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
      1934For
      the quarterly period ended June 30, 2010ORo
                TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period
      from             to
 
 Commission
file number: 000-53352
 Titanium
Asset Management Corp.
 (Exact
name of registrant as specified in its charter)
  Delaware
                (State
      or other jurisdiction of
                incorporation
      or organization)
              20-8444031
                (I.R.S.
      Employer
                Identification
      No.)777
      E. Wisconsin Avenue
                Milwaukee,
      Wisconsin
                (Address
      of principal executive offices)
              53202-5310
                (Zip
      Code)
 
 (414)
765-1980
 (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 No  o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes o No  o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.  (Check
one):
  Large
accelerated filer o                                                                         Accelerated
filer o
 Non-accelerated
filer o                                                                           Smaller
reporting company þ
 (Do not
check if a smaller reporting company)
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o  No  þ
  At August 6, 2010, there were
20,491,824 shares of the registrant’s common stock and 612,716 shares of
restricted stock outstanding.
 
 TABLE
OF CONTENTS
  PagePART
      I. FINANCIAL INFORMATION
                                          1Item
      1.
                                          Financial
      Statements
                                          1Item
      2.
                                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                          12Item
      3.
                                          Quantitative
      and Qualitative Disclosures About Market Risk
                                          23Item 4T.
                                          Controls
      and Procedures.
                                          23PART
      II. OTHER INFORMATION
                                          24Item
      1.
                                          Legal
      Proceedings
                                          24Item 1A.
                                          Risk
      Factors.
                                          24Item
      2.
                                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                                          24Item
      3.
                                          Defaults
      Upon Senior Securities
                                          24Item
      4.
                                          (Removed
      and Reserved)
                                          24Item
      5.
                                          Other
      Information
                                          24Item
      6.
                                          Exhibits
                                          24
  i
 
 PART
I.                    FINANCIAL
INFORMATION
  Item
1.                      Financial
Statements
 
 Titanium
Asset Management Corp.
 Condensed
Consolidated Balance Sheets
 
 June
      30,
                                      2010
                                    
                                    
                                    December
      31,
                                      2009(unaudited)AssetsCurrent
      assetsCash
      and cash equivalents
                                    
                                    $
                                    1,224,000
                                    
                                    
                                    $
                                    4,773,000Investments
                                    
                                    
                                    9,987,000
                                    
                                    
                                    
                                    12,549,000Accounts
      receivable
                                    
                                    
                                    3,894,000
                                    
                                    
                                    
                                    5,030,000Other
      current assets
                                    
                                    
                                    948,000
                                    
                                    
                                    
                                    1,162,000Total
      current assets
                                    
                                    
                                    16,053,000
                                    
                                    
                                    
                                    23,514,000Investments
      in affiliates
                                    
                                    
                                    6,377,000
                                    
                                    
                                    
                                    2,179,000Property
      and equipment, net
                                    
                                    
                                    386,000
                                    
                                    
                                    
                                    427,000Goodwill
                                    
                                    
                                    28,147,000
                                    
                                    
                                    
                                    28,147,000Intangible
      assets, net
                                    
                                    
                                    23,263,000
                                    
                                    
                                    
                                    24,920,000Total
      assets
                                    
                                    $
                                    74,226,000
                                    
                                    
                                    $
                                    79,187,000Liabilities
      and Stockholders’ EquityCurrent
      liabilitiesAccounts
      payable
                                    
                                    $
                                    229,000
                                    
                                    
                                    $
                                    237,000Acquisition
      payments due
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,746,000Other
      current liabilities
                                    
                                    
                                    2,710,000
                                    
                                    
                                    
                                    3,504,000Total
      current liabilities
                                    
                                    
                                    2,939,000
                                    
                                    
                                    
                                    5,487,000Acquisition
      payments due
                                    
                                    
                                    960,000
                                    
                                    
                                    
                                    960,000Total
      liabilities
                                    
                                    
                                    3,899,000
                                    
                                    
                                    
                                    6,447,000Commitments
      and contingenciesStockholders’
      equityCommon
      stock, $0.0001 par value; 54,000,000 shares authorized; 20,491,824 shares
      issued and outstanding at June 30, 2010 and 20,564,816 shares issued and
      outstanding at December 31, 2009
                                    
                                    
                                    2,000
                                    
                                    
                                    
                                    2,000Restricted
      common stock, $0.0001 par value; 720,000 shares authorized; 612,716 issued
      and outstanding at June 30, 2010 and December 31, 2009
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Preferred
      stock, $0.0001 par value; 1,000,000 shares authorized; none
      issued
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Additional
      paid-in capital
                                    
                                    
                                    100,135,000
                                    
                                    
                                    
                                    100,332,000Accumulated
      deficit
                                    
                                    
                                    (29,852,000
                                    )
                                    
                                    
                                    (27,766,000
                                    )Other
      comprehensive income
                                    
                                    
                                    42,000
                                    
                                    
                                    
                                    172,000Total
      stockholders’ equity
                                    
                                    
                                    70,327,000
                                    
                                    
                                    
                                    72,740,000Total
      liabilities and stockholders’ equity
                                    
                                    $
                                    74,226,000
                                    
                                    
                                    $
                                    79,187,000
 
 See Notes
to Condensed Consolidated Financial Statements contained herein and the Notes to
Consolidated Financial Statements in the Titanium Asset Management Corp. Annual
Report on Form 10-K for the year ended December 31, 2009 (the “2009 Form
10-K”).
  1
 
 Titanium
Asset Management Corp.
 Condensed
Consolidated Statements of Operations
 (unaudited)
 
 Three
      Months Ended
                                      June
      30,
                                    
                                    
                                    Six
      Months Ended
                                      June
      30,2010
                                    
                                    
                                    2009
                                    
                                    
                                    2010
                                    
                                    
                                    2009Operating
      revenues
                                    
                                    $
                                    5,691,000
                                    
                                    
                                    $
                                    5,132,000
                                    
                                    
                                    $
                                    11,242,000
                                    
                                    
                                    $
                                    10,295,000Operating
      expenses:Administrative
                                    
                                    
                                    6,082,000
                                    
                                    
                                    
                                    6,297,000
                                    
                                    
                                    
                                    12,389,000
                                    
                                    
                                    
                                    12,581,000Amortization
      of intangible assets
                                    
                                    
                                    829,000
                                    
                                    
                                    
                                    1,096,000
                                    
                                    
                                    
                                    1,658,000
                                    
                                    
                                    
                                    2,039,000Total
      operating expenses
                                    
                                    
                                    6,911,000
                                    
                                    
                                    
                                    7,393,000
                                    
                                    
                                    
                                    14,047,000
                                    
                                    
                                    
                                    14,620,000Operating
      loss
                                    
                                    
                                    (1,220,000
                                    )
                                    
                                    
                                    (2,261,000
                                    )
                                    
                                    
                                    (2,805,000
                                    )
                                    
                                    
                                    (4,325,000
                                    )Other
      incomeInterest
      income
                                    
                                    
                                    76,000
                                    
                                    
                                    
                                    114,000
                                    
                                    
                                    
                                    164,000
                                    
                                    
                                    
                                    234,000Gain
      (loss) on investments
                                    
                                    
                                    24,000
                                    
                                    
                                    
                                    193,000
                                    
                                    
                                    
                                    127,000
                                    
                                    
                                    
                                    (188,000
                                    )Income
      from equity investees
                                    
                                    
                                    304,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    444,000
                                    
                                    
                                    
                                    -Interest
      expense
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (15,000
                                    )
                                    
                                    
                                    (16,000
                                    )
                                    
                                    
                                    (29,000
                                    )Loss
      before taxes
                                    
                                    
                                    (816,000
                                    )
                                    
                                    
                                    (1,969,000
                                    )
                                    
                                    
                                    (2,086,000
                                    )
                                    
                                    
                                    (4,308,000
                                    )Income
      tax benefit
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (774,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,572,000
                                    )Net
      loss
                                    
                                    $
                                    (816,000
                                    )
                                    
                                    $
                                    (1,195,000
                                    )
                                    
                                    $
                                    (2,086,000
                                    )
                                    
                                    $
                                    (2,736,000
                                    )Earnings
      (loss) per shareBasic
                                    
                                    $
                                    (0.04
                                    )
                                    
                                    $
                                    (0.06
                                    )
                                    
                                    $
                                    (0.10
                                    )
                                    
                                    $
                                    (0.13
                                    )Diluted
                                    
                                    $
                                    (0.04
                                    )
                                    
                                    $
                                    (0.06
                                    )
                                    
                                    $
                                    (0.10
                                    )
                                    
                                    $
                                    (0.13
                                    )Weighted
      average number of common shares outstanding:Basic
                                    
                                    
                                    20,694,693
                                    
                                    
                                    
                                    20,546,490
                                    
                                    
                                    
                                    20,698,074
                                    
                                    
                                    
                                    20,546,490Diluted
                                    
                                    
                                    20,694,693
                                    
                                    
                                    
                                    20,546,490
                                    
                                    
                                    
                                    20,698,074
                                    
                                    
                                    
                                    20,546,490
 
 See Notes
to Condensed Consolidated Financial Statements contained herein and the Notes to
Consolidated Financial Statements in the 2009 Form 10-K.
  2
 
 Titanium
Asset Management Corp.
 Condensed
Consolidated Statements of Cash Flows
 (unaudited)
 
 Six
      Months Ended
                                      June
      30,2010
                                    
                                    
                                    2009Cash
      flows from operating activitiesNet
      loss
                                    
                                    $
                                    (2,086,000
                                    )
                                    
                                    $
                                    (2,736,000
                                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Amortization
      of intangible assets
                                    
                                    
                                    1,658,000
                                    
                                    
                                    
                                    2,039,000Depreciation
                                    
                                    
                                    46,000
                                    
                                    
                                    
                                    54,000Share
      compensation expense (credit)
                                    
                                    
                                    (139,000
                                    )
                                    
                                    
                                    205,000Loss
      (gain) on investments
                                    
                                    
                                    (127,000
                                    )
                                    
                                    
                                    188,000Income
      from equity investees
                                    
                                    
                                    (444,000
                                    )
                                    
                                    
                                    -Accretion
      of acquisition payments
                                    
                                    
                                    16,000
                                    
                                    
                                    
