per share: - (Note 11)Basic
              
              $
              0.13
              
              
              $
              0.12
              
              
              $
              0.16
              
              
              $
              0.22Diluted
              
              $
              0.13
              
              
              $
              0.12
              
              
              $
              0.16
              
              
              $
              0.21Weighted
      Average Shares Outstanding:Basic
              
              
              22,066
              
              
              
              20,141
              
              
              
              22,072
              
              
              
              20,096Diluted
              
              
              22,066
              
              
              
              21,849
              
              
              
              22,074
              
              
              
              21,849Cash
      dividends declared per common share
              
              $
              0.15
              
              
              $
              0.025
              
              
              $
              0.18
              
              
              $
              0.025


The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  3
 Table of
Contents




EPOCH
HOLDING CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
 FOR
THE YEAR ENDED JUNE 30, 2008 AND SIX MONTHS ENDED DECEMBER 31, 2008
 (Dollars
and shares in thousands, except per share data)




Preferred
      Stock
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              Retained
              
              
              
              
              
              
              AccumulatedSeries
      A
              
              
              
              
              
              
              
              
              
              
              Additional
              
              
              Earnings
              
              
              Unearned
              
              
              Other
              
              
              
              
              
              
              
              
              
              
              TotalConvertible
              
              
              Common
      Stock
              
              
              Paid-in
              
              
              (Accumulated
              
              
              Share-Based
              
              
              Comprehensive
              
              
              Treasury
      Stock
              
              
              Stockholders'Shares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit)
              
              
              Compensation
              
              
              Income
      (Loss)
              
              
              Shares
              
              
              Amount
              
              
              EquityBalances
      at June 30, 2007
              
              
              10
              
              
              $
              10
              
              
              
              19,935
              
              
              $
              199
              
              
              $
              43,852
              
              
              $
              (6,357
              )
              
              $
              (4,763
              )
              
              $
              2,502
              
              
              
              -
              
              
              $
              -
              
              
              $
              35,443Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,036
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,036Net
      unrealized gains on marketable securities
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              864
              
              
              
              
              
              
              
              
              
              
              
              864Reclassification
      for gains included in net income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,594
              )
              
              
              
              
              
              
              
              
              
              
              (3,594
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,306Issuance
      and forfeitures of restricted common stock
              
              
              
              
              
              
              
              
              
              
              364
              
              
              
              4
              
              
              
              4,711
              
              
              
              -
              
              
              
              (4,380
              )
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              335Amortization
      of unearned share-basedcompensation
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,841
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              3,841Preferred
      stock dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (460
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (460
              )Common
      stock dividends ($0.075 per share)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,521
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,521
              )Income
      tax benefit from dividends paid onunvested
      shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              43
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              43Net
      loss on sales of shares for employee withholding
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (133
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (133
              )Common
      shares repurchased
              
              
              
              
              
              
              
              
              
              
              (9
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9
              
              
              
              (83
              )
              
              
              (83
              )Excess
      income tax benefit from vesting ofrestricted
      shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,574
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,574Balances
      at June 30, 2008
              
              
              10
              
              
              
              10
              
              
              
              20,290
              
              
              
              203
              
              
              
              50,047
              
              
              
              698
              
              
              
              (5,302
              )
              
              
              (228
              )
              
              
              9
              
              
              
              (83
              )
              
              
              45,345Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,556
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,556Net
      unrealized losses on other investments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,100
              )
              
              
              
              
              
              
              
              
              
              
              (1,100
              )Reclassification
      for losses included in net income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              554
              
              
              
              
              
              
              
              
              
              
              
              554Comprehensive
      income -(Note
      12)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,010Issuance
      and forfeitures of restricted common stock
              
              
              
              
              
              
              
              
              
              
              221
              
              
              
              2
              
              
              
              2,478
              
              
              
              -
              
              
              
              (2,379
              )
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              101Amortization
      of unearned share-basedcompensation
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,020
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              2,020Conversion
      of preferred stock - (Note
      7)
              
              
              (10
              )
              
              
              (10
              )
              
              
              1,667
              
              
              
              17
              
              
              
              (7
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Common
      stock dividends ($0.18 per share)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,968
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,968
              )Income
      tax benefit from dividends paid onunvested
      shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              82
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              82Net
      loss on sales of shares for employee withholding
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (218
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (218
              )Common
      shares repurchased
              
              
              
              
              
              
              
              
              
              
              (183
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              183
              
              
              
              (1,473
              )
              
              
              (1,473
              )Excess
      income tax benefit from vesting ofrestricted
      shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,696
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,696Balances
      at December 31, 2008 (unaudited)
              
              
              -
              
              
              $
              -
              
              
              
              21,995
              
              
              $
              222
              
              
              $
              54,078
              
              
              $
              286
              
              
              $
              (5,661
              )
              
              $
              (774
              )
              
              
              192
              
              
              $
              (1,556
              )
              
              $
              46,595




The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  4
 Table of
Contents
  EPOCH
HOLDING CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 (in
thousands)
  Six
      Months EndedDecember
      31,2008
                
                
                2007Cash
      flows from operating activities:Net
      income
                
                $
                3,556
                
                
                $
                4,644Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Deferred
      income taxes
                
                
                316
                
                
                
                (181
                )Share-based
      compensation
                
                
                2,121
                
                
                
                2,104Depreciation
      and amortization
                
                
                211
                
                
                
                211Realized
      gains on investments
                
                
                (4,168
                )
                
                
                (3,417
                )Loss
      from equity method investment
                
                
                126
                
                
                
                -Income
      tax benefit from payment of dividends onunvested
      shares
                
                
                (82
                )
                
                
                (13
                )Excess
      income tax benefit from vesting ofrestricted
      shares
                
                
                (1,696
                )
                
                
                (353
                )Decrease/
      (increase) in operating assets:Accounts
      receivable
                
                
                1,125
                
                
                
                (203
                )Prepaid
      and other current assets
                
                
                (621
                )
                
                
                167(Decrease)/
      increase in operating liabilities:Accounts
      payable and accrued liabilities
                
                
                (246
                )
                
                
                11Accrued
      compensation and benefits
                
                
                (530
                )
                
                
                3,561Income
      taxes payable
                
                
                331
                
                
                
                1,324Deferred
      rent
                
                
                (42
                )
                
                
                (43
                )Net
      cash provided by operating activities
                
                
                401
                
                
                
                7,812Cash
      flows from investing activities:Proceeds
      from other transactions - (Note 9b)
                
                
                4,938
                
                
                
                -Capital
      expenditures
                
                
                (16
                )
                
                
                (56
                )Investments
      in Epoch managed funds andother
      investments, net
                
                
                (30
                )
                
                
                (3,506
                )Security
      deposits, net
                
                
                (10
                )
                
                
                (13
                )Purchases
      and sales of short-term investments, net
                
                
                -
                
                
                
                21,850Proceeds
      from sale of marketable securities
                
                
                -
                
                
                
                4,113Net
      cash provided by investing activities
                
                
                4,882
                
                
                
                22,388Cash
      flows from financing activities:Common
      stock dividends paid
                
                
                (1,327
                )
                
                
                (504
                )Income
      tax benefit from payment of dividends onunvested
      shares
                
                
                82
                
                
                
                13Income
      tax benefit from the vesting ofrestricted
      shares
                
                
                1,696
                
                
                
                353Repurchase
      of common stock
                
                
                (1,473
                )
                
                
                -Net
      loss on sale of shares for employee withholding
                
                
                (218
                )
                
                
                -Preferred
      stock dividends
                
                
                -
                
                
                
                (230
                )Net
      cash used in financing activities
                
                
                (1,240
                )
                
                
                (368
                )Net
      increase in cash and cashequivalents
      during period
                
                
                4,043
                
                
                
                29,832Cash
      and cash equivalents at beginning of period
                
                
                37,436
                
                
                
                3,097Cash
      and cash equivalents at end of period
                
                $
                41,479
                
                
                $
                32,929Supplemental
      Cash Flow Information:Cash
      paid for income taxes
                
                $
                2,230
                
                
                $
                192


The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  5
 Table of
Contents


EPOCH
HOLDING CORPORATION AND SUBSIDIARIES





NOTES TO CONDENSEDCONSOLIDATED FINANCIAL
STATEMENTS


FOR
THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007





(Unaudited)




Note
1 - Organization





Business


Epoch
Holding Corporation ("Epoch" or the "Company"), a Delaware corporation, is a
holding company whose sole line of business is investment advisory and
investment management services. The operations of the Company are conducted
through its wholly-owned subsidiary, Epoch Investment Partners, Inc. ("EIP").
EIP is a registered investment adviser under the Investment Advisers Act of
1940, as amended (the "Investment Advisers Act"). EIP provides investment
advisory and investment management services to retirement plans, mutual funds,
endowments, foundations and high net worth individuals. Headquartered in New
York, NY, the Company’s current product offerings include U.S. All Cap Value,
U.S. Value, U.S. Smid (small/mid) Cap Value, U.S. Small Cap Value, U.S. Choice,
Global Small Cap Value, Global Absolute Return, Global Choice, Global All Cap,
International Small Cap, Balanced, and Global Equity Shareholder
Yield.





Business
segments


The
Company's sole line of business is the investment advisory and investment
management business. There are no other operating or reportable
segments.




Note
2 – Summary of Significant Accounting Policies





Basis
of presentation


The
unaudited condensed consolidated financial statements of the Company included
herein have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”), and in accordance with the
instructions to Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”). In the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial condition and interim results of operations
have been made. The results for the interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year.




The
Company's unaudited condensed consolidated financial statements and the related
notes should be read together with the consolidated financial statements and the
related notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2008.





Certain
reclassifications have been made to prior period financial statements to conform
to the current period presentation.





Principles
of consolidation


The
accompanying condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.





Use
of estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions. These estimates and assumptions impact the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the dates of these condensed consolidated financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from these estimates.




Financial
instruments with concentration of credit risk


The
financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash, cash equivalents and other investments.
Epoch invests its cash and cash equivalents with high-credit quality financial
institutions in amounts which, at times, may be in excess of the FDIC insurance
limits.





Cash
equivalents


Cash
equivalents are highly liquid investments in money market funds consisting of
short-term securities of the U.S. government and its agencies.




6
 Table of
Contents




Property
and equipment


The costs
of leasehold improvements are capitalized and such costs are amortized on a
straight-line basis over the shorter of their estimated useful lives or lease
term, as applicable. All other capital assets are recorded at cost and such
costs are depreciated on a straight-line basis over their estimated useful
lives. Generally, the useful lives are approximately 3 to 7 years for equipment,
1 to 3 years for purchased software, and 3 to 10 years for leasehold
improvements and exclude option periods, if any. Repairs and maintenance costs
are charged to expense as incurred. Upon sale or disposition of property and
equipment, the cost and related accumulated depreciation amounts are removed
from the accounts and any resulting gain or loss is recognized in
operations.





Other
investments


The
Company holds investments in three Company-sponsored mutual funds—the Epoch
Global Equity Shareholder Yield Fund (“EPSYX”), the Epoch U.S. All Cap Equity
Fund (“EPACX”), and the Epoch International Small Cap Fund (“EPIEX”). The
Company also holds investments in the Epoch Global Absolute Return Fund, LLC and
in a separate account of Epoch’s Global All Cap product. The Company intends to
hold these investments for a period in excess of one
year.





The
investments in the Company-sponsored mutual funds and the separate account of
Epoch's Global All Cap product are accounted for as available-for-sale
securities. Any resulting change in market value is recorded as unrealized gain
or loss in Accumulated other comprehensive income (loss), a
separate component of stockholders’ equity.




EIP is
also the managing member of the Epoch Global Absolute Return Fund, LLC whose
underlying assets consist of marketable securities. The Company's investment in
this entity is accounted for using the equity method, under which EIP's share of
the net earnings or losses from the limited liability company is reflected in
Other income, as earned, and any distributions are reflected as reductions
from the investment.





The
Company periodically reviews the carrying value of these investments for
impairment by evaluating the nature, duration and extent of any decline in fair
value.  If the decline in value is determined to be other-than-temporary,
the carrying value of the investment is written down to fair value through
earnings. No impairment charges have been recognized during the periods
presented.





Treasury
stock


Treasury
stock is accounted for under the cost method.





