SOURCE: Highbury

November 16, 2009 16:01 ET

Highbury Financial Inc. Reports Financial and Operating Results for the Three and Nine Months Ended September 30, 2009

DENVER, CO--(Marketwire - November 16, 2009) - Highbury Financial Inc. (OTCBB: HBRF) (OTCBB: HBRFW) (OTCBB: HBRFU)

--  Company Reports Basic EPS of $0.08 and Diluted EPS of $0.07 and Basic
    Cash EPS of $0.10 and Diluted Cash EPS of $0.09 for the Third Quarter of
    2009
    
--  Company Reports Basic EPS of $0.20 and Diluted EPS of $0.19 and Basic
    Cash EPS of $0.28 and Diluted Cash EPS of $0.27 for the Nine Months Ended
    September 30, 2009
    

Highbury Financial Inc. (OTCBB: HBRF) (OTCBB: HBRFW) (OTCBB: HBRFU) today reported its financial and operating results for the three and nine months ended September 30, 2009.

Net income attributable to Highbury Financial Inc. for the third quarter of 2009 was $851,580 compared to $641,004 for the third quarter of 2008. Cash Net Income attributable to Highbury Financial Inc. was $1,108,134 for the three months ended September 30, 2009 compared to $920,265 for the three months ended September 30, 2008. Basic Cash Net Income per common share ("Cash EPS") for the third quarter of 2009 was $0.10 compared to $0.10 for the third quarter of 2008. Diluted Cash EPS for the third quarter of 2009 was $0.09 compared to $0.10 for the third quarter of 2008. Cash Net Income is defined in the attached tables. Basic earnings per common share for the third quarter of 2009 were $0.08 compared to $0.07 for the third quarter of 2008. Diluted earnings per common share for the third quarter of 2009 were $0.07 compared to $0.07 for the third quarter of 2008. Adjusted EBITDA for the three months ended September 30, 2009 was $1,105,339 compared to $1,099,742 for the three months ended September 30, 2008. Adjusted EBITDA is defined in the attached tables. For the third quarter of 2009, revenue was $11,196,682 compared to $9,595,927 for the third quarter of 2008.

Net income attributable to Highbury Financial Inc. for the first nine months of 2009 was $1,967,392 compared to $2,166,164 for the first nine months of 2008. Cash Net Income attributable to Highbury Financial Inc. was $2,736,216 for the nine months ended September 30, 2009 compared to $3,007,006 for the nine months ended September 30, 2008. Basic Cash EPS for the first nine months of 2009 were $0.28 compared to $0.33 for the first nine months of 2008. Diluted Cash EPS for the first nine months of 2009 were $0.27 compared to $0.33 for the first nine months of 2008. Basic earnings per common share for the first nine months of 2009 were $0.20 compared to $0.24 for the first nine months of 2008. Diluted earnings per common share for the first nine months of 2009 were $0.19 compared to $0.24 for the first nine months of 2008. Adjusted EBITDA for the nine months ended September 30, 2009 was $2,939,215 compared to $3,625,351 for the nine months ended September 30, 2008. For the first nine months of 2009, revenue was $27,456,743 compared to $28,555,443 for the first nine months of 2008.

In the third quarter of 2009, Highbury's weighted average assets under management totaled approximately $5.6 billion with a weighted average fee basis of 0.77%. As of September 30, 2009, 79% of the Company's mutual fund assets under management were in funds rated with four or five stars by Morningstar, Inc.

As of September 30, 2009, the Company had approximately $6.2 billion of total assets under management, compared to approximately $5.1 billion as of June 30, 2009 and approximately $4.5 billion as of September 30, 2008. As of September 30, 2009, mutual fund assets under management were approximately $6.0 billion, compared to approximately $4.9 billion as of June 30, 2009, an increase of approximately 22%, and approximately $4.3 billion as of September 30, 2008, an increase of approximately 39%. This aggregate increase in mutual fund assets under management of $1,104 million since June 30, 2009 resulted from a combination of (i) positive market appreciation and other adjustments, including distributions of income and gain, reinvestments of distributions, and other items, of approximately $765 million and (ii) net client inflows, which represent aggregate contributions from new and existing clients less withdrawals, of approximately $339 million during the three months ended September 30, 2009. During the three months ended September 30, 2009, separate account assets under management increased from $132 million to $160 million.