                                    25,000Deferred
      income taxes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,572,000
                                    )Changes
      in assets and liabilities:Decrease
      in accounts receivable
                                    
                                    
                                    1,136,000
                                    
                                    
                                    
                                    562,000Decrease
      in other current assets
                                    
                                    
                                    214,000
                                    
                                    
                                    
                                    170,000Decrease
      in accounts payable
                                    
                                    
                                    (8,000
                                    )
                                    
                                    
                                    (348,000
                                    )Decrease
      in other current liabilities
                                    
                                    
                                    (870,000
                                    )
                                    
                                    
                                    (25,000
                                    )Net
      cash used in operating activities
                                    
                                    
                                    (604,000
                                    )
                                    
                                    
                                    (1,438,000
                                    )Cash
      flows from investing activitiesPurchases
      of property and equipment
                                    
                                    
                                    (6,000
                                    )
                                    
                                    
                                    (121,000
                                    )Purchases
      of investments
                                    
                                    
                                    (8,874,000
                                    )
                                    
                                    
                                    (8,437,000
                                    )Sales
      and redemptions of investments
                                    
                                    
                                    11,433,000
                                    
                                    
                                    
                                    10,690,000Investments
      in equity investees
                                    
                                    
                                    (4,000,000
                                    )
                                    
                                    
                                    -Distributions
      from equity investees
                                    
                                    
                                    246,000
                                    
                                    
                                    
                                    -Acquisitions
      of subsidiaries, net of cash acquired
                                    
                                    
                                    (1,744,000
                                    )
                                    
                                    
                                    (8,151,000
                                    )Net
      cash used in investing activities
                                    
                                    
                                    (2,945,000
                                    )
                                    
                                    
                                    (6,019,000
                                    )Net
      decrease in cash and cash equivalents
                                    
                                    
                                    (3,549,000
                                    )
                                    
                                    
                                    (7,457,000
                                    )Cash
      and cash equivalents:Beginning
                                    
                                    
                                    4,773,000
                                    
                                    
                                    
                                    18,753,000Ending
                                    
                                    $
                                    1,224,000
                                    
                                    
                                    $
                                    11,296,000
 
 See Notes
to Condensed Consolidated Financial Statements contained herein and the Notes to
Consolidated Financial Statements in the 2009 Form 10-K.
  3
 
 Titanium
Asset Management Corp.
 Notes
to Condensed Consolidated Financial Statements
 (unaudited)
 
 Note
1 – General
 
 Titanium
Asset Management Corp. (the “Company”) was incorporated on February 2,
2007.  The Company commenced operations as a special purpose
acquisition company to acquire one or more operating companies engaged in the
asset management business.  On October 1, 2007, the Company acquired
all of the voting common stock of Wood Asset Management, Inc. (“Wood”) and all
of the membership interests of Sovereign Holdings, LLC (“Sovereign”), two asset
management firms.  On March 31, 2008, the Company acquired all of the
outstanding capital stock of
National Investment Services, Inc. (“NIS”), a third asset management
firm.  After such business combinations, the Company ceased
to act as a special purpose acquisition vehicle.  On December 31,
2008, the Company acquired allofthe membership interests of Boyd
Watterson Asset Management, LLC (“Boyd”), a fourth asset management
firm.  The Company’s strategy is to manage these operating
companies as an integrated business.
 
 The
accompanying unaudited interim condensed consolidated financial statements have
been prepared by the Company, in accordance with accounting principles generally
accepted in the United States (“GAAP”) and pursuant to the rules and regulations
of the Securities and Exchange Commission (the “SEC”) and, in the opinion of
management, include all adjustments (all of which were of a normal and recurring
nature) necessary for a fair statement of the information for each period
contained therein.
 
 The
preparation of consolidated financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities as of the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting
period.  These estimates are based on information available as of the
date of these consolidated financial statements.  Actual results could
differ materially from those estimates.
 
 The
information included in this Quarterly Report on Form 10-Q should be read in
conjunction with Management’s Discussion and Analysis of Financial Condition and
Results of Operations included herein and in the 2009 Form 10-K and the
Consolidated Financial Statements and the Notes thereto included in the 2009
Form 10-K.
 
 The cash
flow activity for the six months ended June 30, 2009 related to the payment of
deferred acquisition obligations has been reclassified to be included within
investing activities.
 
 Note
2 – Adoption of New Accounting Standards
 
 The
Company’s significant accounting policies are discussed in the Notes to the
Company’s Consolidated Financial Statements in the 2009 Form 10-K.
 
 The
following new accounting standards and amendments to standards first became
effective for the fiscal year beginning January 1, 2010:
 
 ·
              A
      standard, which was issued by the Financial Accounting Standards Board
      (“FASB”) in June 2009, that requires entities to provide more information
      regarding sales of securitized financial assets and similar
      transactions.  The adoption of this standard did not have a
      significant impact on the Company’s consolidated financial
      statements.
 
 ·
              A
      standard, which was issued by the FASB in June 2009, that modifies how a
      company determines when an entity that is insufficiently capitalized or is
      not controlled through voting (or similar rights) should be
      consolidated.  The standard clarifies that the determination of
      whether a company is required to consolidate an entity is based on, among
      other things, an entity’s purpose and design and a company’s ability to
      direct the activities of the entity that most significantly impact the
      entity’s performance.  The standard requires an ongoing
      reassessment of whether a company is the primary beneficiary of a variable
      interest entity and also requires additional disclosures about a company’s
      involvement in variable interest entities and any significant changes in
      risk exposure due to that involvement.  The FASB subsequently
      amended this standard to defer the consolidation requirements for
      investments in investment companies.  The adoption of this
      standard did not have a significant impact on the Company’s consolidated
      financial statements.
  4
  Note
2 – Adoption of New Accounting Standards (continued)
 
 ·
              An
      amended standard, issued by the FASB in January 2010, that requires
      additional disclosures about significant transfers in and out of levels 1
      and 2 fair value measurements and reasons for the transfers.  In
      addition, the amended standard requires new disclosures relating to the
      reconciliation for fair value measurements using unobservable inputs
      (level 3) detailing information about purchases, issuances, and
      settlements on a gross basis.  The adoption of these amended
      disclosure requirements did not have a significant impact on the Company’s
      consolidated financial statements.
 
 Note
3 – Investments
 
 The
Company’s current portfolio of debt securities and its investment in a
commingled stock fund that was originated in 2008 and liquidated in 2009 are
accounted for as available-for-sale securities.  The Company’s
investments in affiliates are accounted for using the equity method of
accounting because the Company has significant influence over the management of
the funds.
  Current
portfolio of debt securities
  Amortized
      cost
                        
                        
                        Unrealized
      gains
                        
                        
                        Unrealized
                          losses
                        
                        
                        Fair
      valueJune
      30, 2010
                        
                        $
                        9,860,000
                        
                        
                        $
                        145,000
                        
                        
                        $
                        (18,000
                        )
                        
                        $
                        9,987,000December
      31, 2009
                        
                        $
                        12,292,000
                        
                        
                        $
                        259,000
                        
                        
                        $
                        (2,000
                        )
                        
                        $
                        12,549,000
 
 Debt
securities accounted for as available-for-sale and held at June 30, 2010 mature
as flows:
  Amortized
      cost
                      
                      
                      Fair
      valueWithin
      one year
                      
                      $
                      5,630,000
                      
                      
                      $
                      5,692,000After
      one year but within five years
                      
                      $
                      4,230,000
                      
                      
                      $
                      4,295,000
 
 The
following is a summary of the realized gains and losses on the sale of
investments from the Company’s portfolio of debt securities for the three and
six months ended June 30, 2010 and 2009.  The specific identification
method is used to determine the realized gain or loss.
  Three
      Months Ended
                              June
      30,
                            
                            
                            Six
      Months Ended
                              June
      30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Realized
      gains
                            
                            $
                            37,000
                            
                            
                            $
                            208,000
                            
                            
                            $
                            156,000
                            
                            
                            $
                            208,000Realized
      losses
                            
                            
                            (13,000
                            )
                            
                            
                            (15,000
                            )
                            
                            
                            (29,000
                            )
                            
                            
                            (15,000
                            )Net
      realized gains
                            
                            $
                            24,000
                            
                            
                            $
                            193,000
                            
                            
                            $
                            127,000
                            
                            
                            $
                            193,000
  5
  Note
3 – Investments (continued)
 
 Commingled
stock fund
  The
Company’s investment in a commingled stock fund consisted of its investment in
the Plurima Titanium U.S. Stock Fund, a sub-fund of the Dublin-based Plurima
Funds mutual funds complex, to which Wood served as investment
advisor.  In March 2009, the Company’s board of directors determined
that additional investments from other parties into the Plurima Titanium U.S.
Equity Fund were likely not to be forthcoming.  As a result, the
Company decided to liquidate its investment in the commingled stock
fund.  Based on this decision, the Company recognized a $381,000
impairment loss on this investment, including the previously unrecognized loss
of $294,000 that was reclassified out of accumulated other comprehensive income
into earnings.  The Company subsequently liquidated its investment and
received proceeds of $587,000 from Plurima in 2009.
 
 Investments
in Affiliates
  Investments
in affiliates include the Company’s investment in the Titanium TALF Opportunity
Fund (the “TALF Fund”), which it organized for its clients to invest in
securities participating in the Term Asset-Backed Securities Loan Facility
(“TALF”) of the Federal Reserve Bank of New York.  The Company is the
managing member of the TALF Fund and serves as the investment manager for the
TALF Fund for which it receives management fees.  As of June 30, 2010,
the Company’s investment in the TALF Fund (including an additional investment of
$2,000,000 made during the six months ended June 30, 2010) represents
approximately 11% of the total investments in the TALF Fund.  Because
the Company has an equity interest in the TALF Fund and has significant
influence over the TALF Fund’s daily activities through its role as managing
member and investment manager, the Company accounts for this investment using
the equity method of accounting.
 
 Investments
in affiliates also include the Company’s $2,000,000 investment in the NIS Fixed
Income Arbitrage Fund, LTD. (the “NIS ARB Fund”) made during the six months
ended June 30, 2010.  The Company is the managing member of the NIS
ARB fund and serves as the investment manager for the NIS ARB Fund for which it
receives management fees.  As of June 30, 2010, the Company’s
investment in the NIS ARB Fund represents approximately 15% of the total
investments in the NIS ARB fund.  Because the Company has an equity
interest in the NIS ARB Fund and has significant influence over the NIS ARB
Fund’s daily activities through its role as managing member and investment
manager, the Company accounts for this investment using the equity method of
accounting.
 