Revenue
recognition


Investment
advisory and management fees are recognized as services are provided, pursuant
to specific terms contained in advisory or sub-advisory contracts between EIP
and its clients. Such contracts generally call for revenue to be determined as a
percentage of assets under management (“AUM”). Separate account fees are billed
on a quarterly basis, in arrears, generally based on the account's asset value
at the end of the quarter. Fees for services performed for mutual funds under
advisory and sub-advisory contracts are calculated based upon the daily net
asset values of the respective fund, and are generally received in arrears.
Advance payments, if received, are deferred and recognized during the periods
for which services are provided.





The
Company also has certain contracts which contain “incentive clauses” that allow
the Company to earn performance fees in the event that investment returns meet
or exceed targeted amounts specified in the contracts. Revenues for these
incentives are recognized only when such performance targets are met or exceeded
at the end of the contract's year, typically at the end of each calendar year -
the Company’s second fiscal quarter. Due to the inability to forecast financial
markets, no revenues are recognized until the contract year ends, even when
investment returns exceed the contractual targets within the contract
year.





Share-based
compensation


Employee
and qualifying director share-based payments are accounted for in accordance
with Statement of Financial Accounting Standards No. 123 (Revised 2004),Share-Based Compensation
(“SFAS 123R”), using the fair value method. The fair value of the Company's
restricted stock awards is based on the closing price of the Company's common
stock at the grant date. Share-based compensation costs related to equity
instruments are charged against income ratably over the fixed vesting period for
the related equity instruments, with the initial charge generally recorded in
the first full month following the grant.





All
outstanding stock options were fully vested prior to the adoption of SFAS 123R,
accordingly there were no additional compensation costs related to any
non-vested stock options required to be recorded at that time. There were no
stock options issued for the periods presented.




Income
taxes


The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standard No. 109,Accounting for Income Taxes (“SFAS 109”). SFAS 109 requires that deferred
tax assets and liabilities arising from temporary differences between book and
tax basis be recognized using the enacted statutory tax rates and laws that will
be in effect when such differences are expected to reverse. Deferred tax assets
are recognized for temporary differences that will result in deductible amounts
in future years. Deferred tax liabilities are recognized for temporary
differences that will result in taxable income in future years. In the case
of deferred tax assets, SFAS 109 requires a reduction in deferred tax assets if
it is more likely than not that some portion or all of the deferred tax asset
will not be realized.




7
 Table of
Contents





Any
potential interest and penalty associated with a tax contingency, should one
arise, would be included as a component of income tax expense in the period in
which the assessment arises.





Earnings
per common share


Basic
earnings per share (“EPS”) is calculated by dividing net earnings applicable to
common shareholders by the weighted average number of common shares outstanding
during the period. Diluted EPS includes the determinants of basic EPS and, in
addition, reflects the dilutive effect, if any, of the common stock deliverable
pursuant to stock options or, for the prior year’s fiscal periods presented, the
common stock issuable upon the conversion of the convertible preferred
stock.





Comprehensive
income


Total
comprehensive income is reported on the Condensed Consolidated Statement of
Changes in Stockholders’ Equity and includes net income and, for investment
securities available-for-sale, the change in unrealized gains (losses) and the
reclassification of realized gains (losses) to net income.





Recently
issued accounting standards


In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157,Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value and enhances disclosures about fair value measurements required under
other accounting pronouncements, but does not change existing guidance as to
whether or not an instrument is carried at fair value. SFAS 157 was effective
for the Company beginning July 1, 2008. SFAS 157 establishes a fair value
hierarchy, which requires an entity to maximize the use of observable inputs and
to minimize the use of unobservable inputs when measuring fair value. The
adoption of SFAS 157 did not have a material effect on the Company’s
consolidated financial position, results of operations, or cash
flows.





In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits certain
financial assets and financial liabilities to be measured at fair value, using
an instrument-by-instrument election. The initial effect of adopting SFAS 159
must be accounted for as a cumulative effect adjustment to opening retained
earnings for the fiscal year of adoption. Retrospective application to fiscal
years preceding the effective date is not permitted. SFAS 159 was effective for
the Company beginning July 1, 2008. The adoption of SFAS 159 did not have a
material effect on the Company’s consolidated financial position, results of
operations, or cash flows.





In March
2008, the FASB issued SFAS No. 161,Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133 (“SFAS 161”), which requires enhanced disclosures about an entity’s
derivative and hedging activities. SFAS 161 is effective for the Company
beginning July 1, 2009. The Company does not currently engage in hedging or
derivative transactions and, accordingly, does not expect the adoption of this
pronouncement to have a material effect on the Company’s consolidated financial
position, results of operations, or cash flows.





In June
2008, the FASB issued FASB Staff Position (“FSP”) EITF No. 03-6-1,Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.
FSP EITF No. 03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and therefore need to
be included in the earnings allocation in calculating earnings per share under
the two-class method described in SFAS No. 128,Earnings per Share. FSP EITF
No. 03-6-1 requires companies to treat unvested share-based payment awards that
have non-forfeitable rights to dividends or dividend equivalents as a separate
class of securities in calculating earnings per share. FSP EITF No. 03-6-1 is
effective for the Company beginning July 1, 2009; earlier application is not
permitted. The Company does not expect the adoption of FSP EITF No. 03-6-1 to
have a material effect on its consolidated financial position, results of
operations or earnings per share.





In
October 2008, the FASB issued FSP 157-3,Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active. FSP 157-3
does not reinterpret or change SFAS 157’s existing principles but rather is
intended to enhance comparability and consistency in fair value measurements of
financial assets that trade in markets that are inactive. FSP 157-3 primarily
re-asserts that when the market is inactive, management is not required to use
thinly traded quotes or quotes reflecting distressed prices. Rather, management
should look to other means to estimate fair value, such as the “income
approach,” which discounts the estimated cash flows and results in a Level 3
(see Note 3) classification because the inputs are not observable. Revisions
resulting from a change in the valuation technique or its application shall be
accounted for as a change in accounting estimate. FSP 157-3 was effective
immediately upon issuance. The Company does not currently own such investment
instruments and, as such, the adoption of this pronouncement had no effect on
its consolidated financial position, results of operations, or cash flows.




8
 Table of
Contents





Note 3 – Fair Value
Measurements




As
discussed in Note 2, the Company adopted SFAS No. 157 at the beginning of its
fiscal year commencing July 1, 2008. SFAS No. 157 establishes a three-level
valuation hierarchy for disclosure of fair value measurements. The valuation
hierarchy is based upon the transparency of inputs to the valuation of an asset
or liability as of the measurement date. The three levels are defined as
follows:





·
            Level
      1 – inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.





·
            Level
      2 – inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.





·
            Level
      3 – inputs to the valuation methodology are unobservable and significant
      to the fair value measurement.





An asset
or liability’s categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in
active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3).





SFAS No.
157 allows three types of valuation approaches: a market approach, which uses
observable prices and other relevant information that is generated by market
transactions involving identical or comparable assets or liabilities; an income
approach, which uses valuation techniques to convert future amounts to a single,
discounted present value amount; and a cost approach, which is based on the
amount that currently would be required to replace the service capacity of an
asset.




The
following is a description of the valuation methodologies used for assets and
liabilities measured at fair value, as well as the general classification of
such assets and liabilities pursuant to the valuation hierarchy.




Cash
and cash equivalents


Cash and
cash equivalents include cash in checking and money market accounts, as well as
highly liquid investments in money market funds consisting of short-term
securities of the U.S. government and its agencies. Cash and cash equivalents
totaled $41.5 million at December 31, 2008. Investments in money market funds
are valued under the market approach through the use of quoted market prices in
an active market, which is the net asset value of the shares held in the
underlying funds.




Security
deposits


Security
deposits are funds held in certificates of deposit as required by the lessors of
the Company’s leased office premises. These instruments totaled $1.1 million at
December 31, 2008. These investments mature, and are renewed, in one year
intervals, and accordingly are valued at cost plus accrued interest, which
approximates fair value.




Other
investments


Other
investments consist of investments in Company-sponsored investment vehicles,
including mutual funds, an investment product separate account, and a limited
liability company.





The first
two investments mentioned above are accounted for as available-for-sale
investments and valued under the market approach through the use of unadjusted
quoted market prices available in an active market and are classified within
Level 1 of the valuation hierarchy. The fair market value of these two
investments at December 31, 2008 totals $2.4 million.





The
remaining investment, an investment in the Epoch Global Absolute Return Fund,
LLC is accounted for under the equity method, whereby the Company records its
percentage share of realized and unrealized earnings or losses. Accordingly,
SFAS 157 does not apply to this investment.




9
 Table of
Contents




The
following table presents, for each of the hierarchy levels previously described,
the Company’s assets that are measured at fair value as of December 31, 2008
(in
thousands):




Quoted
      Prices inActive
      Markets for
              
              
              Significant
      Other
              
              
              SignificantIdentical
      Assets
              
              
              Observable
      Inputs
              
              
              Unobservable
      InputsTotal
              
              
              (Level
      1)
              
              
              (Level
      2)
              
              
              (Level
      3)Current
      assets:Cash
      and cash equivalents
              
              $
              41,479
              
              
              $
              41,479
              
              
              $
              -
              
              
              $
              -Non-current
      assets:Security
      deposits
              
              
              1,116
              
              
              
              1,116
              
              
              
              -
              
              
              
              -Other
      investments:Available-for-sale
              
              
              2,396
              
              
              
              2,396
              
              
              
              -
              
              
              
              -Total
      assets at fair value
              
              $
              44,991
              
              
              $
              44,991
              
              
              $
              -
              
              
              $
              -




At
December 31, 2008, the Company did not hold any financial liabilities measured
at fair value.





Note
4 - Accounts Receivable





The
Company's accounts receivable balances do not include an allowance for doubtful
accounts for the periods presented and there have been no bad debt expenses
recognized during the three and six months ended December 31, 2008 and 2007,
respectively. Management believes these receivables are fully
collectible.




Significant
customers and contracts


For the
three months ended December 31, 2008, CI Investments Inc. (“CI”), a
Canadian-owned investment management company, accounted for approximately
13% of consolidated revenues, while Genworth Financial Asset Management, Inc.
(“Genworth”), an investment adviser, through its investments in the
Epoch International Small Cap Fund (“EPIEX”) and the Epoch Global Equity
Shareholder Yield Fund (“EPSYX”), as well as separate account mandates,
accounted for approximately 14%. The Company's services and relationships with
these clients are important to the Company's ongoing growth strategy, and
retention of these clients is significant to the ongoing results of operations
of the Company.  For the six months ended December 31, 2008, CI
accounted for approximately 14% of consolidated revenues, while Genworth
accounted for approximately 17% of consolidated revenues.





For the
three months ended December 31, 2007, CI accounted for approximately 16% of
consolidated revenues, while Genworth accounted for approximately 26%. For the
six months ended December 31, 2007, CI accounted for approximately 17% of
consolidated revenues, while Genworth accounted for approximately
27%.





Note
5 – Other Investments





The
Company’s Other investments at December 31, 2008 and June 30, 2008 are
summarized as follows (in thousands)


December
      31, 2008
                
                
                June
      30, 2008Gross
                
                
                Gross
                
                
                Estimated
                
                
                
                
                
                Gross
                
                
                Gross
                
                
                EstimatedCost
                
                
                Unrealized
                
                
                Unrealized
                
                
                Fair
                
                
                Cost
                
                
                Unrealized
                
                
                Unrealized
                
                
                FairBasis
                
                
                Gains
                
                
                Losses
                
                
                Value
                
                
                Basis
                
                
                Gains
                
                
                Losses
                
                
                ValueAvailable-for-sale
      securities:Other
      Investments:Company-sponsored
      mutual funds
                
                $
                846
                
                
                $
                -
                
                
                $
                (359
                )
                
                $
                487
                
                
                $
                830
                
                
                $
                -
                
                
                $
                (97
                )
                
                $
                733Epoch
      Global All Cap separate account
                
                
                2,324
                
                
                
                32
                
                
                
                (447
                )
                
                
                1,909
                
                
                
                2,879
                
                
                
                156
                
                
                
                (287
                )
                
                
                2,748Total
      available-for-sale securities
                
                
                3,170
                
                
                
                32
                
                
                
                (806
                )
                
                
                2,396
                
                
                
                3,709
                
                
                
                156
                
                
                
                (384
                )
                
                
                3,481Equity
      method investment:Epoch
      Global Absolute Return Fund, LLC
                
                
                351
                
                
                
                -
                
                
                
                -
                
                
                
                351
                
                
                
                478
                
                
                
                -
                
                
                
                -
                
                
                
                478$
                3,521
                
                
                $
                32
                
                
                $
                (806
                )
                
                $
                2,747
                
                
                $
                4,187
                
                
                $
                156
                
                
                $
                (384
                )
                
                $
                3,959


10
 Table of
Contents




Note
6 - Commitments and Contingencies





Employment
agreements


The
Company entered into a three-year employment agreement with its Chief Executive
Officer in November 2007, effective January 1, 2008. The agreement calls for a
base annual salary of $350 thousand and bonus compensation in accordance with
the Company’s bonus and incentive compensation plans then in effect. The
agreement also calls for certain payments in the event of termination. The
payments could vary depending on the cause of termination and whether or not the
Board of Directors elects to enforce a non-compete agreement. The agreement was
reviewed and approved by the Company's Compensation Committee and the Board of
Directors.