As of November 16, 2009 we had 15,039,244 shares of common stock outstanding and 3,832,056 warrants to purchase shares of common stock outstanding. In addition, there are 4,500,000 shares of common stock reserved for issuance upon conversion of the 1,000 outstanding shares of Series B Convertible Preferred Stock ("Preferred Stock"). The Preferred Stock has a face value of $22.5 million reflecting a conversion price of $5.00 per share. The Preferred Stock bears a dividend of 4% of the face value and is convertible only in certain circumstances. On November 13, 2009, Highbury had cash and equivalents and investments of approximately $13.8 million and no debt outstanding.

In July 2009, three of our stockholders sent letters to our Board of Directors requesting, among other things, changes to our management and the composition of our Board of Directors. In response to the initiatives of these stockholders, in August 2009, our Board of Directors formed a Special Committee to explore and evaluate strategic alternatives aimed at enhancing value for all of our stockholders. The Special Committee hired the investment banking firm of Sandler O'Neill & Partners, L.P. and the law firm of Debevoise & Plimpton LLP to provide financial advisory and legal services, respectively, to the Special Committee. In addition, one of our stockholders has filed a preliminary proxy statement in connection with our 2009 annual meeting which includes two non-binding stockholder proposals and nominates a candidate for election to our Board of Directors.

For the quarter ended September 30, 2009, we incurred $685,583 of expenses related to the Special Committee and the contested proxy solicitation in connection with our 2009 annual meeting. These expenses include approximately $662,910 of professional fees (including but not limited to legal, accounting and financial advisory fees), $15,142 of travel expenses and $7,531 of other expenses. Such expenses may continue to be incurred beyond the quarter ended September 30, 2009 in amounts which cannot presently be estimated, but which may continue to be substantial. These additional expenses have had a negative impact on our results of operations during the quarter ended September 30, 2009 and may have a negative impact on our results in future periods.

Pursuant to an exchange agreement dated August 10, 2009, the Aston management team sold all of its equity interests in Aston to Highbury in exchange for shares of Preferred Stock of Highbury. As a result of this transaction, Aston became a wholly owned subsidiary of Highbury. For the quarter ended September 30, 2009, we incurred $822,499 of one-time, non-recurring transaction expenses related to this acquisition. These expenses include approximately $803,551 of professional fees (including but not limited to legal, accounting and financial advisory fees), $14,898 of travel expenses and $4,050 of other expenses.

Richard S. Foote, Highbury's President and Chief Executive Officer, stated, "Since we formed the Special Committee in August and initiated a review of strategic alternatives, management and the Board of Directors have taken several steps to enhance the value of our Company for all of our stockholders."

Mr. Foote continued, "On August 10, 2009, we acquired the remaining 35% equity interest of our sole operating subsidiary, Aston Asset Management LLC, or Aston, from Aston's management team in exchange for 1,000 shares of Preferred Stock of Highbury. This transaction provided significant economic accretion to Highbury by increasing our participation in Aston's cash flows by nearly 54%. The exchange also created greater alignment of interests between our stockholders and Aston's management team, as they are now significant equity owners of Highbury alongside our public stockholders."

Mr. Foote continued, "On August 10, 2009, we also adopted a stockholder rights plan which is designed to assure that all stockholders of Highbury receive fair and equal treatment in the event of any proposed takeover of Highbury, to guard against two-tier, partial or other coercive tender offers, open market accumulations and other tactics designed to gain control of Highbury without paying all stockholders a fair price, to provide the Board of Directors with sufficient time to review takeover proposals and consider available alternatives and to enhance the Board of Directors' ability to negotiate with a prospective acquiror. The plan is not intended to deter acquisition proposals that are fair and otherwise in the best interests of Highbury and its stockholders."