 The
activity related to the Company’s investment in affiliates for the six months
ended June 30, 2010 is as follows:
  Investment
      at December 31, 2009
                          
                          $
                          2,179,000Additional
      investments
                          
                          
                          4,000,000Distributions
                          
                          
                          (246,000
                          )Equity
      in income of affiliates
                          
                          
                          444,000Investments
      in affiliates at June 30, 2010
                          
                          $
                          6,377,000
  6
  Note
4 – Acquisition Obligations
 
 In
connection with the acquisitions of Wood, Sovereign, NIS and Boyd, the
acquisition agreements provided for deferred fixed payments and contingent
payments based on assets under management or revenues at specified future
dates.  The deferred fixed amounts due as of June 30, 2010 and
December 31, 2009 are as follows:
  June 30,
                                2010
                              
                              
                              December 31,
                                2009Current
      amounts:Sovereign acquisition obligation
      (a)
                              
                              $
                              -
                              
                              
                              $
                              1,033,000NIS acquisition obligation
      (b)
                              
                              
                              -
                              
                              
                              
                              713,000Current
      acquisition payments due
                              
                              $
                              -
                              
                              
                              $
                              1,746,000Noncurrent
      amount -Boyd acquisition obligation
      (c)
                              
                              $
                              960,000
                              
                              
                              $
                              960,000
  (a)
              During
      the period ended March 31, 2010, as part of a settlement agreement with
      the previous majority owner of Sovereign, the Company agreed to pay
      $1,015,000 in full satisfaction of all amounts due, or that would become
      due, under the acquisition agreement.  This amount was paid in
      April 2010.
  (b)
              The
      NIS acquisition obligation was paid in May
2010.
  (c)
              The
      Boyd acquisition obligation reflects a deferred stock grant of 192,000
      shares of common stock valued at $960,000, payable in
  2011.
  Under
terms of the acquisition agreement for Wood, the seller may receive additional
payments should Wood achieve certain revenue and assets under management
milestones through September 30, 2011.  At June 30, 2010, the
remaining maximum payments are $3,000,000, of which up to 50% is payable in
Company common stock.  Based on current estimates for assets under
management and revenues, the Company estimates that approximately $995,000 will
be due under the assets under management provision in 2011 and that no amount
will be due under the revenue provision.
  Under
terms of the acquisition agreement for Boyd, the sellers may receive an
additional deferred payment up to $8,000,000 based on the revenue run rate as of
December 31, 2010, payable in 2011. The additional deferred payment is payable
65% cash and 35% Company common stock.  Based on current estimates for
the future revenue run rate of Boyd, the Company estimates that the full
$8,000,000 will be due in 2011.
 
 Note
5 – Stockholders’ Equity
 
 The
Company’s authorized capital consists of 54,000,000 shares of common stock with
a $0.0001 par value, 720,000 shares of restricted common stock with a $0.0001
par value, and 1,000,000 shares of preferred stock with a $0.0001 par
value.  The restricted common stock shares carry voting rights and no
rights to dividends except in the case of liquidation of the
Company.  The restricted common stock shares convert on a one for one
basis to shares of common stock if at any time within five years of their issue
the ten-day average share price of the common stock exceeds $6.90 or if there is
a change in control  (as defined in the Company’s certificate of
incorporation).  No preferred stock had been issued at June 30,
2010.
 
 At
December 31, 2009, the Company had outstanding compensatory stock grants for
55,322 shares of common stock held by Titanium Incentive Plan, LLC (“TIP”), a
wholly-owned subsidiary.  During April 2010, an award for 50,000
shares was forfeited resulting in the reversal of $185,000 of previously
recognized compensation expense.  The remaining grants vested on June
21, 2010.  At June 30, 2010, the Company had no further compensatory
awards outstanding.
  7
 
 Note
5 – Stockholders’ Equity (continued)
 
 In connection with the Company’s 2007
private placement, the Company issued 20,000,000 warrants that
entitlethe holder topurchase one share of
common stockat $4.00 per
share.  The
warrants expire in June 2011 unless earlier redeemed by the
Company.  At June 30, 2010, all 20,000,000 warrants were
outstanding.
 
 As part
of the private placement, the Company granted an option to Sunrise Securities
Corp. to acquire 2 million units at a price of $6.60 (each unit consists of one
share of common stock and one warrant to acquire one share of common stock at
$4.00 per share).  At June 30, 2010, all of these options were
outstanding.
 
 Note
6 – Comprehensive Loss
 
 Comprehensive
loss for the periods ended June 30, 2010 and 2009 was as follows:
 
 Three Months Ended
                              June 30,
                            
                            
                            Six Months Ended
                              June 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Net
      loss
                            
                            $
                            (816,000
                            )
                            
                            $
                            (1,195,000
                            )
                            
                            $
                            (2,086,000
                            )
                            
                            $
                            (2,736,000
                            )Unrealized
      losses on available-for-sale securities
                            
                            
                            -
                            
                            
                            
                            (61,000
                            )
                            
                            
                            (26,000
                            )
                            
                            
                            (49,000
                            )Net
      (gains) losses reclassified from accumulated other comprehensive income to
      earnings
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (104,000
                            )
                            
                            
                            294,000Income
      tax on other comprehensive income items
                            
                            
                            -
                            
                            
                            
                            23,000
                            
                            
                            
                            -
                            
                            
                            
                            (92,000
                            )Other
      comprehensive income items, net of tax
                            
                            
                            -
                            
                            
                            
                            (38,000
                            )
                            
                            
                            (130,000
                            )
                            
                            
                            153,000Comprehensive
      loss
                            
                            $
                            (816,000
                            )
                            
                            $
                            (1,233,000
                            )
                            
                            $
                            (2,219,000
                            )
                            
                            $
                            (2,583,000
                            )
 
 Note 7 –Income Taxes
 
 At
December 31, 2009, the Company had deferred tax assets of $10,273,000 including
the deferred tax benefits related to federal net operating loss carryforwards of
approximately $10,636,000 that expire in 2028 and 2029 and state net operating
loss carryforwards totaling approximately $10,233,000 that expire between 2023
and 2029.
  In
assessing the realizability of the Company’s deferred tax assets, we consider
all relevant positive and negative evidence in determining whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.  The realization of the gross deferred tax assets depends on
several factors, including the generation of sufficient taxable income prior to
the expiration of the net operating loss carryforwards.  Pursuant to
FASB guidance, a cumulative loss in recent years is a significant piece of
negative evidence to be considered in evaluating the need for a valuation
allowance that is difficult to overcome.  Based on the pretax losses
in 2008 and 2009, we determined that it was no longer appropriate to consider
expected future income as the primary factor in determining the realizability of
our deferred tax assets.  As a result, the Company recognized a
valuation allowance of $10,273,000 against the full value of deferred tax assets
as of December 31, 2009.
  Based on
the continuation of cumulative losses, the Company continued to fully offset any
additional deferred tax assets with additional valuation allowances during the
six months ended June 30, 2010.
  8
 
 Note 8 –Earnings per
Share
 
 Basic
earnings per share (“EPS”) is computed by dividing net income (loss) by the
weighted average shares of common stock outstanding.  In addition, in
periods following the acquisition of Boyd, basic weighted average shares include
192,000 shares of common stock to be issued to the sellers of Boyd in 2011,
except under certain circumstances described in the Boyd acquisition
agreement.  Diluted EPS gives effect to all dilutive potential shares
of common stock outstanding during the period.  Dilutive potential
shares of common stock include the incremental shares of common stock issuable
upon the exercise of the outstanding warrants computed using the treasury stock
method and the incremental shares of common stock issued under the compensatory
common stock grants computed using the treasury stock method.  The
612,716 shares of restricted common stock have been excluded from the
computation of diluted weighted average shares because their conversion terms
require the ten day average share price of the common stock to exceed $6.90 per
share.  In addition, the option to acquire 2,000,000 units is excluded
from the computation of diluted weighted average shares because the effect would
have been antidilutive.
  The
computation of basic and diluted EPS is as follows:
  Three
      months ended
                                        June
      30,
                                      
                                      
                                      Six
      months ended
                                        June
      30,2010
                                      
                                      
                                      2009
                                      
                                      
                                      2010
                                      
                                      
                                      2009Basic
      EPS:Net
      loss
                                      
                                      $
                                      (816,000
                                      )
                                      
                                      $
                                      (1,195,000
                                      )
                                      
                                      $
                                      (2,086,000
                                      )
                                      
                                      $
                                      (2,736,000
                                      )Weighted
      average shares of common stock outstanding
                                      
                                      
                                      20,502,693
                                      
                                      
                                      
                                      20,354,490
                                      
                                      
                                      
                                      20,506,074
                                      
                                      
                                      
                                      20,354,490Shares
      of common stock to be issued in Boyd acquisition
                                      
                                      
                                      192,000
                                      
                                      
                                      
                                      192,000
                                      
                                      
                                      
                                      192,000
                                      
                                      
                                      
                                      192,000Basic
      weighted average shares of common stock outstanding
                                      
                                      
                                      20,694,693
                                      
                                      
                                      
                                      20,546,490
                                      
                                      
                                      
                                      20,698,074
                                      
                                      
                                      
                                      20,546,490Basic
      EPS
                                      
                                      $
                                      (0.04
                                      )
                                      
                                      $
                                      (0.06
                                      )
                                      
                                      $
                                      (0.10
                                      )
                                      
                                      $
                                      (0.13
                                      )Diluted
      EPS:Net
      loss
                                      
                                      $
                                      (816,000
                                      )
                                      
                                      $
                                      (1,195,000
                                      )
                                      
                                      $
                                      (2,086,000
                                      )
                                      
                                      $
                                      (2,736,000
                                      )Basic
      weighted average shares of common stock outstanding
                                      
                                      
                                      20,694,693
                                      
                                      
                                      
                                      20,546,490
                                      
                                      
                                      
                                      20,698,074
                                      
                                      
                                      