There are
no employment contracts with any other employees or officers of the Company.
There are written agreements with certain employees, which provide for sales
commissions or bonuses, subject to the attainment of certain performance
criteria or continuation of employment. Such commitments under the various
agreements total approximately $1.2 million at December 31, 2008. Of this
amount, approximately $0.7 million is included in accrued compensation and
benefits in the Condensed Consolidated Balance Sheet at December 31, 2008. An
additional $0.1 million will be accrued during the remainder of the fiscal year
ending June 30, 2009 and shortly thereafter. Approximately $0.4 million
represents restricted stock awards to be issued during the remainder of the
fiscal year ending June 30, 2009 and shortly thereafter.





Legal
matters


From time
to time, the Company or its subsidiaries may become parties to claims, legal
actions and complaints arising in the ordinary course of business. Management is
not aware of any matters which would have a material adverse effect on its
consolidated financial statements.





Common
Stock Repurchase Plan


On June
24, 2008, the Board of Directors approved the repurchase of up to a maximum of
250,000 shares, or just over 1%, of the Company’s fully diluted outstanding
Common Stock. The repurchase plan calls for the repurchases to be made in the
open market and/or in privately negotiated transactions from time to time in
compliance with applicable laws, rules and regulations, including Rule 10b-18
under the Securities Exchange Act of 1934, as amended, subject to prevailing
market and business conditions. The plan does not obligate the Company to
purchase any particular number of shares, and may be suspended or discontinued
at any time. The repurchase plan will expire on June 30, 2009.





For the
three months ended December 31, 2008, the Company repurchased 117,401 shares at
a weighted average price of $7.48. For the six months ended December 31, 2008,
the Company repurchased 181,301 shares at a weighted average price of $8.01. All
shares repurchased are shown as Treasury stock at cost, in the Shareholders’
equity section of the Condensed Consolidated Balance Sheet.





Employee
Tax Withholding


To
satisfy statutory employee tax withholding requirements related to the vesting
of common shares, the Company purchases from employees, and then resells in the
open market, shares utilized by employees to cover and pay for employee tax
withholdings. At December 31, 2008, there were 2,259 shares held to be resold by
the Company in the open market. These shares are shown as Treasury stock at cost
in the Shareholders’ equity section of the Condensed Consolidated Balance Sheet.
Any resulting gain or loss on resale is accounted for as an adjustment to
Additional paid-in capital.





Note
7 – Conversion of Preferred Stock





On July
1, 2008, the holder of the 10,000 shares of Series A Convertible Preferred Stock
(“the Preferred Stock”) outstanding, with a face value of $10,000,000, converted
the Preferred Stock to 1,666,667 shares of Common Stock. Accordingly, the Series
A Convertible Preferred Stock has been cancelled and the conversion eliminated
the holder’s rights to receive the semi-annual dividends on the Preferred
Stock.





Note
8 – Share-Based Compensation





The
Company granted $0.4 million and $0.3 million in share-based compensation awards
during the three months ended December 31, 2008 and 2007, respectively. For the
three months ended December 31, 2008, a total of 40,370 shares were granted at a
weighted average price of $9.26. For the three months ended December 31,
2007, a total of 18,761 shares were granted at a weighted average price of
$13.91.





The
Company granted $3.0 million and $2.5 million in share-based compensation awards
during the six months ended December 31, 2008 and 2007, respectively. For the
six months ended December 31, 2008, a total of 276,933 shares were granted at a
weighted average price of $10.79. For the six months ended December 31,
2007, a total of 207,038 shares were granted at a weighted average price of
$12.08.




11
 Table of
Contents




Employee
share awards are recognized over a three-year period, while director awards
are recognized over a one-year period, both in conjunction with their
respective vesting periods. Neither employee nor director share awards are
subject to performance-based accelerated vesting.





Note
9 - Other Income





a)eStara
transaction


During
the fiscal year ended June 30, 2000, J Net Enterprises, Inc. (“J Net”), the
predecessor company to Epoch, made an investment in eStara, Inc. ("eStara"), a
technology-related company that provided conversion and tracking solutions to
enhance on-line sales. During the fiscal year ended June 30, 2003, J Net’s
management concluded its ability to recover its investment was remote and wrote
down the remaining carrying value to zero. On October 2, 2006, eStara’s
stockholders approved the acquisition of its stock by Art Technology Group, Inc.
(NASDAQ ticker symbol “ARTG”). Under the terms of the agreement, ARTG acquired
all of the outstanding common stock, preferred stock, and vested and unvested
stock options of eStara.





In
exchange for the eStara preferred shares held, the Company received 2,431,577
common shares of ARTG and $267 thousand in cash. The common shares received
from ARTG were subject to a lock-up agreement pursuant to which the shares were
released to the Company in equal monthly installments over a period of
12 months, which commenced January 2007.





During
the three and six months ended December 31, 2007, the Company sold approximately
0.8 and 1.2  million shares of ARTG, respectively, and recorded
realized gains of approximately $2.1 and $3.0 million, respectively. Upon sale,
these gains were reclassified, in accordance with the provisions of SFAS No.
115,Accounting for Certain
Investments in Debt and Equity Securities, from Accumulated other
comprehensive income (loss), a separate component of stockholders’ equity, to
Realized gains on investments on the Condensed Consolidated Statement of
Operations. All of the remaining shares of ARTG were sold before the end of
fiscal year ended June 30, 2008.





b) Strategic Data
Corporation transaction


During
the fiscal year ended June 30, 2000, J Net, the predecessor company to Epoch,
made an investment in Strategic Data Corp. ("SDC"), a technology-related company
that specialized in advertising optimization technology. During the fiscal year
ended June 30, 2001, the carrying value of this investment was deemed to be
impaired by J Net’s management and written down to zero.




On
February 20, 2007, SDC’s stockholders approved the acquisition of its stock by
Fox Interactive Media, Inc. (“FIM”). Under the terms of the agreement, FIM
acquired all of the outstanding common stock, preferred stock, and vested and
unvested stock options of SDC. As a result of the merger, the Company, as a
holder of preferred stock of SDC, received an initial cash payment of
approximately $2.2 million on March 22, 2007.





The SDC
merger also called for contingent payments, upon the achievement of certain
targets and milestones, payable over a period of approximately 3.5 years from
the closing, as well as the release of an escrow fund. The Company’s share of
additional contingent payments and escrow funds stemming from the acquisition,
based upon the merger agreement, ranged from zero to approximately $15.4
million.





The first
target measurement date was November 2007 and the Company accrued $344 thousand
at that time. The Company received those proceeds during the quarter ended March
31, 2008. The second target measurement date was June 2008 and the Company
accrued an additional $200 thousand at that time, the proceeds of which were
received during the quarter ended September 30, 2008.





The
merger agreement was subsequently amended during the quarter ended December 31,
2008 to provide for a final settlement of all contingent payments by December
31, 2008.  As such, additional payments totaling $4.7 million were
received in December 2008. These payments represent the final contingent
payments and are included in Realized gains on investments on the condensed
consolidated statements of operations for the three and six months ended
December 31, 2008. No further payments are expected.





Note
10 - Provision For Income Taxes





In
calculating the provision for income taxes, the Company uses an estimate of the
annual effective tax rate based upon the facts and circumstances known at each
interim period. On a quarterly basis, the actual effective tax rate is adjusted,
as appropriate, based upon current facts and circumstances, if any, as compared
to those forecasted at the beginning of the fiscal year and each interim period
thereafter.





Valuation
allowance release


The
Company maintains valuation allowances against certain deferred tax assets, the
benefit of which may not be utilized. The Company reviews its deferred tax asset
valuation allowances on a quarterly basis, or whenever events or changes in
circumstances indicate that a review is required. In determining the requirement
for a valuation allowance, the historical and projected financial results of the
Company is considered, along with any other positive or negative evidence. Since
future financial results may differ from previous estimates, periodic
adjustments to the Company’s valuation allowances may be necessary.




In the
quarter ended September 30, 2007, based on the Company’s annual operating
projections and the significant gains realized on sales of marketable
securities, the Company concluded that it was more likely than not that the tax
benefits from its tax basis on a previously impaired investment would be
utilized in the future. As such, in the quarter ended September 30, 2007, the
Company released the entire valuation allowance of approximately $1.1 million
attributable to this fully valued deferred tax asset, the tax effect of
which was a credit to income tax expense. The effect of this
valuation allowance release, together with the use of a projected annual
effective tax rate, resulted in a net benefit from income taxes of approximately
$0.4 million for the six months ended December 31,
2007.




12
 Table of
Contents





Note
11 – Earnings Per Share





Basic
earnings per share is computed by dividing net earnings by the weighted average
number of common shares outstanding during the period.





Diluted
earnings per share is computed by dividing net earnings, adjusted for the effect
of dilutive securities, by the weighted average number of common and common
equivalent shares outstanding during the period. The Company had 1,035,000
issued and outstanding stock options at December 31, 2008 and 2007,
respectively. The calculation of earnings per share excluded 1,035,000 and
960,000 issued and outstanding stock options for the three and six months
ended December 31, 2008, respectively, as the exercise price of these
options was higher than the average market price of the common stock for the
respective period. The conversion of those particular options, whose exercise
price was higher than the average market price of the common stock during the
respective period, would have an anti-dilutive effect.





For the
three months ended December 31, 2007, the calculation of earnings per share
excluded 500,000 issued and outstanding stock options as the exercise price of
these options was higher than the average market price of the common stock for
the period.





For the
three and six months ended December 31, 2007, the 1,666,667 shares of common
stock issuable upon conversion of the preferred stock had no effect on basic
earnings per share, but was included in the calculation of diluted earnings
per share. The preferred stock was converted into 1,666,667 common shares on
July 1, 2008 which were, accordingly, included in the basic earnings per share
calculation for the three and six months ended December 31, 2008.




The
following table presents the computation of basic and diluted earnings per share
for the three and six months ended December 31, 2008 and 2007, respectively
(in thousands, except per
share data):





Three
      Months Ended
                December
      31,
              
              
              Six
      Months EndedDecember
      31,2008
              
              
              2007
              
              
              2008
              
              
              2007Numerator:Net
      income available to common stockholders:Net
      income
              
              $
              2,973
              
              
              $
              2,547
              
              
              $
              3,556
              
              
              $
              4,644Preferred
      stock dividends
              
              
              -
              
              
              
              (115
              )
              
              
              -
              
              
              
              (230
              )Net
      income available to common stockholdersfor
      basic earnings per share
              
              
              2,973
              
              
              
              2,432
              
              
              
              3,556
              
              
              
              4,414Preferred
      stock dividends
              
              
              -
              
              
              
              115
              
              
              
              -
              
              
              
              230Net
      income available to common stockholdersafter
      assumed conversions, for diluted earnings per share
              
              $
              2,973
              
              
              $
              2,547
              
              
              $
              3,556
              
              
              $
              4,644Denominator:Average
      common shares outstanding
              
              
              22,066
              
              
              
              20,141
              
              
              
              22,072
              
              
              
              20,096Common
      stock equivalents upon conversion of preferred stock
              
              
              -
              
              
              
              1,667
              
              
              
              -
              
              
              
              1,667Net
      common stock equivalents assuming the exercise ofin-the-money
      stock options
              
              
              -
              
              
              
              41
              
              
              
              2
              
              
              
              86Average
      common and common equivalent shares outstanding -assuming
      dilution
              
              
              22,066
              
              
              
              21,849
              
              
              
              22,074
              
              
              
              21,849Basic
      earnings per share
              
              $
              0.13
              
              
              $
              0.12
              
              
              $
              0.16
              
              
              $
              0.22Diluted
      earnings per share
              
              $
              0.13
              
              
              $
              0.12
              
              
              $
              0.16
              
              
              $
              0.21




13
 Table of
Contents




Note 12 – Comprehensive
Income





A summary
of comprehensive income is as follows (in thousands):





Three
      Months Ended
              
              
              Six
      Months Ended2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      income
              
              $
              2,973
              
              
              $
              2,547
              
              
              $
              3,556
              
              
              $
              4,644Other
      comprehensive income:Change
      in unrealized (losses) gains on available-for-sale
    securities
              
              
              (528
              )
              
              
              831
              
              
              
              (1,100
              )
              
              
              1,346Reclassification
      of realized losses (gains) to net income
              
              
              297
              
              
              
              (2,207
              )
              
              
              554
              
              
              
              (3,073
              )Comprehensive
      income
              
              $
              2,742
              
              
              $
              1,171
              
              
              $
              3,010
              
              
              $
              2,917




Note
13 – Special Cash Dividend





On
December 19, 2008, the Board of Directors declared a special cash dividend of
$0.12 per share on the Company’s common stock. The dividend was payable on
January 15, 2009 to all shareholders of record at the close of business on
December 31, 2008.  The aggregate dividend payment totaled
approximately $2.6 million.