Mr. Foote continued, "On September 17, we announced the continuation of our regular quarterly dividend of $0.05 per share and declared a special dividend of $1.50 per share. This dividend of $1.55 per share in aggregate was paid to stockholders on October 7 and allowed the Company to return approximately $30.3 million of capital to our stockholders."

Mr. Foote concluded, "While the Special Committee evaluates strategic alternatives for the Company, management and the Board of Directors will continue to seek to create, enhance and preserve value for our stockholders."

Highbury is an investment management holding company. Aston Asset Management LLC, Highbury's wholly owned subsidiary, or Aston, is an investment management firm that is the investment adviser to the Aston Funds, a Delaware business trust, and a variety of separately managed accounts. Historically, Highbury has pursued acquisition opportunities and sought to establish accretive partnerships with high-quality investment management firms. We are currently evaluating strategic alternatives, and while we evaluate strategic alternatives, we will not pursue acquisition opportunities other than add-on acquisitions for Aston. Aston intends to expand its assets under management with a combination of internal growth, new product development and accretive acquisitions.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to Highbury's future financial or business performance, strategies and expectations. Forward-looking statements are typically identified by words or phrases such as "trend," "potential," "opportunity," "pipeline," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "outlook," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" and similar expressions.

Highbury cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and Highbury assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to factors previously disclosed in Highbury's SEC filings and those identified elsewhere in this press release, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies; (2) changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; (3) terrorist activities and international hostilities, which may adversely affect the general economy, financial and capital markets, specific industries, and Highbury; (4) changing conditions in global financial markets generally and in the equity markets particularly, and decline or lack of sustained growth in these markets; (5) Highbury's business strategy and plans; (6) the introduction, withdrawal, success and timing of business initiatives and strategies; (7) the unfavorable resolution of legal proceedings and/or harm to Highbury's reputation; (8) fluctuations in customer demand; (9) management of rapid growth; (10) the impact of fund performance on redemptions; (11) changes in investors' preference of investing styles; (12) changes in or loss of sub-advisers; (13) the impact of increased competition; (14) the results of future financing efforts; (15) the impact of future acquisitions or divestitures; (16) the relative and absolute investment performance of Highbury's investment products; (17) investment advisory agreements subject to termination or non-renewal; (18) a substantial reduction in fees received from third parties; (19) Highbury's success in finding or consummating add-on acquisitions of investment management firms for Aston; (20) the ability to retain major clients; (21) the ability to attract and retain highly talented professionals; (22) significant limitations or failure of software applications; (23) expenses subject to significant fluctuations; (24) the impact, extent and timing of technological changes and the adequacy of intellectual property protection; (25) the impact of capital improvement projects; (26) the extent and timing of any share repurchases; (27) the impact of changes to tax legislation and, generally, the tax position of Highbury; and (28) expenses associated with the formation of the Special Committee and responding to initiatives of dissident stockholders.

Highbury's filings with the SEC, accessible on the SEC's website at http://www.sec.gov, discuss these factors in more detail and identify additional factors that can affect forward-looking statements.


Highbury Financial Inc.
Financial Highlights



                           Three Months Ended         Nine Months Ended
                              September 30,             September 30,
                        ------------------------- -------------------------
                            2008         2009         2008         2009
                        ------------ ------------ ------------ ------------
Revenue                 $  9,595,927 $ 11,196,682 $ 28,555,443 $ 27,456,743

Net Income attributable
 to Highbury Financial
 Inc.                   $    641,004 $    851,580 $  2,166,164 $  1,967,392

Cash Net Income
 attributable to
 Highbury Financial
 Inc. (1)               $    920,265 $  1,108,134 $  3,007,006 $  2,736,216

Adjusted EBITDA (2)     $  1,099,742 $  1,105,339 $  3,625,351 $  2,939,215

Average common shares
 outstanding - basic       9,126,628    9,378,117    9,170,068    9,196,216