                                      20,546,490Shares
      of common stock issuable under warrants
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,647,236
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,466,528Shares
      of common stock under compensatory common stock grants
                                      
                                      
                                      4,796
                                      
                                      
                                      
                                      44,992
                                      
                                      
                                      
                                      5,057
                                      
                                      
                                      
                                      46,323Diluted
      weighted average shares of common stock outstanding
                                      
                                      
                                      20,699,488
                                      
                                      
                                      
                                      22,238,718
                                      
                                      
                                      
                                      20,703,131
                                      
                                      
                                      
                                      23,059,341Diluted
      EPS
                                      
                                      $
                                      (0.04
                                      )
                                      
                                      $
                                      (0.06
                                      )
                                      
                                      $
                                      (0.10
                                      )
                                      
                                      $
                                      (0.13
                                      )
 
 The
diluted weighted average shares amount for the three and six month periods ended
June 30, 2010 and 2009 are provided for informational purposes, as the net loss
for these periods causes basic earnings per share to be the most
dilutive.
  9
  Note 9 – Fair Value
Disclosures
  Under the
FASB’s fair value requirements, the fair values for assets and liabilities are
to be disclosed based on three levels of input:  Level 1 – quoted
prices in active markets for identical assets or liabilities; Level 2 –
observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other
inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities; or Level 3 –
unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of assets or liabilities.  Level 3
assets and liabilities include financial instruments the value of which is
determined using pricing models, discounted cash flow methodologies, or similar
techniques, as well as instruments for which the determination of fair value
requires significant judgment or estimation.
  The
Company measures the following assets at fair values on a recurring
basis:
  Category
      used for Fair ValuesLevel
      1
                                        
                                        
                                        Level
      2
                                        
                                        
                                        Level
      3Assets
      at June 30, 2010Cash
      and cash equivalents
                                        
                                        $
                                        1,224,000
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Current
      securities available for sale – Debt securities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        9,987,000
                                        
                                        
                                        
                                        -$
                                        1,224,000
                                        
                                        
                                        $
                                        9,987,000
                                        
                                        
                                        $
                                        -Assets
      at December 31, 2009Cash
      and cash equivalents
                                        
                                        $
                                        4,773,000
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Current
      securities available for sale – Debt securities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        12,549,000
                                        
                                        
                                        
                                        -$
                                        4,773,000
                                        
                                        
                                        $
                                        12,549,000
                                        
                                        
                                        $
                                        -
  10
  Note 10 –Contingencies
 
 On
February 10, 2010, a former client of Sovereign filed suit in the United States
District Court for the Northern District of Illinois against the Company and
Sovereign, alleging fraudulent conduct and breach of fiduciary duty on the part
of Sovereign in investing its assets in auction-rate securities.  The
claim alleges, among other things, that Sovereign failed to conduct adequate due
diligence into the auction rate securities purchased for its account, and that
the investment in the auction rate securities was outside of its investment
policy.  The suit seeks $4,704,000 in damages.  Management
believes the claim is covered by insurance, subject to the payment of deductible
amounts by the Company.  While management believes the claim is
without merit and intends to defend vigorously against this action, there can be
no assurance that the ultimate outcome of the lawsuit will be favorable to the
Company or that the defense of the suit or its outcome will not have a material
adverse effect on the Company's business or financial results of
operation.
  Sovereign
received a letter from a client dated July 16, 2010, demanding that
Sovereign compensate it for losses relating to allegedly unsuitable
investments in approximately $30 million of various auction rate securities
purchased on its behalf by Sovereign.  Management is in the process of
evaluating this demand and the client’s allegations to determine whether there
is any merit to them.  At this preliminary stage, the Company cannot
determine the potential liability of the Company or the likelihood of an
unfavorable outcome.  In any event, management believes the claim would be
covered by insurance (up to $20 million), subject to the payment of deductible
amounts by the Company.
 
 During
2008, the Company received an invoice for $670,000 from the lawyers who worked
on the placement of the Company’s shares of common stock on AIM in June
2007. The Company is
disputing this invoice and at the current time believes there is no liability.
Accordingly no provision has been made in these condensed consolidated financial
statements for the invoice. In the event that the Company must pay all or a
portion of this amount, the Company’s consolidated results of operations will be
unaffected and the Company does not expect its consolidated financial position
to materially change.
  The
Company is from time to time involved in legal matters incidental to the conduct
of its business and such matters can involve current and former employees and
vendors.  Management does not expect these matters would have a
material effect on the Company’s consolidated financial position or results of
operations.
  11
  Item
2.                      Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
  FORWARD-LOOKING
STATEMENTS
  This
Quarterly Report on Form 10-Q, including particularly the Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
contains “forward-looking” statements within the meaning of the Private
Securities Litigation Reform Act of 1995, which provides a “safe harbor” for
statements about future events, products and future financial performance that
are based on the beliefs of, estimates made by and information currently
available to the management of Titanium Asset Management Corp., a Delaware
corporation (referred to as “we,” “our” or the “Company,” and, unless the
context indicates otherwise, includes our wholly owned asset management
subsidiaries, Wood Asset Management, Inc. (“Wood”), Sovereign Holdings LLC
(“Sovereign”), National Investment Services, Inc. (“NIS”), and Boyd Watterson
Asset Management, LLC (“Boyd”).  We refer to Wood, Sovereign, NIS and
Boyd collectively as our subsidiaries.  The outcome of the events
described in these forward-looking statements is subject to risks and
uncertainties.  Actual results and the outcome or timing of certain
events may differ significantly from those projected in these forward-looking
statements due to market fluctuations that alter our assets under management;
termination of investment advisory agreements; loss of key personnel; loss of
third-party distribution services; impairment of goodwill and other intangible
assets; our inability to compete; market pressure on investment advisory fees;
problems experienced in the acquisition or integration of target businesses;
changes in law, regulation or tax rates; ineffective management of risk;
inadequacy of insurance; changes in interest rates, equity prices, liquidity of
global markets and international and regional political conditions; terrorism;
changes in monetary and fiscal policy, investor sentiment and availability and
cost of capital; technological changes and events; outcome of legal proceedings;
changes in currency values, inflation and credit ratings; failure of our systems
to properly operate; or actions taken by Clal Finance Ltd., (“Clal”), as our
significant stockholder; factors listed under “Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2009 (the “2009 Form 10-K”);
and other factors listed in this Quarterly Report on Form 10-Q and from time to
time in our other filings with the Securities and Exchange Commission
(“SEC”).  For this purpose, statements relating to integrating the
operational, administrative and sales activities of our subsidiaries, earning of
incentive fees, amount of future assets under management, acquisitions of
additional asset management firms and payment therefor, payment of deferred
consideration for the purchase of our subsidiaries and anticipated levels of
future revenues, expenses or earnings, among other things; any statements using
the terms “aim,” “anticipate,” “appear,” “based on,” “believe,” “can,”
“continue,” “could,” “are emerging,” “estimate,” “expect,” “expectation,”
“intend,” “may,” “ongoing,” “plan,” “possible” “potential, “predict,” “project,”
“should” and “would” or similar words or phrases, or the negatives of those
words or phrases; or discussions of strategy, plans, objectives or goals, may
identify forward-looking statements that involve risks, uncertainties and other
factors that could cause our actual results, financial condition and the outcome
and timing of certain events to differ materially from those projected or
management’s current expectations.  By making forward-looking
statements, we have not assumed any obligation to, and you should not expect us
to, update or revise those statements because of new information, future events
or otherwise.
  The
following discussion is designed to provide a better understanding of
significant trends related to our consolidated financial condition and
consolidated results of operations. The discussion should be read in conjunction
with our condensed consolidated financial statements and notes thereto included
in this Quarterly Report on Form 10-Q, as well as the Management’s
Discussion and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and Notes thereto included in our 2009 Form
10-K.
  General
  Our
principal business is providing investment advisory services to institutional
and retail clients.  Our core strategy is to develop a broad array of
investment management expertise to enable us to offer a full range of investment
strategies to our clients.  Although we manage and distribute a range
of products and services, we operate in one business segment, namely as an
investment advisor to institutional and retail clients.
  Through
four acquisitions, we have assembled a group of investment managers with solid
long-term track records to serve as our core asset management
business.  Through these investment managers, we have expertise in
both fixed-income and equity investment strategies and have a client base that
extends from individuals to a range of institutional investors, as well as solid
sub-advisory and referral arrangements with a variety of
broker-dealers.  During 2009, we extended our business to include real
estate investment advisory services through the hiring of two experienced real
estate investment managers.  As of June 30, 2010, we had $8.4 billion
of assets under management and an additional $1.0 billion of assets, on which we
earn referral fees.
  12
  Our asset
management services are typically delivered pursuant to investment advisory
agreements entered into between each subsidiary and its
clients.  Investment advisory fees are generally received quarterly,
based on the value of assets under management on a particular date, such as the
first or last day of a quarter.  Our institutional business is
generally billed in arrears, whereas the retail business is generally billed in
advance.  The majority of our investment advisory contracts are
generally terminable at any time or on notice of 30 days or less.  The
nature of these agreements, the notice periods and the billing cycles vary
depending on the nature and the source of each client relationship.
  Most of
our investment advisory services are provided through the management of separate
accounts.  However, an increasing percentage of our services are
provided through private funds, which allow us to provide our investment
strategies to our institutional clients in a more cost efficient
manner.  We earn incentive fees on two of the funds, which are
organized to invest in preferred stocks.
  We also
have a referral arrangement with a hedge fund manager through which were earn
fees for referring clients to its investment vehicles.
  Our
operating revenues are substantially influenced by the changes to our assets
under management and shifts in the distribution of assets under management among
types of securities and investment strategies.  Our assets under
management fluctuate based primarily on our investment performance (both
absolutely and relative to other investment advisors) and the success of our
sales and marketing efforts.  A material portion of our results will
be influenced by fluctuations in world financial markets. Because they comprise
the largest part of our assets under management, the performance of U.S.
fixed-income securities should have the greatest influence on our
results.
  A
significant portion of our expenses, including employee compensation and
occupancy, do not vary directly with operating revenues.  As a result,
our efforts to improve our cost structure have focused on integrating the
operational and administrative functions of the acquired subsidiaries, including
accounting, information technology, human resources, and risk management
activities.  During 2009, we completed the staffing and reorganization
of our sales staff to better position us to sell the full range of our
strategies to our existing customer base and to prospective
clients.  In addition, we completed the integration of our accounting
operations.
  On
February 8, 2010, our Board of Directors announced that it had accepted the
resignation of Nigel Wightman as Chairman and Chief Executive Officer and had
named Mr. Robert Brooks as Chief Executive Officer.  In addition to
these changes, the Board of Directors also announced the appointments of Mr.
Brian Gevry as Chief Operating Officer and Mr. Jonathan Hoenecke as Chief
Financial Officer.  Further, on April 9, 2010, Mr. John Fisher
resigned his positions as a Managing Director and President and Chief Executive
Officer of Wood and Sovereign. We believe these changes result in a more
centralized team, which should enhance our efforts to integrate our operations,
and will reduce our ongoing cost structure.  Since March 31, 2009, we
have reduced our headcount from 97 to 81.  Principally as a result of
these reductions, we reduced administrative expenses from $6,284,000 for the
three months ended March 31, 2009 to $5,689,000 for the three months ended June
30, 2010, after adjusting the current year period for $393,000 of severance
expenses.
  Market
Developments
  The fixed
income market performance during the three months ended June 30, 2010 was solid
with the Barclay’s Aggregate Index increasing 3.5% while the equity markets
reversed course and the S&P 500 Index declined by 11.4%.  For the
twelve months ended June 30, 2010, the Barclay’s Aggregate Index gained 9.5%
while the S&P 500 Index gained 14.4%.  As a result of the strong
market returns and positive net flows, our assets under management increased by
$800.9 million, or 11%, since June 30, 2009.  The resultant increase
in average assets under management further resulted in a 11% increase in
investment advisory fees for the three months ended June 30, 2010 and a 9%
increase for the six months ended June 30, 2010 compared to the prior year
comparable periods.
  13
  Assets
Under Management
  Our asset
management services are delivered pursuant to investment advisory agreements
with fees generally determined on a quarterly basis as a percentage (or range of
percentages) of either beginning or ending market value of assets under
management.  Our investment advisory fees vary, among other things, by
investment strategy and by client type.  Our average fee rates for
equity investment strategies generally are higher than those for fixed income
strategies.  In general, our clients may terminate our services at any
time with limited notice.
  We manage
a portion of our assets under management through private funds that generally
are organized as limited liability companies.  We believe the use of
these funds allows us to provide our investment strategies to our institutional
clients in a more cost effective manner.  We earn incentive fees on
two of the funds, which are organized to invest in preferred
stocks.
  Assets
under management of $8.4 billion at June 30, 2010 were 3% higher than the $8.2
billion reported at December 31, 2009 and 11% higher than the $7.6 billion
reported at June 30, 2009.   The following table presents summary
activity for the three and six months ended June 30, 2010 and 2009.
  Three
      Months Ended
                                    