Note
14 - Subsequent Events





Common
dividends


On
January 15, 2009, the Board of Directors declared a quarterly cash dividend on
the Company's Common Stock of $0.03 per share payable on February 20, 2009 to
all shareholders of record at the close of business on February 5,
2009.




The
Company expects regular quarterly cash dividends to be paid in February, May,
August and November of each fiscal year, and anticipates a total annual dividend
of $0.12 per common share. However, the actual declaration of future cash
dividends, and the establishment of record and payment dates, will be subject to
final determination by the Board of Directors each quarter after its review of
the Company's financial performance.





Share
repurchases


Subsequent
to December 31, 2008, the Company repurchased an additional 6,600 shares at a
weighted average price of $7.56 pursuant to the share buy-back
program.





Share-
based compensation


On
January 30, 2009 the Company issued 336,753 restricted stock awards to employees
of the Company, pursuant to the Company’s 2004 Omnibus Long-Term Incentive
Compensation Plan. Recipients of the restricted awards were immediately vested
in 12.5% of the total shares received. The remaining 87.5% of unvested shares
will vest over the next three years, subject to the recipients remaining as
employees of the Company. Issuance of these awards will result in total stock
compensation expense of $2.1 million over the vesting period, assuming no
forfeitures.





Additionally,
the Company issued 630,060 stock options to employees of the Company, pursuant
to the Company’s 2004 Omnibus Long-Term Incentive Compensation Plan. These stock
options vest ratably over three years and have a term of seven years. The
options have an exercise price of $6.17. However, upon vesting, the options are
exercisable only if the volume weighted average price of the Company’s common
stock equals or exceeds $9.25 for a period of at least 20 trading days. Issuance
of these awards will result in total stock compensation expense of approximately
$1.2 million over the vesting period, assuming no forfeitures.





*****




14
 Table of
Contents




Item
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations.





Set forth
on the following pages is management's discussion and analysis of our financial
condition and results of operations for the three and six months ended December
31, 2008 and 2007. Such information should be read in conjunction with our
unaudited condensed consolidated financial statements together with the notes to
the unaudited condensed consolidated financial statements. When we use the terms
the “Company,” “management,” “we,” “us,” and “our,” we mean Epoch Holding
Corporation, a Delaware corporation, and its consolidated
subsidiaries.




Forward-Looking
Statements





Certain
information included, or incorporated by reference in this Quarterly Report on
Form 10-Q and other materials filed or to be filed by Epoch
Holding Corporation (“Epoch" or the “Company") with the Securities and
Exchange Commission (“SEC") contain statements that may be considered
forward-looking within the meaning of the Private Securities Litigation Reform
Act of 1995. In some cases, you can identify these statements by forward-looking
words such as “may," “might," “will," “should," “expect," “plan," “anticipate,"
“believe," “estimate," “predict," “potential" or “continue," and the negative of
these terms and other comparable terminology. These forward-looking statements,
which are subject to known and unknown risks, uncertainties and assumptions
about the Company, may include projections of the Company's future financial
performance based on the Company's anticipated growth strategies and trends in
the Company's business. These statements are only predictions based on the
Company's current expectations and projections about future events. There are
important factors that could cause the Company's actual results, level of
activity, performance or achievements to differ materially from the results,
level of activity, performance or achievements expressed or implied by the
forward-looking statements. In particular, you should consider the risks and
uncertainties outlined in “Factors Which May Affect Future
Results.”





These
risks and uncertainties are not exhaustive. Other sections of this Quarterly
Report on Form 10-Q may include additional factors which could adversely impact
the Company's business and financial performance. Moreover, the Company operates
in a very competitive and rapidly changing environment. New risks and
uncertainties emerge from time to time, and it is not possible for the Company's
management to predict all risks and uncertainties, nor can the Company assess
the impact of all factors on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.





Although
the Company believes the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, level of
activity, performance or achievements. Moreover, neither the Company nor any
other person assumes responsibility for the accuracy or completeness of any of
these forward-looking statements. You should not rely upon forward-looking
statements as predictions of future events. The Company is under no duty to
update any of these forward-looking statements after the date of this Quarterly
Report on Form 10-Q, nor to conform the Company's prior statements to actual
results or revised expectations, and the Company does not intend to do
so.





Forward-looking
statements include, but are not limited to, statements about the
Company’s:




·
            business
      strategies and investment policies,





·
            possible
      or assumed future results of operations and operating cash
      flows,





·
            competitive
      position,





·
            potential
      growth opportunities,




·
            recruitment
      and retention of the Company's key
employees,





·
            expectations
      with respect to the economy, securities markets, the market for mergers
      and acquisitions activity, the market for asset management activity and
      other industry trends,




·
            potential
      operating performance, achievements, productivity improvements, efficiency
      and cost reduction efforts,




·
            expected
      tax rate, and·
            effect
      from the impact of future legislation and regulation on the
      Company.




15
 Table of
Contents




Available
Information





Reports
the Company files electronically with the SEC via the SEC’s Electronic Data
Gathering, Analysis and Retrieval system (“EDGAR”) may be accessed through the
internet. The SEC maintains an internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC, atwww.sec.gov.




The
Company maintains a website which contains current information on operations and
other matters. The website address iswww.eipny.com. Through the
Investor Relations section of our website, and “Link to SEC Website” therein, we
make available, free of charge, our Proxy Statement, Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC.





Also
available free of charge on our website within the Investors Relations section
is our Code of Ethics and Business Conduct and charters for the Audit,
Nominating/Corporate Governance, and the Compensation committees of our board of
directors.





Factors
Which May Affect Future Results





There are
numerous risks which may affect the results of operations of the Company.
Factors which could affect the Company's success include, but are not limited
to, the ability to attract and retain clients, performance of the financial
markets and invested assets managed by the Company, retention of key employees,
misappropriation of assets and information by employees, system failures,
significant changes in regulations, the costs of compliance associated with
existing regulations and the penalties associated with non-compliance, and the
risks associated with the loss of key members of the management
team.





In
addition, the Company's ability to expand or alter its product offerings,
whether through acquisitions or internal development is critical to its
long-term success and has inherent risks. This success is dependent on the
ability to identify and fund those products or acquisitions on terms which are
favorable to the Company. There can be no assurance that any of these operating
factors or acquisitions can be achieved or, if undertaken, they will be
successful.




These and
other risks related to our Company are discussed in greater detail under Part I,
Item 1A. “Risk Factors” in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2008.





Critical
Accounting Estimates and Policies





Our
significant accounting policies are described in Note 2 of the Notes to the
Consolidated Financial Statements included in our Annual Report on Form 10-K for
the fiscal year ended June 30, 2008. The Company's Critical Accounting Estimates
and Policies have not changed from those reported in Management's Discussion and
Analysis of Financial Condition and Results of Operations in the
Company's Form 10-K for the fiscal year ended June 30,
2008.





Overview





The
Company, through its operating subsidiary Epoch Investment Partners, Inc.
(“EIP”), provides investment advisory and investment management services to its
clients primarily through separately managed accounts and commingled vehicles,
such as mutual funds and private investment funds. The overall investment
philosophy is focused on achieving a superior risk-adjusted return by investing
in companies that generate free cash flow and are undervalued relative to the
investment team’s fair value determinations. Security selection and portfolio
construction are designed to protect capital in declining markets while
participating in rising markets.





EIP is a
registered investment adviser under the Investment Advisers Act of 1940, as
amended (the “Investment Advisors Act”). It has one line of business, and that
is to manage investment assets for retirement plans, mutual funds, endowments,
foundations, and high net worth individuals. Revenues are generally derived as a
percentage of assets under management (“AUM”). Therefore, among other factors,
revenues are dependent on (i) performance of financial markets, (ii) the ability
to maintain existing clients, and (iii) changes in the composition of AUM. The
management team is led by William W. Priest. Mr. Priest has over 40 years of
experience in the investment advisory business.




16
 Table of
Contents




Financial
and Business Highlights









Financial
and business highlights for the quarter ended December 31, 2008 are as
follows:





ØThe Company experienced
net AUM inflows of approximately $450 million, despite a difficult market
environment. Management believes this positive result is reflective of the
confidence our new and existing clients have in the integrity of our investment
process, the product performance, and experience of our
professionals.





ØUpon its three year
anniversary, the Epoch Global Equity Shareholder Yield Fund  (“EPSYX”)
received an initial Morningstar rating of 5 stars.  In addition, the
Epoch U.S. All Cap Equity Fund (“EPACX”) and the Epoch International Small Cap
Fund (“EPIEX”) each have Morningstar ratings of 4 stars.




ØThe Company launched
the Epoch U.S. Large Cap Equity Fund in December 2008.





ØAlthough operating
leverage weakened as a result of significant weakness in global financial
markets, the Company continued to achieve positive operating results. Given the
recent market environment, the Company continues to monitor and assess its
operating costs and their alignment with business strategy.





ØEarnings per share for
the quarter ended December 31, 2008 were $0.13, up 8% from the same period a
year ago, as pre-tax income increased by approximately 19%. This was primarily
the result of a final contingent payment of $4.7 million from the Strategic Data
Corporation transaction.





ØCorporate liquidity
continued to strengthen. Cash balances increased to $41.5 million, or 74% of
total assets, as of December 31, 2008. Working capital increased to $39.7
million. The Company’s current ratio of 5.7 as of December 31, 2008 is well
above industry average.





ØIn addition to paying a
quarterly cash dividend of $0.03 per share, the Board of Directors declared a
special cash dividend of $0.12 per share during the quarter.





ØPursuant to its Common
Stock Repurchase Plan, the Company repurchased approximately 117 thousand shares
during the three months ended December 31, 2008.  As of December 31,
2008 the Company has repurchased approximately 190 thousand shares in
total.





Three
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Operating
      income
              
              $
              332
              
              
              $
              1,100
              
              
              $
              (768
              )
              
              
              (70
              )%Operating
      margin
              
              
              5
              %
              
              
              13
              %


Operating
margins weakened compared with the same period a year ago. The main driver of
this was the decrease in revenue, stemming from a lower level of AUM throughout
the quarter. The Company finished the quarter ended December 31, 2008 with AUM
of $5.3 billion, a 20% decrease from AUM of $6.7 billion at December 31,
2007.  The primary cause for this decrease was a significant decline
in global equity markets from the prior year, primarily in the quarter ending
December 31, 2008.  Global equity markets declined approximately
35-40% during the calendar year ended December 31, 2008, and more than 20% in
the quarter ended December 31, 2008.





The
Company’s AUM decrease during the quarter ended December 31, 2008 was only
12% compared with the previous quarter ended September 30, 2008 as a result of
net AUM inflows from new accounts and continuing net cash flows into existing
accounts, which offset some of the market decline.  New business
mandates included the Company’s first institutional clients in Japan, Australia
and France; the launch of a new U.S. Large Cap mutual fund, seeded by one of the
largest financial institutions in the U.S.; and our first Taft-Hartley
account.