Earnings common per
 share - basic          $       0.07 $       0.08 $       0.24 $       0.20

Average common shares
 outstanding - diluted     9,126,628   12,074,791    9,170,068   10,114,232

Earnings common per
 share - diluted        $       0.07 $       0.07 $       0.24 $       0.19



Highbury Financial Inc.
Financial Highlights

                                                 December 31, September 30,
                                                     2008         2009
                                                 ------------  ------------
Cash and cash equivalents and investments        $ 14,431,021  $ 27,828,618

Senior debt                                      $         --  $         --

Senior convertible debt                          $         --  $         --

Mandatory convertible securities                 $         --  $         --

Other long term obligations                      $    805,707  $    771,954

Highbury Financial Inc. stockholders’ equity     $ 40,693,128  $ 28,956,771



Highbury Financial Inc.
Earnings Per Share and Average Shares Outstanding


                              Three Months Ended      Nine Months Ended
                                September 30,           September 30,
                            ----------------------- -----------------------
                               2008        2009        2008        2009
                            ----------- ----------- ----------- -----------
Earnings Per Common Share -
 Basic
Numerator:
Net income attributable to
 common stockholders        $   641,004 $   724,406 $ 2,166,164 $ 1,840,218
                            =========== =========== =========== ===========
Denominator:
Average common shares
 outstanding - basic          9,126,628   9,378,117   9,170,068   9,196,216
                            =========== =========== =========== ===========


Earnings Per Common Share -
 Diluted
Numerator:
Net income attributable to
 Highbury Financial Inc.    $   641,004 $   851,580 $ 2,166,164 $ 1,967,392
                            =========== =========== =========== ===========
Denominator:
Average common shares
 outstanding - basic          9,126,628   9,378,117   9,170,068   9,196,216
Effect of dilutive
 instruments:
  Series B Preferred Stock            -   2,601,563           -     885,638
  Warrants                            -      95,111           -      32,378
                            ----------- ----------- ----------- -----------
Average common shares
 outstanding - diluted        9,126,628  12,074,791   9,170,068  10,114,232
                            =========== =========== =========== ===========



Highbury Financial Inc.
Reconciliations of Performance and Liquidity Measures



                           Three Months Ended         Nine Months Ended
                              September 30,             September 30,
                        ------------------------- -------------------------
                            2008         2009         2008         2009
                        ------------ -----------  ------------ -----------

Net Income attributable
 to Highbury Financial
 Inc.                   $    641,004 $   851,580  $  2,166,164 $ 1,967,392
Intangible amortization           --          --            --          --
Intangible-related
 deferred taxes              233,263     210,215       699,788     630,643
Affiliate depreciation        45,998      46,339       141,054     138,181
Other non-cash expenses           --          --            --          --
                        ------------ -----------  ------------ -----------
  Cash Net Income
   attributable to
   Highbury Financial
   Inc.                 $    920,265 $ 1,108,134  $  3,007,006 $ 2,736,216
Preferred dividends               --    (127,174)           --    (127,174)
                        ------------ -----------  ------------ -----------
  Cash Net Income
   attributable to common
   stockholders         $    920,265 $   980,960  $  3,007,006 $ 2,609,042
                        ============ ===========  ============ ===========



                           Three Months Ended         Nine Months Ended
                              September 30,             September 30,
                        ------------------------- -------------------------
                            2008         2009         2008         2009
                        ------------ ------------ ------------ ------------
Net Income attributable
 to Highbury Financial
 Inc.                   $    641,004 $    851,580 $  2,166,164 $  1,967,392
Provision for income
 taxes                       412,740      207,420    1,318,133      833,642
Interest expense                  --           --           --           --
Intangible amortization           --           --           --           --
Depreciation and other
 amortization                 45,998       46,339      141,054      138,181
Other non-cash expenses           --           --           --           --
                        ------------ ------------ ------------ ------------
  Adjusted EBITDA       $  1,099,742 $  1,105,339 $  3,625,351 $  2,939,215
                        ============ ============ ============ ============