                                    
                                    2010
                                    
                                    
                                    Six
      Months Ended
                                    
                                    
                                    2010June
      30,
                                    
                                    
                                    vs.
                                    
                                    
                                    June
      30,
                                    
                                    
                                    vs.(in
      millions)
                                    
                                    2010
                                    
                                    
                                    2009
                                    
                                    
                                    2009
                                    
                                    
                                    2010
                                    
                                    
                                    2009
                                    
                                    
                                    2009Period
      Activity:Beginning
      balance
                                    
                                    $
                                    8,498.1
                                    
                                    
                                    $
                                    7,572.2
                                    
                                    
                                    
                                    12
                                    %
                                    
                                    $
                                    8,151.4
                                    
                                    
                                    $
                                    7,573.2
                                    
                                    
                                    
                                    8
                                    %Inflows
                                    
                                    
                                    320.6
                                    
                                    
                                    
                                    428.2
                                    
                                    
                                    
                                    -25
                                    %
                                    
                                    
                                    833.7
                                    
                                    
                                    
                                    946.5
                                    
                                    
                                    
                                    -12
                                    %Outflows(1)
                                    
                                    
                                    (462.0
                                    )
                                    
                                    
                                    (616.3
                                    )
                                    
                                    
                                    -25
                                    %
                                    
                                    
                                    (791.7
                                    )
                                    
                                    
                                    (1,084.5
                                    )
                                    
                                    
                                    -27
                                    %Net
      flows
                                    
                                    
                                    (141.4
                                    )
                                    
                                    
                                    (188.1
                                    )
                                    
                                    
                                    -25
                                    %
                                    
                                    
                                    42.0
                                    
                                    
                                    
                                    (138.0
                                    )
                                    
                                    NMMarket
      value change
                                    
                                    
                                    59.1
                                    
                                    
                                    
                                    230.8
                                    
                                    
                                    
                                    -74
                                    %
                                    
                                    
                                    222.4
                                    
                                    
                                    
                                    179.7
                                    
                                    
                                    
                                    24
                                    %Ending
      balance
                                    
                                    $
                                    8,415.8
                                    
                                    
                                    $
                                    7,614.9
                                    
                                    
                                    
                                    11
                                    %
                                    
                                    $
                                    8,415.8
                                    
                                    
                                    $
                                    7,614.9
                                    
                                    
                                    
                                    11
                                    %Average Assets Under
      Management (2)
                                    
                                    $
                                    8,457.0
                                    
                                    
                                    $
                                    7,593.6
                                    
                                    
                                    
                                    11
                                    %
                                    
                                    $
                                    8,390.8
                                    
                                    
                                    $
                                    7,583.2
                                    
                                    
                                    
                                    9
                                    %Average
      Fee Rate (basis points)
                                    
                                    
                                    24
                                    
                                    
                                    
                                    24
                                    
                                    
                                    NC
                                    
                                    
                                    
                                    24
                                    
                                    
                                    
                                    24
                                    
                                    
                                    NC
 
 (1)
                Outflows
      for the three and six month periods ended June 30, 2010 include the
      elimination of approximately $100 million of advisory-only accounts whose
      fees are not asset-based.
  (2)
                Average
      assets under management are calculated based on the quarter end balances
      and include amounts acquired in acquisitions in the first quarter
      following the acquisition.
  NM:  Not
meaningful
 NC:  No
change
  14
  Excluding
the adjustment to eliminate certain advisory-only accounts, net outflows for the
three months ended June 30, 2010 were approximately $40 million compared to
approximately $188 million for the prior year period.  The improvement
principally reflects the stabilization of our Sovereign business and the
moderation of asset withdrawals by pension plan clients of NIS.
 
 Excluding
the adjustment to eliminate certain advisory-only accounts, net inflows for the
six months ended June 30, 2010 were approximately $140 million compared to net
outflows of approximately $138 million for the prior year period.  The
improvement principally reflects new business generated by our participation in
the Term Asset-Backed Securities Loan Facility (“TALF”) of the Federal Reserve
Bank of New York, the stabilization of our Sovereign business, and the
moderation of asset withdrawals by pension plan clients of NIS.
 
 Since
March 31, 2009, a significant portion of our inflows were generated by our
participation in the TALF program.  In total, our participation
generated approximately $735 million in new assets under management with both
separate client accounts and the Titanium TALF Opportunity Fund (“TALF
Fund”).  The final TALF program auction was conducted in March 2010
and, as a result, further growth from this program will be limited.
  The
variance in the market value change for the three month periods primarily
reflects the volatility in the equity assets, which comprise approximately 8% of
our total assets under management.  During the three months ended June
30, 2010, the S&P 500 Index declined by 11.4% whereas during the prior year
period the S&P 500 Index gained 15.9%.  The market value changes
for the six month periods reflect solid performance of fixed income
markets.  During the six months ended June 30, 2010, the Barclay’s
Aggregate Index gained 5.3% compared to a 1.9% gain in the prior year
period.
  The
following table presents summary breakdowns for our assets under management at
June 30, 2010 and 2009.
  2010
                                
                                
                                2009By
      investment strategy:Fixed
      income
                                
                                $
                                7,603.1
                                
                                
                                $
                                6,907.4
                                
                                
                                
                                10
                                %Equity
                                
                                
                                697.6
                                
                                
                                
                                707.5
                                
                                
                                
                                -1
                                %Real
      estate
                                
                                
                                115.1
                                
                                
                                
                                -
                                
                                
                                NMTotal
                                
                                $
                                8,415.8
                                
                                
                                $
                                7,614.9
                                
                                
                                
                                11
                                %By
      client type:Institutional
                                
                                $
                                7,061.0
                                
                                
                                $
                                5,913.7
                                
                                
                                
                                19
                                %Retail
                                
                                
                                1,354.8
                                
                                
                                
                                1,701.2
                                
                                
                                
                                -20
                                %Total
                                
                                $
                                8,415.8
                                
                                
                                $
                                7,614.9
                                
                                
                                
                                11
                                %By
      investment vehicle:Separate
      accounts
                                
                                $
                                7,500.0
                                
                                
                                $
                                7,143.0
                                
                                
                                
                                5
                                %Private
      funds
                                
                                
                                915.8
                                
                                
                                
                                471.9
                                
                                
                                
                                94
                                %Total
                                
                                $
                                8,415.8
                                
                                
                                $
                                7,614.9
                                
                                
                                
                                11
                                %
 
 Our mix
of assets under management by investment strategy was relatively unchanged as
fixed income assets comprised 90% of total assets under management in 2010
compared to 91% in 2009.
  During
2010 our mix of assets under management with institutional clients increased to
84% compared to 78% in 2009, primarily due to the loss of retail accounts at
Sovereign.  The modest change in mix did not result in a significant
change in our average fee rate.
  The
increase in assets managed through private funds reflects our organization
during the third quarter of 2009 of the TALF Fund.  At June 30, 2010,
we had approximately $316.3 million of assets under management in the TALF
Fund.
  15
  Through
July 31, 2010, our aggregate assets under management increased by approximately
$0.2 billion to approximately $8.6 billion.  The increase principally
reflects strong increases in both fixed income and equity assets.
  We
have a referral arrangement with Attalus Capital, or Attalus, whereby we refer
investors to investment vehicles sponsored by Attalus and in turn receive a
referral fee equal to a percentage of the fees received by Attalus from the new
clients. The assets managed by Attalus under this arrangement decreased from
$974.9 million at December 31, 2009 to $955.6 million at June 30,
2010.  The activity related to these assets was as
follows:
  Three
      Months Ended
                          
                          
                          Six
      Months EndedJune
      30,
                          
                          
                          June
      30,(in
      millions)
                          
                          2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Annual
      Activity:Beginning
      balance
                          
                          $
                          992.1
                          
                          
                          $
                          825.8
                          
                          
                          $
                          974.9
                          
                          
                          $
                          806.2Inflows
                          
                          
                          18.4
                          
                          
                          
                          1.8
                          
                          
                          
                          23.6
                          
                          
                          
                          4.5Outflows
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Market
      value change
                          
                          
                          (54.9
                          )
                          
                          
                          32.8
                          
                          
                          
                          (42.9
                          )
                          
                          
                          49.7Ending
      balance
                          
                          $
                          955.6
                          
                          
                          $
                          860.4
                          
                          
                          $
                          955.6
                          
                          
                          $
                          860.4Average
      Assets Under Management
                          
                          $
                          973.8
                          
                          
                          $
                          843.1
                          
                          
                          $
                          978.7
                          
                          
                          $
                          829.6
  16
  Results
of Operations
  Consolidated
Results of Operations
  Three
      Months Ended
                                    
                                    
                                    2010
                                    
                                    
                                    Six
      Months Ended
                                    
                                    
                                    2010June
      30,
                                    
                                    
                                    vs.
                                    