17
 Table of
Contents





The
Company implemented several steps for cost control and cost reductions during
the quarter ended December 31, 2008. Operating expenses declined by
approximately $1.2 million, or 16%, in the current quarter compared with the
same quarter a year ago.




Three
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Net
      income
              
              $
              2,973
              
              
              $
              2,547
              
              
              $
              426
              
              
              
              17
              %





Although
operating income decreased by $0.8 million from the same quarter a year ago, the
Company recorded an increase in net income of $0.4 million. The primary reason
for this increase was gains realized from the final contingent payment from the
Strategic Data transaction. This was partly offset by realized losses on
investments due to the global equity market decline, as well as lower
interest income as interest rates continued to fall during the current
period.




Business
Environment





As an
investment management and advisory firm, our results of operations can be
directly impacted by global market, political, and economic trends. The business
environment is influenced by several factors, including business profitability,
investor confidence, unemployment, and financial market transparency. These
factors can directly affect capital appreciation or depreciation, which in turn,
impacts our investment advisory and management business.





Overall
economic activity continued to weaken across the country and throughout the
world during the quarter ended December 31, 2008. Retail sales were
generally weak throughout the quarter, particularly during the holiday
season. Lending activity continued to decline or remain weak, as credit
conditions remained tight or tightened further. The rate of unemployment
continued to increase, reaching 7.2% by the end of the quarter, the highest
level in 16 years. Oil and commodity prices declined and capacity utilization
decreased. The Federal Reserve and foreign central banks and governments around
the world continued to provide additional liquidity and stability to the
financial markets to try to mitigate the negative economic impact related to the
credit markets.





In
addition to considerably worsened economic conditions,  the landscape
of the U.S. financial services industry changed dramatically during the period.
There were several bank failures. The Federal Reserve announced enhancements to
its programs to provide additional liquidity to the asset-backed commercial
paper and money markets, and indicated that it plans to purchase from primary
dealers short-term debt obligations issued by Fannie Mae, Freddie Mac and the
Federal Home Loan Banks. The U.S. Treasury proposed a plan to buy
mortgage-related, illiquid and other troubled assets from U.S. financial
institutions and the Emergency Economic Stabilization Act of 2008 was enacted.
The Federal Reserve, while working in unison with several foreign central banks,
lowered both the benchmark interest rate and the discount rate to nearly 0%
during the month of December, and it continues to consult frequently with its
global central bank counterparts.





During
the quarter, stocks around the globe endured a period of remarkable volatility
and posted one of their biggest down quarters on record. In all, U.S. and global
markets declined by approximately 20% during the quarter ended December 31,
2008. In particular, the Dow Jones Industrial Average(1),
NASDAQ Composite Index(2) and
the S&P 500(3)decreased
during the quarter ended December 31, 2008, assuming dividend reinvestment, by
19%, 22% and 24%, respectively. On a broad basis, developed global markets, as
represented by the MSCI World index(4),
decreased by 21.6%.





(1)           Dow
Jones Industrial Average is a trademark of Dow Jones & Company, which is not
affiliated with Epoch..


(2) NASDAQ
Composite Index is a trademark of the NASDAQ Stock Market, Inc., which is not
affiliated with Epoch..
 (3) S&P
500 is a trademark of Standard & Poor’s, a division of the McGraw-Hill
Companies, Inc., which is not affiliated with Epoch.
 (4)           MSCI
World Index is a trademark of MSCI Inc., which is not affiliated with
Epoch.




Company
impact and outlook


While the
sharp sell-off in the equity markets impacted overall assets under management by
nearly $1.2 billion during the quarter, the Company continued to achieve
positive net inflows of approximately $450 million, a significant achievement in
this turbulent market. While the quarter was challenging to all investors, the
Company believes that its investment strategies, which emphasize a free cash
flow analytical approach to the evaluation of equities, should continue to
produce superior returns at a lower risk for our clients. The Company believes
that free cash flow will be the analytical tool of choice because share price
performance will depend on which companies show operational efficiencies, have
capital expense under control and can properly manage their cash flow at a time
when lending to fund growth or operations has tightened. The emphasis on cash
flow analysis has become increasingly relevant, as the use of accounting
measures alone has proven to inadequately capture issues surrounding the
financial condition of many companies, particularly in the financial
sector.




18
 Table of
Contents





The
continued erosion of market conditions and impact on AUM may put pressure on the
Company’s operating margin. The Company continues to monitor and assess its
operating costs and their alignment with business strategy.




Assets
Under Management and Flows (“AUM”)




The
following table sets forth the changes in our AUM for the periods presented
(dollars in millions):




Three
      Months Ended
              
              
              Six
      Months EndedDecember
      31,
              
              
              December
      31,2008
              
              
              2007
              
              
              2008
              
              
              2007Beginning
      of period assets
              
              $
              6,085
              
              
              $
              6,426
              
              
              $
              6,634
              
              
              $
              6,001Net
      inflows
              
              
              444
              
              
              
              329
              
              
              
              654
              
              
              
              600Market
      (depreciation)/ appreciation
              
              
              (1,181
              )
              
              
              (73
              )
              
              
              (1,940
              )
              
              
              81End
      of period assets
              
              $
              5,348
              
              
              $
              6,682
              
              
              $
              5,348
              
              
              $
              6,682





For both
the three months ended December 31, 2008 and 2007, approximately 55%, of
investment advisory and management fees were earned from services to mutual
funds under advisory and sub-advisory contracts whose fees are calculated based
upon daily net asset values, and approximately 45%, of fees were earned from
services provided for separate accounts whose fees are calculated based upon
asset values at the end of the quarter.





No
material impact to revenues or operating results arose during the periods
presented as a result of differences between the average daily AUM for the funds
where our fees are calculated based upon daily net asset values and the
quarter-ending AUM for those funds.




The
charts on the following page show the Company's products as a percentage of AUM
as of December 31, 2008 and 2007, respectively:




19
 Table of
Contents














20
 Table of
Contents





The table
and charts that follow set forth the amount of AUM by distribution
channel:





Assets
      Under Management By Distribution Channel(dollars
      in millions)As
      of December 31,
              
              
              ChangeDistribution
      Channel:
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Institutional
              
              $
              2,770
              
              
              $
              3,285
              
              
              $
              (515
              )
              
              
              (15.7
              )%Sub-advised
              
              
              2,350
              
              
              
              3,081
              
              
              
              (731
              )
              
              
              (23.7
              )%High
      net worth
              
              
              228
              
              
              
              316
              
              
              
              (88
              )
              
              
              (27.8
              )%Total
      AUM
              
              $
              5,348
              
              
              $
              6,682
              
              
              $
              (1,334
              )
              
              
              (19.9
              )%
 
 21
 Table of
Contents















22
 Table of
Contents




Results
of operations - three months ended December 31, 2008 and 2007





For the
three months ended December 31, 2008, the Company recorded net income of $3.0
million, an increase of $0.4 million from the same period a year ago. Basic
earnings per share were $0.13 per share for the three months ended December 31,
2008, compared to $0.12 per share for the same period a year ago.





The
primary factors were as follows:





ØTotal operating
expenses decreased by $1.2 million, or 16%, during the three months ended
December 31, 2008 compared with the same period a year ago. While all expenses
declined during the current period, the decline in employee related costs,
particularly incentive compensation, was the primary reason for this overall
change.





ØOther income increased
by $1.6 million in the current quarter compared with the same period a year ago.
The gain from the final contingent payment of the Strategic Data
Corporation transaction was the main contributor of this increase.





ØOffsetting these
increases in net income was a $2.0 million decline in operating revenues. This
decrease was driven by the significant decline in the global equity markets, and
its related impact on AUM, partially offset by net inflows from new and existing
clients.




Three
      Months EndedDecember
      31,
                
                
                Change(Dollars
      in thousands)
                
                2008
                
                
                2007
                
                
                $
                
                
                
                %RevenuesInvestment
      advisory and management fees
                
                $
                6,768
                
                
                $
                8,551
                
                
                $
                (1,783
                )
                
                
                (21
                )%Performance
      fees
                
                
                -
                
                
                
                172
                
                
                
                (172
                )
                
                
                (100
                )%Total
      operating revenues
                
                $
                6,768
                
                
                $
                8,723
                
                
                $
                (1,955
                )
                
                
                (22
                )%


The
decrease in revenues was attributable to the decrease in AUM compared with the
same period a year ago. This was primarily the result of the significant global
equity market decline of approximately 35 – 40% from a year ago, partly offset
by net AUM inflows from new and existing clients of $0.4 billion during the
three months ended December 31, 2008 and over $1.1 billion since December 31,
2007.





For the
three months ended December 31, 2008, CI Investments Inc. (“CI”), a
Canadian-owned investment management company, accounted for approximately 13% of
revenues, while Genworth Financial Asset Management, Inc. (“Genworth”),
an investment adviser, through its investments in the Epoch
International Small Cap Fund (“EPIEX”) and the Epoch Global Equity Shareholder
Yield Fund (“EPSYX”), as well as separate account mandates, accounted for
approximately 14% of revenues.





For the
three months ended December 31, 2007, CI accounted for approximately 16% of
revenues, while Genworth accounted for approximately 26% of
revenues.





Three
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Employee
      related costs (excluding share-based
      compensation)
              
              $
              3,887
              
              
              $
              4,563
              
              
              $
              (676
              )
              
              
              (15
              )%As
      a percent of total revenue
              
              
              57
              %
              
              
              52
              %




23
 Table of
Contents




Expenses
in this category include salaries, benefits, severance, incentive compensation,
signing bonuses and commission expenses. These expenses declined from the same
period a year ago, primarily as a result of a reduction in incentive
compensation.





Three
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Share-based
      compensation
              
              $
              791
              
              
              $
              1,029
              
              
              $
              (238
              )
              
              
              (23
              )%As
      a percent of total revenue
              
              
              12
              %
              
              
              12
              %





The
Company believes that share-based compensation promotes unity in the workplace
and a common objective with shareholders. Employee share-based compensation
expense is recognized as follows: 12.5% immediately, and the remaining 87.5%
ratably over the three-year vesting period of those awards.





The
decrease in share-based compensation was primarily the result of share
forfeitures during the three months ended December 31, 2008. Shared-based
compensation expense is expected to increase during the next quarterly
period.





In the
three months ended December 31, 2008 and 2007, a total of 40,370 and 18,761
shares of restricted stock, respectively, were issued to employees. A total of
5,047 and 2,345 shares of the awards issued in the three months ended
December 31, 2008 and 2007, respectively, or approximately 12.5%, were
immediately vested. The remaining 87.5% of the shares vest ratably over the
subsequent three years. During the three months ended December 31, 2008 and
2007, a total of 57,168 and 0 shares, respectively, were forfeited by terminated
employees.




During
the three months ended December 31, 2008 and December 31, 2007,no shares were granted
to directors of the Company. Share grants to directors generally transpire in
the quarter ended September 30. All director stock awards vest over one year.
Director share-based compensation expense is recognized ratably over the
respective vesting period, in accordance with the underlying vesting
provisions.




Three
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %General,
      administrative and occupancy
              
              $
              1,195
              
              
              $
              1,342
              
              
              $
              (147
              )
              
              
              (11
              )%As
      a percent of total revenue
              
              
              18
              %
              
              
              15
              %


These
expenses consist primarily of office rents, as well as expenses for travel and
entertainment, advertising and marketing, information technology, utilities, and
other office related expenses. Decreases in travel-related expenses as a result
of the Company’s cost control efforts were the main reason for the decrease in
general, administrative and occupancy costs.




24
 Table of
Contents


Three
      Months EndedDecember
      31,
                
                
                Change(Dollars
      in thousands)
                
                2008
                
                
                2007
                
                
                $
                
                
                
                %Professional
      fees and services
                
                $
                458
                
                
                $
                582
                
                
                $
                (124
                )
                
                
                (21
                )%As
      a percent of total revenue
                
                
                7
                %
                
                
                7
                %


These
expenses consist primarily of outside legal fees for general corporate legal
affairs, independent accountants' fees, consulting fees, and other professional
services. A decrease in legal costs was the primary cause of the decline in
professional fees and services. The prior period included certain legal expenses
incurred in the origination of new investment vehicles. A decrease in
professional tax related services and a decrease in employee placement fees also
contributed to the decline in professional fees from the same period a year
ago.