Highbury Financial Inc.
Consolidated Balance Sheets


                                              December 31,   September 30,
                                                  2008           2009
                                              -------------  -------------
                                                (audited)     (unaudited)
ASSETS
Current assets
Cash and cash equivalents                     $  10,244,469  $  23,871,418
Investments                                       4,186,552      3,957,200
Accounts receivable                               2,448,572      3,932,153
Prepaid expenses                                    239,434         89,696
Prepaid taxes                                       278,444              -
                                              -------------  -------------
Total current assets                             17,397,471     31,850,467
                                              -------------  -------------

Other assets
  Fixed assets, net                                 806,637        683,032
  Identifiable intangibles                       22,982,000     22,982,000
  Goodwill                                        3,305,616      3,305,616
  Deferred tax assets                             1,097,620        341,814
  Other long-term assets                            157,092        100,000
                                              -------------  -------------
Total other assets                               28,348,965     27,412,462
                                              -------------  -------------

Total assets                                  $  45,746,436  $  59,262,929
                                              =============  =============

LIABILITIES AND EQUITY
Current liabilities
  Accounts payable and accrued expenses       $   3,407,601  $   3,966,391
  Dividends payable                                       -     25,551,877
  Income taxes payable                                    -         15,936
                                              -------------  -------------
Total current liabilities                         3,407,601     29,534,204

Deferred rent                                       805,707        771,954
                                              -------------  -------------
Total liabilities                                 4,213,308     30,306,158
                                              -------------  -------------

Commitments and contingencies

Equity

Highbury Financial Inc. stockholders’ equity
  Preferred stock, $0.0001 par value,
   authorized 1,000,000 shares; 0 and
   1,000 shares issued and outstanding as
   of December 31, 2008 and September 30,
   2009, respectively:
    -- Series A Junior Participating Preferred
        Stock (0 shares issued)
    -- Series B Convertible Preferred Stock
        (1,000 shares issued; liquidation
        value of $22,500,000 as of September
        30, 2009)                                         -              -
  Common stock, $0.0001 par value, authorized
   50,000,000 shares; 9,118,740 and 11,985,082
   shares issued and outstanding as of
   December 31, 2008 and September 30, 2009,
   respectively                                         912          1,199
  Additional paid-in capital                     51,818,975     38,114,939
  Accumulated deficit                           (11,126,759)    (9,159,367)
                                              -------------  -------------
Total Highbury Financial Inc. stockholders’
 equity                                          40,693,128     28,956,771

Noncontrolling interest                             840,000              -
                                              -------------  -------------

Total equity                                     41,533,128     28,956,771
                                              -------------  -------------

Total liabilities and equity                  $  45,746,436  $  59,262,929
                                              =============  =============



Highbury Financial Inc.
Consolidated Statements of Income

                        Three Months Ended          Nine Months Ended
                          September 30,               September 30,
                    --------------------------  --------------------------
                        2008          2009          2008          2009
                    ------------  ------------  ------------  ------------
Revenue             $  9,595,927  $ 11,196,682  $ 28,555,443  $ 27,456,743
                    ------------  ------------  ------------  ------------

Operating expenses
  Distribution and
   sub-advisory costs (4,395,372)   (5,363,929)  (13,182,141)  (12,975,323)
  Compensation and
   related expenses   (1,699,827)   (1,716,422)   (4,846,431)   (5,000,412)
  Depreciation and
   amortization          (45,998)      (46,339)     (141,054)     (138,181)
  Other operating
   expenses           (1,183,440)   (2,578,351)   (3,845,466)   (5,110,205)
                    ------------  ------------  ------------  ------------
Total operating
 expenses             (7,324,637)   (9,705,041)  (22,015,092)  (23,224,121)
                    ------------  ------------  ------------  ------------

Operating income       2,271,290     1,491,641     6,540,351     4,232,622
                    ------------  ------------  ------------  ------------