                                    
                                    June
      30,
                                    
                                    
                                    vs.2010
                                    
                                    
                                    2009
                                    
                                    
                                    2009
                                    
                                    
                                    2010
                                    
                                    
                                    2010
                                    
                                    
                                    2009Operating
      revenues
                                    
                                    $
                                    5,691,000
                                    
                                    
                                    $
                                    5,132,000
                                    
                                    
                                    
                                    11
                                    %
                                    
                                    $
                                    11,242,000
                                    
                                    
                                    $
                                    10,295,000
                                    
                                    
                                    
                                    9
                                    %Operating
      expenses:Administrative
                                    
                                    
                                    6,082,000
                                    
                                    
                                    
                                    6,297,000
                                    
                                    
                                    
                                    -3
                                    %
                                    
                                    
                                    12,389,000
                                    
                                    
                                    
                                    12,581,000
                                    
                                    
                                    
                                    -2
                                    %Amortization
      of intangible assets
                                    
                                    
                                    829,000
                                    
                                    
                                    
                                    1,096,000
                                    
                                    
                                    
                                    -24
                                    %
                                    
                                    
                                    1,658,000
                                    
                                    
                                    
                                    2,039,000
                                    
                                    
                                    
                                    -19
                                    %Total
      operating expenses
                                    
                                    
                                    6,911,000
                                    
                                    
                                    
                                    7,393,000
                                    
                                    
                                    
                                    -7
                                    %
                                    
                                    
                                    14,047,000
                                    
                                    
                                    
                                    14,620,000
                                    
                                    
                                    
                                    -4
                                    %Operating
      loss
                                    
                                    
                                    (1,220,000
                                    )
                                    
                                    
                                    (2,261,000
                                    )
                                    
                                    
                                    -46
                                    %
                                    
                                    
                                    (2,805,000
                                    )
                                    
                                    
                                    (4,325,000
                                    )
                                    
                                    
                                    -35
                                    %Other
      income and expense
                                    
                                    
                                    404,000
                                    
                                    
                                    
                                    292,000
                                    
                                    
                                    
                                    38
                                    %
                                    
                                    
                                    719,000
                                    
                                    
                                    
                                    17,000
                                    
                                    
                                    NMLoss
      before taxes
                                    
                                    
                                    (816,000
                                    )
                                    
                                    
                                    (1,969,000
                                    )
                                    
                                    
                                    -59
                                    %
                                    
                                    
                                    (2,086,000
                                    )
                                    
                                    
                                    (4,308,000
                                    )
                                    
                                    
                                    -52
                                    %Income
      tax benefit
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (774,000
                                    )
                                    
                                    NM
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,572,000
                                    )
                                    
                                    NMNet
      loss
                                    
                                    $
                                    (816,000
                                    )
                                    
                                    $
                                    (1,195,000
                                    )
                                    
                                    
                                    -32
                                    %
                                    
                                    $
                                    (2,086,000
                                    )
                                    
                                    $
                                    (2,736,000
                                    )
                                    
                                    
                                    -24
                                    %Net
      loss per sharebasic
                                    
                                    $
                                    (0.04
                                    )
                                    
                                    $
                                    (0.06
                                    )
                                    
                                    
                                    
                                    
                                    
                                    $
                                    (0.10
                                    )
                                    
                                    $
                                    (0.13
                                    )diluted
                                    
                                    $
                                    (0.04
                                    )
                                    
                                    $
                                    (0.06
                                    )
                                    
                                    
                                    
                                    
                                    
                                    $
                                    (0.10
                                    )
                                    
                                    $
                                    (0.13
                                    )
  NM:  Not
meaningful
  The
decrease in the net loss for three months ended June 30, 2010 compared to the
three months ended June 30, 2009 is primarily attributable to the
following:
  ·
              An
      increase in revenue of $559,000, or 11%, reflecting an increase in average
      assets under management.
 ·
              A
      decrease in administrative expenses of $215,000, despite incurring
      $393,000 of severance costs, primarily reflecting compensation
      reductions.
 ·
              A
      decrease in amortization charges from $1,096,000 to $829,000, reflecting
      the write off of intangible assets during
2009.
 ·
              An
      increase in other income of $112,000, primarily reflecting the income from
      two equity investees in 2010.
 ·
              A
      $774,000 decrease in income tax benefits reflecting the continued
      establishment of valuation allowances for all deferred tax
      assets.
 
 The
decrease in the net loss for six months ended June 30, 2010 compared to the six
months ended June 30, 2009 is primarily attributable to the
following:
  ·
              An
      increase in revenue of $947,000, or 9%, reflecting an increase in average
      assets under management.
 ·
              A
      decrease in administrative expenses of $192,000, despite incurring
      $813,000 of severance costs in the 2010 period, primarily reflecting
      compensation reductions.
 ·
              A
      decrease in amortization charges from $2,039,000 to $1,658,000, reflecting
      the write off of intangible assets during
2009.
 ·
              An
      increase in other income of $702,000, primarily reflecting income from two
      equity investees in the 2010 period compared to a $381,000 impairment loss
      on a commingled stock fund recognized in the 2009
  period.
 ·
              A
      $1,572,000 decrease in income tax benefits reflecting the continued
      establishment of valuation allowances for all deferred tax
      assets.
  17
  In
evaluating operating performance, we consider operating income and net income,
which are calculated in accordance with accounting principles generally accepted
in the United States (“GAAP”), as well as Adjusted EBITDA, an internally derived
non-GAAP performance measure.  We define Adjusted EBITDA as operating
income or loss before non-cash charges for amortization and impairment of
intangible assets and goodwill, depreciation, and share compensation
expense.  We believe Adjusted EBITDA is useful as an indicator of our
ongoing performance and our ability to service debt, make new investments, and
meet working capital requirements.  Adjusted EBITDA, as we calculate
it, may not be consistent with computations made by other
companies.  We believe that many investors use this information when
analyzing the operating performance, liquidity, and financial position of
companies in the investment management industry.  The following table
provides a reconciliation of operating income to Adjusted EBITDA for the three
and six month periods ended June 30, 2010 and 2009.
  Three
      Months Ended
                                      
                                      
                                      2010
                                      
                                      
                                      Six
      Months Ended
                                      
                                      
                                      2010June
      30,
                                      
                                      
                                      vs.
                                      
                                      
                                      June
      30,
                                      
                                      
                                      vs.2010
                                      
                                      
                                      2009
                                      
                                      
                                      2009
                                      
                                      
                                      2010
                                      
                                      
                                      2010
                                      
                                      
                                      2009Operating
      loss
                                      
                                      $
                                      (1,220,000
                                      )
                                      
                                      $
                                      (2,261,000
                                      )
                                      
                                      
                                      -46
                                      %
                                      
                                      $
                                      (2,805,000
                                      )
                                      
                                      $
                                      (4,325,000
                                      )
                                      
                                      
                                      -35
                                      %Amortization
      of intangible assets
                                      
                                      
                                      829,000
                                      
                                      
                                      
                                      1,096,000
                                      
                                      
                                      
                                      -24
                                      %
                                      
                                      
                                      1,658,000
                                      
                                      
                                      
                                      2,039,000
                                      
                                      
                                      
                                      -19
                                      %Depreciation
      expense
                                      
                                      
                                      23,000
                                      
                                      
                                      
                                      26,000
                                      
                                      
                                      
                                      -12
                                      %
                                      
                                      
                                      47,000
                                      
                                      
                                      
                                      54,000
                                      
                                      
                                      
                                      -13
                                      %Share
      compensation expense
                                      
                                      
                                      (181,000
                                      )
                                      
                                      
                                      107,000
                                      
                                      
                                      NM
                                      
                                      
                                      
                                      (139,000
                                      )
                                      
                                      
                                      205,000
                                      
                                      
                                      NMAdjusted
      EBITDA
                                      
                                      $
                                      (549,000
                                      )
                                      
                                      $
                                      (1,032,000
                                      )
                                      
                                      
                                      -47
                                      %
                                      
                                      $
                                      (1,239,000
                                      )
                                      
                                      $
                                      (2,027,000
                                      )
                                      
                                      
                                      -39
                                      %
 
 NM:  Not
meaningful
 
 Adjusted
EBITDA for the three months ended June 30, 2010 includes severance costs of
$393,000.  Excluding severance costs, our Adjusted EBITDA deficit
would have been $156,000.  Adjusted EBITDA for the six months ended
June 30, 2010 includes severance costs of $813,000.  Excluding
severance costs, our Adjusted EBITDA deficit would have been
$426,000.
 