Three
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Other
      income
              
              $
              4,675
              
              
              $
              3,096
              
              
              $
              1,579
              
              
              
              51
              %


Other
income includes interest income, dividend income, realized gains and losses on
investments, and rental income from subleased office space in New York. The
prior year period included realized gains of $2.1 million from the sales of
marketable securities, realized gains of $0.3 million from the Strategic Data
Corporation transaction, and approximately $0.4 million of interest income. The
current period includes realized gains of $4.7 million from the Strategic Data
Corporation transaction, losses on investments of approximately $0.3 million,
and approximately $0.2 million of interest income. Lower interest rates during
the current quarter caused interest income to decline when compared to amounts
for the same period a year ago.




Three
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Provision
      for income taxes
              
              $
              2,034
              
              
              $
              1,649
              
              
              $
              385
              
              
              
              23
              %Effective
      income tax rate
              
              
              40.6
              %
              
              
              39.3
              %





In
calculating the provision for income taxes, the Company uses an estimate of the
annual effective tax rate based upon the facts and circumstances known at each
interim period. On a quarterly basis, the effective tax rate is adjusted, as
appropriate, based upon current facts and circumstances, if any, as compared to
those forecasted at the beginning of the fiscal year and each interim period
thereafter.






Results
of operations - six months ended December 31, 2008 and 2007





For the
six months ended December 31, 2008, the Company recorded net income of $3.6
million, a decrease of $1.1 million from the same period a year ago. Basic
earnings per share were $0.16 per share for the six months ended December 31,
2008, compared with $0.22 per share for the same period a year ago.





The
primary factors were as follows:





ØOperating revenues
declined by $1.4 million. This decrease was driven by the significant decline in
the global equity markets and a corresponding decrease in AUM, partially offset
by net inflows of nearly $0.7 billion during the six months ended December 31,
2008.





ØProvision for income
taxes increased by $1.1 million. The comparable period a year ago included the
release of a $1.1 million tax valuation allowance, the tax benefit of which was
$0.4 million.





ØOffsetting these
decreases to net income was a decline in total operating expenses by $1.1
million, or 7%, during the six months ended December 31, 2008. While virtually
all expenses declined during the current period, it was the decline in employee
incentive compensation that was the primary reason for this overall
change.




25
 Table of
Contents


Six
      Months EndedDecember
      31,
                
                
                Change(Dollars
      in thousands)
                
                2008
                
                
                2007
                
                
                $
                
                
                
                %Operating
      income
                
                $
                1,186
                
                
                $
                1,408
                
                
                $
                (222
                )
                
                
                (16
                )%Operating
      margin
                
                
                8
                %
                
                
                8
                %





While
operating income decreased by $0.2 million, operating margins remained virtually
unchanged during the six months ended December 31, 2008 compared with the same
period a year ago. Decreases in operating revenue as a result of the weakness in
financial markets previously discussed in the three month analysis, were offset
by decreases in operating expenses, most notably in employee compensation, as
reductions in incentive compensation caused employee compensation expenses
to decrease by 9%.




Six
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Net
      income
              
              $
              3,556
              
              
              $
              4,644
              
              
              $
              (1,088
              )
              
              
              (23
              )%


Although
income before income taxes was virtually unchanged for the six months ended
December 31, 2008 when compared with the same period a year ago, net income
declined. The reason for the decline is a direct result of an increase in the
provision for income taxes by approximately $1.1 million. A release of a
valuation allowance against a deferred tax asset contributed in the prior
year, the tax effect of which was $0.4 million, was the main reason for the
increase.





Six
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %RevenuesInvestment
      advisory and management fees
              
              $
              15,246
              
              
              $
              16,428
              
              
              $
              (1,182
              )
              
              
              (7
              )%Performance
      fees
              
              
              -
              
              
              
              172
              
              
              
              (172
              )
              
              
              (100
              )%Total
      operating revenues
              
              $
              15,246
              
              
              $
              16,600
              
              
              $
              (1,354
              )
              
              
              (8
              )%


The
decrease in revenues was attributable to lower levels in AUM during the six
months ended December 31, 2008 compared with the same period a year ago. This
was primarily the result of the significant global equity market decline of
approximately 35-40% from a year ago, partially offset by net AUM inflows from
new and existing clients of nearly $0.7 billion during the six months ended
December 31, 2008 and over $1.1 billion since December 31, 2007.





For the
six months ended December 31, 2008, CI accounted for approximately 14% of
revenues, while Genworth, accounted for approximately 17% of
revenues.





For the
six months ended December 31, 2007, CI accounted for approximately 17% of
revenues, while Genworth accounted for approximately 27% of
revenues.





Six
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Employee
      related costs (excluding share-based
      compensation)
              
              $
              8,004
              
              
              $
              8,812
              
              
              $
              (808
              )
              
              
              (9
              )%As
      a percent of total revenue
              
              
              52
              %
              
              
              53
              %


These
expenses declined from the same period a year ago, primarily as a result of a
reduction in incentive compensation.




Six
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Share-based
      compensation
              
              $
              2,121
              
              
              $
              2,104
              
              
              $
              17
              
              
              
              1
              %As
      a percent of total revenue
              
              
              14
              %
              
              
              13
              %


Share-based
compensation expense for the six months ended December 31, 2008 was virtually
unchanged from the same period a year ago.





In the
six months ended December 31, 2008 and 2007, a total of 238,313 and 171,434
shares of restricted stock, respectively, were issued to employees. A total of
29,789 and 21,430 shares of the awards issued in the six months ended December
31, 2008 and 2007, respectively, or approximately 12.5%, were immediately
vested. The remaining 87.5% of the shares vest ratably over the subsequent three
years. During the six months ended December 31, 2008 and 2007, a total of 57,168
and 1,449 shares, respectively, were forfeited by terminated
employees.




26
 Table of
Contents





During
the six months ended December 31, 2008 and December 31, 2007,38,620 and 35,604 shares
of restricted stock, respectively, were granted to directors of the Company. All
director stock awards vest over one year. Director share-based compensation
expense is recognized ratably over the respective vesting period, in accordance
with the underlying vesting provisions.





Six
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %General,
      administrative and occupancy
              
              $
              2,547
              
              
              $
              2,726
              
              
              $
              (179
              )
              
              
              (7
              )%As
      a percent of total revenue
              
              
              17
              %
              
              
              16
              %


Decreases
in travel related expenses, as a result of cost control efforts, were the main
reason for the decrease in general, administrative and occupancy
costs.




Six
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Professional
      fees and services
              
              $
              1,177
              
              
              $
              1,339
              
              
              $
              (162
              )
              
              
              (12
              )%As
      a percent of total revenue
              
              
              8
              %
              
              
              8
              %


A
decrease in legal costs was the primary cause of the decline in professional
fees and services. The prior period includes certain legal expenses incurred in
the origination of new investment vehicles. A decrease in employee placement
fees also contributed to the overall decline from the same period a year
ago.





Six
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Other
      income
              
              $
              4,710
              
              
              $
              4,479
              
              
              $
              231
              
              
              
              5
              %


The prior
year period included realized gains of $3.0 million from the sales of marketable
securities, realized gains of $0.3 million from the Strategic Data Corporation
transaction, and approximately $0.8 million of interest income. The current
period includes realized gains of $4.7 million from the Strategic Data
Corporation transaction, losses on investments of $0.6 million, and
approximately $0.4 million of interest income. Lower interest rates during the
six months ended December 31, 2008 caused interest income to decline compared to
amounts for the same period a year ago.





Six
      Months EndedDecember
      31,
              
              
              Change(Dollars
      in thousands)
              
              2008
              
              
              2007
              
              
              $
              
              
              
              %Provision
      for income taxes
              
              $
              2,340
              
              
              $
              1,243
              
              
              $
              1,097
              
              
              
              88
              %Effective
      income tax rate
              
              
              39.7
              %
              
              
              21.1
              %


In
calculating the provision for income taxes, the Company uses an estimate of the
annual effective tax rate based upon the facts and circumstances known at each
interim period. On a quarterly basis, the effective tax rate is adjusted, as
appropriate, based upon current facts and circumstances, if any, as compared to
those forecasted at the beginning of the fiscal year and each interim period
thereafter.





The
comparable period a year ago included the release of a tax valuation allowance,
the tax benefit of which was $0.4 million.




27
 Table of
Contents




Liquidity and Capital
Resources




The
Company’s operating cash flows are primarily influenced by the timing and
receipt of investment management fees, and the payment of operating expenses,
including incentive compensation to employees. Investment management fees are
generally collected within 90 days of billing. The Company traditionally has
paid cash incentive compensation during the first three months following the
fiscal year to certain senior executives, and to other employees during the
first three months following the calendar year. Prospectively, the Company will
pay incentive compensation to all employees during the first three months
following the calendar year, beginning with the next fiscal quarter ending March
31, 2009, incorporating a six month stub period for the senior
executives.
  Investing
cash flows are principally influenced by activities to acquire property and
equipment and re-investment of earnings from investments in Company-sponsored
products.
  Financing
activities are predominately influenced by the payment of common stock dividends
and repurchase of the Company’s common stock.  The Company generally
makes dividend payments on its common stock on a quarterly basis.


Sources of
Liquidity


Sources
of funds for the Company's operations are derived from investment advisory and
investment management fees, interest on the Company's cash and cash equivalents,
and sublease income. As of December 31, 2008, the Company had $46.7 million of
liquid assets, or approximately 84% of total assets which consist of cash and
cash equivalents and accounts receivable to fund its business growth strategy.
Given the availability of these funds, the Company does not maintain or
anticipate a need for an external source of liquidity.




At
December 31, 2008, accounts payable and accrued liabilities, which consist of
accrued professional fees, trade payables and other liabilities, were $0.6
million. Accrued compensation and benefits, which consist primarily of accrued
incentive compensation, were $5.1 million. The decrease in accrued incentive
compensation stems from the reduction in AUM caused by the global equity
market decline.





There was
no debt and management does not foresee any reason to incur debt unless a
significant business opportunity warrants such action. The Company's business
does not require it to maintain significant capital balances. Management
believes that the sources of liquidity described above will be sufficient to
meet the Company’s operating needs for the foreseeable future and will enable it
to continue to implement its growth objectives.





A summary
of cash flow data for the six months ended December 31, 2008 and 2007,
respectively, is as follows(in thousands):





Six
      Months EndedDecember
      31,2008
              
              
              2007Cash
      flows provided by (used in) :Operating
      activities
              
              $
              401
              
              
              $
              7,812Investing
      activities
              
              
              4,882
              
              
              
              22,388Financing
      activities
              
              
              (1,240
              )
              
              
              (368
              )Net
      increase in cash and cash equivalents
              
              
              4,043
              
              
              
              29,832Cash
      and cash equivalents at beginning of year
              
              
              37,436
              
              
              
              3,097Cash
      and cash equivalents at end of the period
              
              $
              41,479
              
              
              $
              32,929Percent
      of total assets
              
              
              74
              %
              
              
              68
              %


Cash
Flows from Operating Activities





Cash
flows from operating activities decreased $7.4 million in the six months ended
December 31, 2008 when compared with the same period a year ago. This decrease
was due to the timing differences in the cash settlement of assets and
liabilities, particularly the payment of accrued compensation and income
taxes.





Cash
Flows from Investing Activities





Cash
flows from investing activities decreased by $17.5 million in the six months
ended December 31, 2008 when compared with the same period a year ago. Prior
year investing activities included $21.9 million of proceeds from the sale of
short-term investments as well as $4.1 million of proceeds from the sale of
shares of marketable securities. During August and September 2007, in response
to increasing credit quality concerns present in the fixed income securities
market, the Company liquidated all of its short-term investments. Proceeds from
these liquidations were then invested in cash and cash equivalents. No gains or
losses were realized from these liquidations.





During
the six months ended December 31, 2008, the Company received $4.9 million
representing the final installment payments under the Strategic Data
Transaction.





Cash
Flows from Financing Activities





Cash
flows from financing activities decreased by $0.9 million in the six months
ended December 31, 2008 compared with the same period a year ago. Included in
this change was the payment of common stock dividends, as well as share
buy-backs during the six months ended December 31, 2008, offset by the
recognition of excess tax benefits on share-based compensation. The Company
initiated the payment of common stock dividends in the quarter ended December
31, 2007 and the share buy-back program in June 2008.