 Operating
Revenues
  Our
operating revenues include investment advisory fees received for the management
of assets within separate accounts and private funds.  We also receive
incentive fees on an annual basis from the management of two of the private
funds that invest in preferred stocks.  Our operating revenues also
include referral fees earned in connection with NIS’s referral arrangement with
Attalus.   Operating revenues increased by $559,000, or 11%, in
the three months ended June 30, 2010 and by $947,000, or 9%, for the six months
ended June 30, 2010 primarily due to the increase in average assets under
management.  The changes by revenue category are more fully described
below.
  Three
      Months Ended
                                      
                                      
                                      2010
                                      
                                      
                                      Six
      Months Ended
                                      
                                      
                                      2010June
      30,
                                      
                                      
                                      vs.
                                      
                                      
                                      June
      30,
                                      
                                      
                                      vs.2010
                                      
                                      
                                      2009
                                      
                                      
                                      2009
                                      
                                      
                                      2010
                                      
                                      
                                      2010
                                      
                                      
                                      2009Investment
      advisory fees
                                      
                                      $
                                      5,076,000
                                      
                                      
                                      $
                                      4,591,000
                                      
                                      
                                      
                                      11
                                      %
                                      
                                      $
                                      10,020,000
                                      
                                      
                                      $
                                      9,212,000
                                      
                                      
                                      
                                      9
                                      %Referral
      fees
                                      
                                      
                                      615,000
                                      
                                      
                                      
                                      541,000
                                      
                                      
                                      
                                      14
                                      %
                                      
                                      
                                      1,222,000
                                      
                                      
                                      
                                      1,083,000
                                      
                                      
                                      
                                      13
                                      %Total
      operating revenues
                                      
                                      $
                                      5,691,000
                                      
                                      
                                      $
                                      5,132,000
                                      
                                      
                                      
                                      11
                                      %
                                      
                                      $
                                      11,242,000
                                      
                                      
                                      $
                                      10,295,000
                                      
                                      
                                      
                                      9
                                      %
 
 For the
three month periods, investment advisory fees increased by $485,000, or 11%, in
2010 due to the increase in average assets under management from $7.6 billion in
2009 to $8.5 billion in 2010.  The 12% increase in average assets
under management was principally the result of strong fixed income returns and
positive net flows since June 30, 2009.  For the six month periods,
investment advisory fees increased by $808,000, or 9%, due to the increase in
average assets under management from $7.6 billion in 2009 to $8.4 billion in
2010.
  18
 
 The
$74,000 increase in referral fees for the three month period and the $139,000
increase for the six month period primarily reflect the increase in average
assets under management with Attalus under NIS’s referral
arrangement.
  We also
earn annual incentive fees from two private preferred stock funds managed by
NIS.  These fees are based on a calendar year performance period and
we recognize the fees at the conclusion of the performance period.  In
2009, we earned incentive fees of $1,256,000, which were recognized in December
2009.  While preferred stock returns are volatile, based on
performance through June 30, 2010, we would have earned incentive fees of
approximately $268,000.
 
 Administrative
Expenses
  Administrative
expenses for the three month period ended June 30, 2010 decreased by $215,000
compared to the 2009 period, despite incurring $393,000 of severance costs
during the 2010 period.  The decrease primarily reflects a $607,000
reduction in ongoing cash compensation costs.  Administrative expenses
for the six month period ended June 30, 2010 decreased by $192,000 compared to
the 2009 period, despite incurring $813,000 of severance costs during the 2010
period.  The decrease primarily reflects a $772,000 reduction in cash
compensation costs.  Other changes by expense category are more fully
described below.
 
 Three
      Months Ended
                                            
                                            
                                            2010
                                            
                                            
                                            Six
      Months Ended
                                            
                                            
                                            2010June
      30,
                                            
                                            
                                            vs.
                                            
                                            
                                            June
      30,
                                            
                                            
                                            vs.2010
                                            
                                            
                                            2009
                                            
                                            
                                            2009
                                            
                                            
                                            2010
                                            
                                            
                                            2010
                                            
                                            
                                            2009Employee
      compensation:Cash
      compensation
                                            
                                            $
                                            3,705,000
                                            
                                            
                                            $
                                            3,919,000
                                            
                                            
                                            
                                            -5
                                            %
                                            
                                            $
                                            7,713,000
                                            
                                            
                                            $
                                            7,672,000
                                            
                                            
                                            
                                            1
                                            %Share-based
      compensation
                                            
                                            
                                            (181,000
                                            )
                                            
                                            
                                            107,000
                                            
                                            
                                            NM
                                            
                                            
                                            
                                            (139,000
                                            )
                                            
                                            
                                            206,000
                                            
                                            
                                            NMTotal
      compensation
                                            
                                            
                                            3,524,000
                                            
                                            
                                            
                                            4,026,000
                                            
                                            
                                            
                                            -12
                                            %
                                            
                                            
                                            7,574,000
                                            
                                            
                                            
                                            7,878,000
                                            
                                            
                                            
                                            -4
                                            %Third
      party distribution expense
                                            
                                            
                                            360,000
                                            
                                            
                                            
                                            211,000
                                            
                                            
                                            
                                            71
                                            %
                                            
                                            
                                            610,000
                                            
                                            
                                            
                                            416,000
                                            
                                            
                                            
                                            47
                                            %Investment
      management expense
                                            
                                            
                                            511,000
                                            
                                            
                                            
                                            370,000
                                            
                                            
                                            
                                            38
                                            %
                                            
                                            
                                            957,000
                                            
                                            
                                            
                                            772,000
                                            
                                            
                                            
                                            24
                                            %Legal,
      audit, and other professional services
                                            
                                            
                                            479,000
                                            
                                            
                                            
                                            496,000
                                            
                                            
                                            
                                            -3
                                            %
                                            
                                            
                                            989,000
                                            
                                            
                                            
                                            1,171,000
                                            
                                            
                                            
                                            -16
                                            %Occupancy
                                            
                                            
                                            332,000
                                            
                                            
                                            
                                            331,000
                                            
                                            
                                            NC
                                            
                                            
                                            
                                            659,000
                                            
                                            
                                            
                                            659,000
                                            
                                            
                                            NCOther
      administrative expenses
                                            
                                            
                                            876,000
                                            
                                            
                                            
                                            863,000
                                            
                                            
                                            
                                            2
                                            %
                                            
                                            
                                            1,600,000
                                            
                                            
                                            
                                            1,685,000
                                            
                                            
                                            
                                            -5
                                            %Total
      administrative expenses
                                            
                                            $
                                            6,082,000
                                            
                                            
                                            $
                                            6,297,000
                                            
                                            
                                            
                                            -3
                                            %
                                            
                                            $
                                            12,389,000
                                            
                                            
                                            $
                                            12,581,000
                                            
                                            
                                            
                                            -2
                                            %
 
 NM:  Not
meaningful
 NC:  No
change
 
 For the
three month period ended June 30, 2010, cash compensation decreased by $214,000,
or 5%, compared to the 2009 period despite $393,000 of severance
costs.  Excluding severance, our cash compensation decreased by
$607,000, or 15%, primarily due to reduced headcount.  For the six
month period ended June 30, 2010, cash compensation increased by $41,000,
primarily due to $813,000 of severance costs.  Excluding severance,
our cash compensation for the six month periods decreased by $772,000, or
10%.  Overall, we reduced headcount from 97 at June 30, 2009 to 81 at
June 30, 2010.
  The
credit for share-based compensation in the three months ended June 30, 2010
reflects the forfeiture of a share grant and the reversal of previously
recognized compensation expense.  At June 30, 2010 there are no
outstanding stock awards.
  19
  Third
party distribution expense represents payments made to broker-dealer networks
and other outside sales commissions. The increases in 2010 reflects increased
levels of business conducted through an outside sales agent and a broker dealer
network.
  Investment
management expense includes pricing, trading, compliance, and other investment
management service costs and subadvisory service fees for outside assistance in
the management of a certain asset class.  The increase in investment
management expense reflects increased subadvisory service fees resulting from
growth in that class of assets.
  The
$182,000 decrease in legal, audit, and other professional services expense for
the six months ended June 30, 2010 primarily reflects reduced legal and
accounting services.  During the six months ended June 30, 2009, we
incurred significant legal and accounting costs in connection with the
completion of our initial Form 10-K.
  Other
administrative expenses principally include travel and other marketing related
expenses, insurance expense, and other operating expenses.
  Other
Income and Expense
  Other
income and expense includes investment income from the investment of excess cash
balances offset by interest expense that represents accretion of discounted
acquisition obligations.
  Three
      Months Ended
                                      
                                      
                                      2010
                                      
                                      
                                      Six
      Months Ended
                                      
                                      
                                      2010June
      30,
                                      
                                      
                                      vs.
                                      
                                      
                                      June
      30,
                                      
                                      
                                      vs.2010
                                      
                                      
                                      2009
                                      
                                      
                                      2009
                                      
                                      
                                      2010
                                      
                                      
                                      2010
                                      
                                      
                                      2009Interest
      income
                                      
                                      $
                                      76,000
                                      
                                      
                                      $
                                      114,000
                                      
                                      
                                      
                                      -33
                                      %
                                      
                                      $
                                      164,000
                                      
                                      
                                      $
                                      234,000
                                      
                                      
                                      
                                      -30
                                      %Realized
      gains on investments
                                      
                                      
                                      24,000
                                      
                                      
                                      
                                      193,000
                                      
                                      
                                      
                                      -88
                                      %
                                      
                                      
                                      127,000
                                      
                                      
                                      
                                      193,000
                                      
                                      
                                      
                                      -34
                                      %Impairment
      loss on investment in commingled stock fund
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      NC
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (381,000
                                      )
                                      
                                      NMIncome
      from equity investees
                                      
                                      
                                      304,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      NM
                                      
                                      
                                      
                                      444,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      NMInterest
      expense
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (15,000
                                      )
                                      
                                      NM
                                      
                                      
                                      
                                      (16,000
                                      )
                                      
                                      
                                      (29,000
                                      )
                                      
                                      
                                      -45
                                      %Total
      other income (expense)
                                      
                                      $
                                      404,000
                                      
                                      
                                      $
                                      292,000
                                      
                                      
                                      
                                      38
                                      %
                                      
                                      $
                                      719,000
                                      
                                      
                                      $
                                      17,000
                                      
                                      
                                      NM
 
 NM:  Not
meaningful
 NC:  No
change
 
 We earn
interest income and realize investment gains on a portfolio of debt securities
managed to enhance our yield on cash not immediately needed for
operations.  At June 30, 2010, we had $9,987,000 invested in the
portfolio of debt securities compared to $8,574,000 at June 30,
2009.  Since December 31, 2009, we used $6,000,000 of these funds to
invest in two of our private funds.  The decrease in interest income
and realized gains reflects a reduction in the average level of assets in the
portfolio.
  The
impairment loss represents a loss incurred in connection with our investment in
the Plurima Titanium U.S. Stock Fund, a sub-fund of the Dublin-based Plurima
Funds mutual funds complex, to which Wood served as investment
advisor.  During 2008, we invested $968,000 in the commingled stock
fund as seed money for its development.  In March 2009, the Company’s
board of directors determined that additional investments from other parties
into the Plurima Titanium U.S. Equity Fund were likely not to be
forthcoming.  As a result, we decided to liquidate our investment in
the commingled stock fund.  Based on this decision, we recognized a
$381,000 impairment loss on this investment.  We subsequently
liquidated our investment and received proceeds of $587,000 from Plurima in
2009.
  20
  Income
from equity investees represents our share of the net income of two investments
in affiliates.
  Our
investment in affiliates includes an investment in the Titanium TALF Opportunity
Fund, which we organized for our clients to invest primarily in securities
participating in the Term Asset-Backed Securities Loan Facility of the Federal
Reserve Bank of New York.  We are the managing member of the TALF Fund
and serve as the investment manager for the TALF Fund for which we receive
management fees.  As of June 30, 2010, our investment in the TALF Fund
represents approximately 11% of the total investments in the TALF
Fund.  Because we have an equity interest in the TALF Fund and have
significant influence over the TALF Fund’s daily activities through our role as
managing member and investment manager, we account for this investment using the
equity method of accounting.
 