28
 Table of
Contents





When a
restricted stock award vests, the market price on the date the stock
vests to the employee may be higher than the original grant-date fair
market value of the award. If so, the difference between the cumulative amount
that has been recognized through the Condensed Consolidated Statements of
Operations and the vesting amount results in an excess tax benefit. Excess tax
benefits reduce income taxes payable and increase additional paid-in capital in
the period they are recognized, and are reflected as a financing activity
on the Statements of Cash Flows. Excess tax benefits recognized during the six
months ended December 31, 2008 and 2007 were approximately $1.7 million and $0.4
million, respectively.








Working
Capital





The
Company's working capital and current ratio (current assets divided by current
liabilities) for the six months ended December 31, 2008 and recent fiscal year
ended June 30, 2008 is set forth in the table below (in thousands ):




December
      31,
              
              
              June
      30,
              
              
              Increase/
              
              
              Percent2008
              
              
              2008
              
              
              (Decrease)
              
              
              ChangeCurrent
      Assets
              
              $
              48,092
              
              
              $
              44,753
              
              
              $
              3,339
              
              
              
              7
              %Current
      Liabilities
              
              
              8,379
              
              
              
              7,961
              
              
              
              418
              
              
              
              5
              %Working
      Capital
              
              $
              39,713
              
              
              $
              36,792
              
              
              $
              2,921
              
              
              
              8
              %Current
      Ratio
              
              
              5.7
              
              
              
              5.6
              
              
              
              0.1
              
              
              
              2
              %





Preferred
Stock Dividends





As a
result of the November 7, 2006 preferred stock issuance, the Company began
paying semi-annual dividends on newly issued Series A Convertible Preferred
Stock (“the Preferred Stock”), payable December 31 and June 30 of each year. The
semi-annual dividend payments were approximately $230 thousand, each June and
December.





On July
1, 2008, the holder of the 10,000 shares of the Preferred Stock outstanding,
with a face value of $10,000,000, converted the Preferred Stock to 1,666,667
shares of Common Stock. Accordingly, the Series A Convertible Preferred Stock
has been cancelled and the conversion eliminates the holder’s rights to receive
the semi-annual dividends on the Preferred Stock.





Quarterly
Common Stock Dividends





The
Company commenced declaring and paying a quarterly cash dividend on its common
stock in the quarter ended December 31, 2007.





On July
9, 2008, the Board of Directors declared a 20% increase in the quarterly per
share dividend rate on the Company’s Common Stock, from $0.025 per share to
$0.03 per share.





Quarterly
dividends were paid in August and November 2008.





On
January 15, 2009, the Board of Directors declared a quarterly cash dividend
payable on February 20, 2009 to all shareholders of record at the close of
business on February 5, 2009.




29
 Table of
Contents





The
Company expects regular quarterly cash dividends going forward to be paid in
February, May, August and November of each fiscal year, and anticipates a total
annual dividend of $0.12 per common share. However, the actual declaration of
future cash dividends, and the establishment of record and payment dates, will
be subject to final determination by the Board of Directors each quarter after
its review of the Company's financial performance, as well as general business
conditions, capital requirements, and any contractual, legal and regulatory
restrictions.





Special
Common Stock Dividend





As a
result of the Company’s strong cash position and debt free balance sheet, the
Board of Directors declared a special cash dividend on December 19, 2008 of
$0.12 per share. The dividend was paid on January 15, 2009 to all shareholders
of record at the close of business on December 31, 2008. The aggregate dividend
payment totaled approximately $2.6 million.




This
dividend represents a small portion of the Company’s cash balances, the
remainder of which will be maintained to achieve key business objectives in
growing our business, and provide a reserve for any unstable economic
conditions.




Common
Stock Repurchase Plan





On June
24, 2008, the Board of Directors approved the repurchase of up to a maximum of
250,000 shares, or just over 1%, of the Company’s fully diluted outstanding
Common Stock. The repurchase plan calls for the repurchases to be made in the
open market and/or in privately negotiated transactions from time to time in
compliance with applicable laws, rules and regulations, including Rule 10b-18
under the Securities Exchange Act of 1934, as amended, subject to prevailing
market and business conditions. The plan does not obligate the Company to
purchase any particular number of shares, and may be suspended or discontinued
at any time. The repurchase plan will expire on June 30, 2009.





During
the three months ended December 31, 2008, the Company repurchased 117,401 shares
at a weighted average price of $7.48. For the six months ended December 31,
2008, the Company repurchased 181,301 shares at a weighted average price of
$8.01.




Contractual
Obligations





The
Company's primary headquarters and operations are located in New York, New York.
Business is conducted at a location with approximately 13,000 square feet under
a long-term lease that expires in September 2015.





The
Company is also the primary party to another lease in New York, New York with
approximately 8,500 square feet, which expires in November 2010. In January
2002, a sublease agreement was executed with an unrelated third party for this
property. While the Company remains responsible under terms of the original
lease, the subtenant has assumed those responsibilities and is performing its
obligations under the sublease agreement. Proceeds from the sublease, net of
profit sharing with the landlord, more than offset the Company’s obligations
under this lease.





The
subtenant has performed its obligations under the sublease agreement and the
Company is not aware of any credit issues with the subtenant. As of December 31,
2008, the remaining future minimum payments under this lease total $0.9 million.
Future minimum receipts from the subtenant, net of profit sharing with the
landlord, slightly exceed $1.0 million as of December 31, 2008.





During
December 2008, in an effort to consolidate marketing efforts and reduce costs,
the Company closed its 2-employee marketing office in Sherman Oaks, California.
The office lease at the California location expired in January
2009.





The
Company entered into a three-year employment agreement with its Chief Executive
Officer in November 2007, effective January 1, 2008. The agreement calls for a
base annual salary of $350 thousand and bonus compensation in accordance with
the Company’s bonus and incentive compensation plans then in effect. The
agreement also calls for certain payments in the event of termination. The
payments could vary depending on the cause of termination and whether or not the
Board of Directors elects to enforce a non-compete agreement. The agreement was
reviewed and approved by the Company's Compensation Committee and the Board of
Directors.




30
 Table of
Contents




Summary of Contractual
Obligations





The
following table summarizes all contractual obligations, including the
aforementioned office leases (in thousands):




Payments
      Due inFiscal
      Years Ended June 30,RemainingPayments
      in
              
              
              
              
              
              
              
              
              2014
      and2009
              
              
              
              2010-2011
              
              
              
              2012-2013
              
              
              thereafter
              
              
              TotalPrimary
      New York operations
              
              $
              488
              
              
              $
              1,680
              
              
              $
              1,434
              
              
              $
              1,613
              
              
              $
              5,215Subleased
      New York lease
              
              
              240
              
              
              
              681
              
              
              
              -
              
              
              
              -
              
              
              
              921Other
      operating leases
              
              
              28
              
              
              
              54
              
              
              
              10
              
              
              
              -
              
              
              
              92Total
      obligations
              
              
              756
              
              
              
              2,415
              
              
              
              1,444
              
              
              
              1,613
              
              
              
              6,228Sublease
      income
              
              
              (287
              )
              
              
              (669
              )
              
              
              -
              
              
              
              -
              
              
              
              (956
              )Net
      obligations
              
              $
              469
              
              
              $
              1,746
              
              
              $
              1,444
              
              
              $
              1,613
              
              
              $
              5,272





Off-Balance
Sheet Arrangements





As of
December 31, 2008 the Company had no off-balance sheet
arrangements.





Significant
Transactions





eStara
transaction


The
Company previously held an investment in eStara, Inc. (“eStara”). In October
2006, eStara’s stockholders approved the acquisition of its stock by Art
Technology Group, Inc. (NASDAQ ticker symbol “ARTG”). Under the terms of the
agreement, ARTG acquired all of the outstanding securities of eStara., in
exchange for shares in ARTG.





During
the three and six months ended December 31, 2007, the Company sold shares of
ARTG, and recorded realized gains of approximately $2.1 and $3.0 million,
respectively. Upon sale, these gains were reclassified, in accordance with the
provisions of SFAS No. 115,Accounting for Certain Investments in Debt and Equity Securities, from
Accumulated other comprehensive income (loss), a separate component of
stockholders’ equity, to Realized gains on investments on the Condensed
Consolidated Statement of Operations. All of the remaining shares of ARTG were
sold before the end of fiscal year ended June 30, 2008.





See Note
9a of the condensed consolidated financial statements for further details of the
eStara transaction.





Strategic
Data Corporation transaction


The
Company previously held an investment Strategic Data Corporation
(“SDC”).  In February 2007, SDC’s stockholders approved the
acquisition of its stock by Fox Interactive Media, Inc. (“FIM”). Under the terms
of the agreement, FIM acquired all of the outstanding securities of
SDC.





The SDC
merger called for contingent payments, upon the achievement of certain targets
and milestones. The first target measurement date was November 2007 and the
Company accrued approximately $344 thousand at that time. The second target
measurement date was June 2008 and the Company accrued an additional $200
thousand, the proceeds of which were received during the quarter ended September
30, 2008.





The
merger agreement was subsequently amended during the quarter ended December 31,
2008 to provide for a final settlement of all contingent payments.  As
such, additional payments totaling $4.7 million were received in December 2008.
These payments represent the final contingent payments and are included in
Realized gains on investments on the Condensed Consolidated Statements of
Operations for the three and six months ended December 31, 2008. No further
payments are expected.





See Note
9b of the condensed consolidated financial statements for further details of the
Strategic Data Corporation transaction.




31
 Table of
Contents




New
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157,Fair Value Measurements
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value and enhances disclosures about fair value measurements required under
other accounting pronouncements, but does not change existing guidance as to
whether or not an instrument is carried at fair value. SFAS 157 was effective
for the Company beginning July 1, 2008. SFAS 157 establishes a fair value
hierarchy, which requires an entity to maximize the use of observable inputs and
to minimize the use of unobservable inputs when measuring fair value. The
adoption of SFAS 157 did not have a material effect on the Company’s
consolidated financial position, results of operations, or cash
flows.





In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits certain
financial assets and financial liabilities to be measured at fair value, using
an instrument-by-instrument election. The initial effect of adopting SFAS 159
must be accounted for as a cumulative effect adjustment to opening retained
earnings for the fiscal year of adoption. Retrospective application to fiscal
years preceding the effective date is not permitted. SFAS 159 was effective for
the Company beginning July 1, 2008. The adoption of SFAS 159 did not have a
material effect on the Company’s consolidated financial position, results of
operations, or cash flows.




In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133 (“SFAS 161”), which requires enhanced disclosures about an entity’s
derivative and hedging activities. SFAS 161 is effective for the Company
beginning July 1, 2009. The Company does not currently engage in hedging or
derivative transactions and, accordingly, does not expect the adoption of this
pronouncement to have a material effect on the Company’s consolidated
financial position, results of operations, or cash flows.





In June
2008, the FASB issued FASB Staff Position (“FSP”) EITF No. 03-6-1,Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.
FSP EITF No. 03-6-1 addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and therefore need to
be included in the earnings allocation in calculating earnings per share under
the two-class method described in SFAS No. 128,Earnings per Share. FSP EITF
No. 03-6-1 requires companies to treat unvested share-based payment awards that
have non-forfeitable rights to dividends or dividend equivalents as a separate
class of securities in calculating earnings per share. FSP EITF No. 03-6-1 is
effective for the Company beginning July 1, 2009; earlier application is not
permitted. The Company does not expect the adoption of FSP EITF No. 03-6-1 to
have a material effect on its consolidated financial position, results of
operations or earnings per share.





In
October 2008, the FASB issued FSP 157-3,Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active.


FSP 157-3
does not reinterpret or change SFAS 157’s existing principles but rather is
intended to enhance comparability and consistency in fair value measurements of
financial assets that trade in markets that are inactive. FSP 157-3 primarily
re-asserts that when the market is inactive, management is not required to use
thinly traded quotes or quotes reflecting distressed prices. Rather, management
should look to other means to estimate fair value, such as the “income
approach,” which discounts the estimated cash flows and results in a Level 3
classification because the inputs are not observable. Revisions resulting from a
change in the valuation technique or its application shall be accounted for as a
change in accounting estimate. FSP 157-3 was effective immediately upon
issuance. The Company does not currently have such investment instruments and,
as such, the adoption of this pronouncement had no effect on its consolidated
financial position, results of operations, or cash flows.




32
 Table of
Contents





Item
      3. Quantitative and Qualitative
      Disclosures About Market
Risk.




Market
Risk





The
Company’s predominant exposure to market risk is directly related to its role as
an investment adviser for the mutual funds and separate accounts the Company
manages. Changes in value of assets managed will impact the level of management
and performance fee revenues. Approximately 55% of the Company’s revenue is
derived from daily net asset values, while the remaining 45% of revenue is
derived from market values of AUM at the end of the quarter. Declines in equity
security market prices could cause revenues to decline because of lower
investment management fees by causing:





•
            the
      value of AUM to decrease.





•
            the
      returns realized on AUM to decrease (impacting performance
      fees).





•
            clients
      to withdraw funds in favor of investments in markets that they perceive to
      offer greater opportunity.





Underperformance
of client accounts relative to competing products could exacerbate these
factors.





The
management of market risk on behalf of our clients, and the impact on fees to
the Company, is a significant focus for us and we use a variety of risk
measurement techniques to identify and manage market risk.





Other
investments





The
Company is exposed to fluctuations in the market price of Other investments
presented on its Condensed Consolidated Balance Sheets. The total fair value of
Other investments as of December 31, 2008 and June 30, 2008 was $2.7 million and
$3.9 million, respectively. The Company does not hedge its market risk related
to these securities and does not intend to do so in the future.





At
December 31, 2008, the Company performed sensitivity analysis to assess the
potential loss in the fair value of these market-risk sensitive securities. The
following table represents the estimated impact on the Company’s financial
position assuming a hypothetical 10% decline in associated market indices (dollars in
thousands):




Estimated
      FairValue
      AfterHypothetical
              
              
              Hypothetical
              
              
              Decrease
      inFair
      Value at
              
              
              Percentage
              
              
              Percentage
              
              
              Stockholders'December
      31, 2008
              
              
              Decline
              
              
              Change
              
              
              Equity
      (1)Other
      investments
              
              $
              2,747
              
              
              
              10
              %
              
              $
              2,518
              
              
              $
              229





1)
            Investments
      in the Epoch mutual funds and the separate account of Epoch's Global
      All-Cap Product are classified as available-for-sale securities.
      Unrealized gains or losses on available-for-sale securities are excluded
      from earnings and recorded in other comprehensive income (loss) as a
      separate component of stockholders’ equity until realized. The investment
      in the Epoch Global Absolute Return Fund, LLC is accounted for using the
      equity method, under which the Company's share of net realized and
      unrealized earnings or losses from the limited liability company is
      reflected in income.




Cash and cash
equivalents





Cash and
cash equivalents are exposed to market risk due to changes in interest rates,
which impacts interest income. The Company consistently monitors the quality of
the institution where its cash is deposited, the balance of which, at times, may
be in excess of the FDIC insurance limits. Presently, the Company neither
participates in hedging activities nor does it have any derivative financial
instruments.




33
 Table of
Contents




Item 4. Controls and Procedures.





Evaluation of
Disclosure Controls and Procedures.





The
Company has established and maintains disclosure controls and other procedures
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), that are designed to provide reasonable assurance
that material information relating to Epoch Holding Corporation and its
subsidiaries on a consolidated basis is recorded, processed, accumulated,
summarized and communicated accurately to management, including its principal
executive officer and principal financial and accounting officer, as appropriate
to allow timely decisions regarding required disclosure. There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. In designing and evaluating our
disclosure controls and procedures, management recognized that disclosure
controls and procedures, no matter how well conceived and operated, can only
provide reasonable, not absolute assurance that the objectives of the disclosure
controls and procedures are met.





For the
quarter ended December 31, 2008, management, with the participation of the
Company's principal executive officer and principal financial and
accounting officer, has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures. Based on such evaluation,
the Company's principal executive officer and principal financial and
accounting officer have concluded that the Company's disclosure controls
and procedures were effective during the period covered by this Quarterly Report
on Form 10-Q.





The
Company has also established and maintains internal control over financial
reporting as a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of condensed consolidated
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States. In the ordinary course of
business, the Company routinely enhances its internal controls and procedures
for financial reporting by either upgrading its current systems or implementing
new systems. During the quarter ended December 31, 2008, there was no change in
the Company’s internal controls over financial reporting reporting (as defined
in Rule 13a-5(f) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.




34
 Table of
Contents





PART II. OTHER INFORMATION




Item
1.Legal Proceedings.





From time
to time, the Company or its subsidiaries may become parties to claims, legal
actions and complaints arising in the ordinary course of business. Management is
not aware of any claims which would have a material adverse effect on its
consolidated financial position, liquidity, or results of
operations.




Item 1a. Risk Factors.





See Part I.
Item 2. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations - Business Environment” in this report for a discussion of the
conditions in the financial markets and economic conditions affecting our
business. This discussion updates, and should be read together with the risk
factor entitled “Negative performance of the securities markets could reduce our
revenues” in our annual report on Form 10-K for the year ended June 30,
2008.





In
addition, for further discussion of our potential risks and uncertainties, see
information under the heading “Risk Factors” in our annual report on Form 10-K
for the year ended June 30, 2008.





Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.





(c)
Purchases of Equity Securities by the Issuer.





On June
24, 2008, the Company’s Board of Directors approved the repurchase of up to a
maximum of 250,000 shares, or just over 1%, of the Company’s fully diluted
outstanding Common Stock. The repurchase plan calls for the repurchases to be
made in the open market and/or in privately negotiated transactions from time to
time in compliance with applicable laws, rules and regulations, including Rule
10b-18 under the Securities Exchange Act of 1934, as amended, subject to
prevailing market and business conditions. The plan does not obligate the
Company to purchase any particular number of shares, and may be suspended or
discontinued at any time. The repurchase plan will expire on June 30,
2009.





The table
below displays information with respect to the treasury shares the Company
purchased under the repurchase plan discussed above during the three months
ended December 31, 2008.




Total
      Number of
              
              
              Maximum
      NumberAverage
              
              
              Shares
      Purchased
              
              
              of
      Shares that MayTotal
      Number
              
              
              Price
              
              
              as
      Part of Publicly
              
              
              Yet
      Be Purchasedof
      Shares
              
              
              Paid
      Per
              
              
              Announced
      Plans
              
              
              Under
      OutstandingPeriod
              
              Purchased
              
              
              Share
              
              
              or
      Programs
              
              
              Plans or Programs(1)October
      1, 2008 - October 31, 2008
              
              
              64,400
              
              
              $
              7.64
              
              
              
              64,400
              
              
              
              112,800November
      1, 2008 - November 30, 2008
              
              
              18,201
              
              
              $
              6.74
              
              
              
              18,201
              
              
              
              94,599December
      1, 2008 - December 31, 2008
              
              
              34,800
              
              
              $
              7.57
              
              
              
              34,800
              
              
              
              59,799117,401
              
              
              
              
              
              
              
              117,401





(1)
Subsequent to December 31, 2008, the Company repurchased an additional 6,600
shares at a weighted average price of $7.56. As of February 5, 2009, there were
53,199 shares available to be repurchased under our share repurchase
program.





To
satisfy statutory employee tax withholding requirements related to the vesting
of common shares from employee stock awards, the Company purchases, and then
resells in the open market, shares to cover and pay for employee tax
withholdings. At December 31, 2008, there were 2,259 shares held in treasury to
be resold by the Company in the open market.




35
 Table of
Contents




Item 4. Submission of Matters to a Vote of Security
Holders.





The
Annual Meeting of Stockholders of Epoch Holding Corporation was held in New
York, New York on December 4, 2008. At that meeting, the stockholders considered
and acted upon the following proposals:





Proposal
1. Election of Directors





By the
vote reflected below, the stockholders elected the following individuals as
directors for a one-year term:




Director
                          
                          For
                          
                          
                          WithheldAllan
      R. Tessler
                          
                          
                          18,683,400
                          
                          
                          
                          1,275,558William
      W. Priest
                          
                          
                          19,906,795
                          
                          
                          
                          52,163Eugene
      M. Freedman
                          
                          
                          19,829,742
                          
                          
                          
                          129,216Enrique
      R. Arzac
                          
                          
                          19,821,200
                          
                          
                          
                          137,758Jeffrey
      L. Berenson
                          
                          
                          19,802,556
                          
                          
                          
                          156,402Peter
      A. Flaherty
                          
                          
                          19,777,035
                          
                          
                          
                          181,923





Proposal
2. Amendment to the 2004 Omnibus Long-Term Incentive Compensation
Plan





By the
vote reflected below, the stockholders voted to approve an amendment to
the 2004 Omnibus Long-Term Incentive Compensation Plan (the “Omnibus Plan”
or the “Plan”) to increase the number of shares of Common Stock available for
issuance under the Omnibus Plan by 2,500,000 shares (the “Omnibus Plan
Amendment”). Voting was as follows:





Did
      notFor
              
              
              Against
              
              
              Abstain
              
              
              Vote14,529,108
              
              
              
              2,548,512
              
              
              
              304,881
              
              
              
              2,576,457


36
 Table of
Contents




Item
6. Exhibits.





2.1
            
            
            Agreement
      and Plan of Reorganization dated June 2, 2004. (A)3.1
            
            
            Certificate
      of Incorporation of the Registrant, as amended. (B)3.2
            
            
            Amended
      and Restated By-Laws of Epoch Holding Corporation (as adopted April 2,
      2008). (C)4.1
            
            
            Stockholder
      Rights Agreement dated as of July 11, 1994 between the Registrant and
      Continental Stock Transfer & Trust Company, as Rights Agent.
      (D)10.1
            
            
            Employment
      Agreement by and between Epoch Holding Corporation and William W. Priest,
      dated as of  November 28, 2007 and effective as of January 1,
      2008. (E)10.2
            
            
            1992
      Incentive and Non-qualified Stock Option Plan. (F)10.40
            
            
            Indemnification
      Agreement. (G)10.40
            
            
            Stockholders
      Agreement dated as of June 2, 2004 among J Net Enterprises, Inc. and
      certain of its stockholders. (A)10.41
            
            
            Registration
      Rights Agreement dated as of June 2, 2004 among J Net Enterprises, Inc.
      and certain of its stockholders. (A)10.44
            
            
            Amendment
      to 2004 Omnibus Long-Term Incentive Compensation Plan.
  (H)10.45
            
            
            Office
      lease between Vornado 640 Fifth Avenue LLC (Landlord) and Epoch Investment
      Partners, Inc. (Tenant). (I)10.46
            
            
            Form
      of Restricted Stock Award. (J)10.47
            
            
            Office
      lease between 680 Fifth Avenue Associates, L.P. (Landlord) and JNet
      Enterprises (Tenant). (J)10.48
            
            
            Office
      sublease between J Net Enterprises, Inc. (Tenant) and The Game
      Show Network (subtenant). (J)31.1
            
            
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley
      Act of 2002. (K)31.2
            
            
            Certification
      of Principal Financial Officer pursuant to Section 302 of the Sarbanes
      Oxley Act of 2002. (K)32.1
            
            
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002. (K)






(A)
            
            Incorporated
      by reference to Registrant's Form 8-K dated June 3,
  2004.(B)
            
            Incorporated
      by reference to Registrant's Form 8-K dated December 7,
    2004.(C)
            
            Incorporated
      by reference to Registrant's Form 8-K dated April 2,
  2008.(D)
            
            Incorporated
      by reference to Registrant's Form 8-K dated July 12,
  1994.(E)
            
            Incorporated
      by reference to Registrant's Form 8-K dated November 28,
    2007.(F)
            
            Incorporated
      by reference to Registrant's 1992 Proxy Statement.(G)
            
            Incorporated
      by reference to Registrant's Quarterly Report on Form 10-Q for the fiscal
      quarter ended March 31, 2003.(H)
            
            Incorporated
      by reference to Registrant's Form 8-K dated November 19,
    2004.(I)
            
            Incorporated
      by reference to Registrant's Annual Report on Form 10-K for the fiscal
      year ended June 30, 2005.(J)
            
            Incorporated
      by reference to Registrant's Annual Report on Form 10-K/A for the fiscal
      year ended June 30, 2007.(K)
            
            Filed
      herewith.





37
 Table of
Contents




Signature





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





EPOCH
      HOLDING CORPORATION(Registrant)By:
            /s/ Adam
      BorakChief
      Financial OfficerDate:
      February 9, 2009
            
            (Principal
      Financial and Accounting Officer)




38
 Table of
Contents