 Our
investment in affiliates also includes a $2,000,000 investment in the NIS Fixed
Income Arbitrage Fund, LTD. (the “NIS ARB Fund”) made during the three months
ended March 31, 2010.  We are the managing member of the NIS ARB fund
and serve as the investment manager for the NIS ARB Fund for which we receive
management fees.  As of June 30, 2010, our investment in the NIS ARB
Fund represents approximately 15% of the total investments in the NIS ARB
fund.  Because we have an equity interest in the NIS ARB Fund and have
significant influence over the NIS ARB Fund’s daily activities through our role
as managing member and investment manager, we account for this investment using
the equity method of accounting.
 
 Liquidity
and Capital Resources
  At June
30, 2010, we had $17,588,000 of funds available consisting of $1,224,000 of cash
and cash equivalents, $9,987,000 of securities available for sale, and
$6,377,000 invested in the two private funds that we manage.  At
December 31, 2009, these combined balances were $19,501,000.  The
$1,911,000 reduction primarily reflects the $1,744,000 of acquisition obligation
payments made during the six months ended June 30, 2010.
  Six
      Months Ended June 30,2010
                        
                        
                        2009Net
      cash used in operating activities
                        
                        $
                        (604,000
                        )
                        
                        $
                        (1,438,000
                        )Net
      cash used in investing activities
                        
                        $
                        (2,945,000
                        )
                        
                        $
                        (6,019,000
                        )
 
 Net cash
used in operating activities decreased from $1,438,000 in 2009 to $604,000 in
2010 primarily due to increased operating revenues and by decreases in
administrative expenses.
  Net cash
used in investing activities in 2010 primarily reflects the use of approximately
$4,000,000 for additional investments in two private funds that we manage,
payments of $1,744,000 for the final acquisition obligations related to our
acquisitions of NIS and Sovereign, partially offset by a decrease in invested
assets.  Net cash used in investing activities in 2009 reflects
payments of $8,145,000 for acquisition obligations related to our acquisitions
of Boyd and NIS, partially offset by a decrease in invested
assets.
  21
  In
connection with the acquisitions of Wood, Sovereign, NIS and Boyd, the
acquisition agreements provided for deferred fixed payments and contingent
payments based on assets under management or revenues at specified future
dates.  The deferred fixed amounts due as of June 30, 2010 and
December 31, 2009 are as follows:
  2010
                            
                            
                            2009Current
      amounts:Sovereign acquisition obligation
      (a)
                            
                            $
                            -
                            
                            
                            $
                            1,033,000NIS acquisition obligation
      (b)
                            
                            
                            -
                            
                            
                            
                            713,000Current
      acquisition payments due
                            
                            $
                            -
                            
                            
                            $
                            1,746,000Noncurrent
      amount -Boyd acquisition obligation
      (c)
                            
                            $
                            960,000
                            
                            
                            $
                            960,000
  (a)
              During
      the period ended March 31, 2010, as part of a settlement agreement with
      the previous majority owner of Sovereign, the Company agreed to pay
      $1,015,000 in full satisfaction of all amounts due, or that would become
      due, under the acquisition agreement.  This amount was paid in
      April 2010.
  (b)
              The
      NIS acquisition obligation was paid in May
2010.
  (c)
              The
      Boyd acquisition obligation reflects a deferred stock grant of 192,000
      shares of common stock valued at $960,000, payable in
  2011.
  Under
terms of the acquisition agreement for Wood, the seller may receive additional
payments should Wood achieve certain revenue and assets under management
milestones through September 30, 2011.  At June 30, 2010, the
remaining maximum payments are $3,000,000, of which up to 50% is payable in
Titanium common stock.  Based on current estimates for assets under
management and revenues, the Company estimates that approximately $995,000 will
be due under the assets under management provision in 2011 and that no amount
will be due under the revenue provision.
  Under
terms of the acquisition agreement for Boyd, the sellers may receive an
additional deferred payment up to $8,000,000 based on the revenue run rate as of
December 31, 2010, payable in 2011. The additional deferred payment is payable
65% cash and 35% Titanium common stock.  Based on current estimates
for the future revenue run rate of Boyd, the Company estimates that the
full $8,000,000 will be due in 2011.
  We
believe our current level of cash and cash equivalents and short-term securities
available for sale are sufficient to fund our ongoing operations, to fund
current obligations under our completed acquisitions, to fund the expected cash
portion of contingent payments due under our completed acquisitions, and to
provide consideration for additional acquisitions.  We expect to fund
future acquisitions partly through issuance of additional common stock and with
cash from the conversion of our outstanding warrants, although we may incur bank
debt as well.
  Critical
Accounting Policies
  Our
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America.  Preparation of these statements requires us to make
judgments and estimates.  Some accounting policies have a significant
impact on amounts reported in these financial statements.  A summary
of significant accounting policies and a description of critical accounting
estimates may be found in our 2009 Form 10-K in the Notes to the Consolidated
Financial Statements  and the Critical Accounting Estimates section of
Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
  22
  Recent
Accounting Pronouncements
  The
following new accounting standards and amendments to standards first became
effective for the fiscal year beginning January 1, 2010:
 
 ·
              A
      standard, which was issued by the FASB in June 2009, that requires
      entities to provide more information regarding sales of securitized
      financial assets and similar transactions.  The adoption of this
      standard did not have a significant impact on the Company’s consolidated
      financial statements.
 
 ·
              A
      standard, which was issued by the FASB in June 2009, that modifies how a
      company determines when an entity that is insufficiently capitalized or is
      not controlled through voting (or similar rights) should be
      consolidated.  The standard clarifies that the determination of
      whether a company is required to consolidate an entity is based on, among
      other things, an entity’s purpose and design and a company’s ability to
      direct the activities of the entity that most significantly impact the
      entity’s performance.  The standard requires an ongoing
      reassessment of whether a company is the primary beneficiary of a variable
      interest entity and also requires additional disclosures about a company’s
      involvement in variable interest entities and any significant changes in
      risk exposure due to that involvement.  The FASB subsequently
      amended this standard to defer the consolidation requirements for
      investments in investment companies.  The adoption of this
      standard did not have a significant impact on the Company’s consolidated
      financial statements.
 
 ·
              An
      amended standard, issued by the FASB in January 2010, that require
      additional disclosures about significant transfers in and out of levels 1
      and 2 fair value measurements and reasons for the transfers.  In
      addition, the amended standard requires new disclosures relating to the
      reconciliation for fair value measurements using unobservable inputs
      (level 3) detailing information about purchases, issuances, and
      settlements on a gross basis.  The adoption of these amended
      disclosure requirements did not have a significant impact on the company’s
      consolidated financial statements.
 
 Item
3.                      Quantitative
and Qualitative Disclosures About Market Risk
  Not
applicable.
  Item
4T.                   Controls
and Procedures
  Evaluation of disclosure controls
and procedures.  Based on the evaluation of our disclosure
controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), required
by Exchange Act Rules 13a-15(b) or 15d-15(b)), our principal executive officer
and principal financial officer have concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this report to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and include
controls and procedures designated to ensure that information required to be
disclosed by us in such reports is accumulated and communicated to our
management, including the principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.
  Changes in internal control over
financial reporting.  There were no changes in our internal
control over financial reporting that occurred during the three months ended
June 30, 2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
   23
  PART
II.                  OTHER
INFORMATION
  Item
1.                      Legal
Proceedings
  For
information regarding legal proceedings related to the Company, see Note 10 –
Contingencies.
  Item
1A.                   Risk
Factors
  Not
applicable.
 
 Item
2.                      Unregistered
Sales of Equity Securities and Use of Proceeds
  None.
  Item
3.                      Defaults
Upon Senior Securities
  None.
 
 Item
4.                      (Removed
and Reserved)
  Not
applicable.
  Item
5.                      Other
Information
  None.
  Item
6.                      Exhibits
  Exhibit Number
                  
                  Description31.1
                  
                  Chief
      Executive Officer Certification pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934.31.2
                  
                  Chief
      Financial Officer Certification pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934.32.1
                  
                  Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
                  
                  Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.
  24
  SIGNATURES
  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.
  TITANIUM
      ASSET MANAGEMENT CORP.August
      13, 2010
                      By:
                      /s/ Robert BrooksName:
      Robert BrooksTitle:
      Chief Executive Officer (Principal Executive Officer)August
      13, 2010
                      By:
                      /s/ Jonathan HoeneckeName:
      Jonathan HoeneckeTitle:
      Chief Financial Officer (Principal Financial Officer and Principal
      Accounting
Officer)
  
  EXHIBIT
INDEX
  Exhibit Number
                  
                  Description31.1
                  
                  Chief
      Executive Officer Certification pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934.31.2
                  
                  Chief
      Financial Officer Certification pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934.32.1
                  
                  Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
                  
                  Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.