Other income
  Interest income         43,114         5,007       117,249        24,255
  Investment income
   (loss)               (369,556)      303,059      (524,261)      443,382
                    ------------  ------------  ------------  ------------
Total other income
 (loss)                 (326,442)      308,066      (407,012)      467,637
                    ------------  ------------  ------------  ------------

Income before
 provision for
 income taxes          1,944,848     1,799,707     6,133,339     4,700,259

Provision for
 income taxes           (412,740)     (207,420)   (1,318,133)     (833,642)

                    ------------  ------------  ------------  ------------
Net income             1,532,108     1,592,287     4,815,206     3,866,617

Net income
 attributable to
 noncontrolling
 interest               (891,104)     (740,707)   (2,649,042)   (1,899,225)

                    ------------  ------------  ------------  ------------
Net income
 attributable to
 Highbury Financial
 Inc.                    641,004       851,580     2,166,164     1,967,392

Preferred stock
 dividends                     -      (127,174)            -      (127,174)

                    ------------  ------------  ------------  ------------
Net income
 attributable to
 common
 stockholders       $    641,004  $    724,406  $  2,166,164  $  1,840,218
                    ============  ============  ============  ============


Weighted average
 common shares
 outstanding, basic    9,126,628     9,378,117     9,170,068     9,196,216
Net income per
 common share,
 basic              $       0.07  $       0.08  $       0.24  $       0.20

Weighted average
 common shares
 outstanding,
 diluted               9,126,628    12,074,791     9,170,068    10,114,232
Net income per
 common share,
 diluted            $       0.07  $       0.07  $       0.24  $       0.19

Cash dividend per
 share of common
 stock - declared   $       0.00  $       1.55  $       0.00  $       1.65
Cash dividend per
 share of common
 stock - paid       $       0.00  $       0.05  $       0.00  $       0.10



Highbury Financial Inc.
Consolidated Statements of Cash Flow



                        Three Months Ended          Nine Months Ended
                          September 30,               September 30,
                    --------------------------  --------------------------
                        2008          2009          2008          2009
                    ------------  ------------  ------------  ------------
CASH FLOWS FROM
 OPERATING
 ACTIVITIES
Net income
 attributable to
 Highbury Financial
 Inc.               $    641,004  $    851,580  $  2,166,164  $  1,967,392

Adjustments to
 reconcile net
 income to net
 cash provided
 by operating
 activities:
  Depreciation and
   amortization           45,998        46,339       141,054       138,181
  Deferred taxes          99,997       171,952       533,540       755,806
  Investment (gain)
   loss                  369,556      (303,059)      524,261      (443,382)
  Net income
   attributable to
   noncontrolling
   interest              891,104       740,707     2,649,042     1,899,225
  Deferred rent          (10,017)      (11,269)      (29,255)      (33,753)
Changes in
 operating assets
 and liabilities
(Increase) decrease
 in:
  Accounts receivable    166,407      (480,884)      218,546    (1,483,581)
  Prepaid expenses       (59,867)       38,038        86,839       149,738
  Prepaid taxes          (81,027)            -       (81,027)      278,444
  Other long-term assets       -        23,936             -        57,092
Increase (decrease) in:
  Accounts payable
   and accrued
   expenses              657,366       887,468        49,186       889,707
  Income taxes
   payable               (62,061)        3,220       (66,919)       15,936
                    ============  ============  ============  ============
Net cash provided
 by operating
 activities            2,658,460     1,968,028     6,191,431     4,190,805
                    ============  ============  ============  ============

CASH FLOWS FROM
 INVESTING
 ACTIVITIES
Purchases of
 investments                   -    (3,888,759)   (2,000,000)   (3,888,759)
Proceeds from sales
 of investments          603,960     3,881,819     4,568,031     4,561,494
Increase in other
 long-term assets       (501,369)            -      (500,021)            -
Purchase of fixed
 assets                        -       (13,732)       (2,756)      (14,576)
                    ============  ============  ============  ============
Net cash provided
 by (used in)
 investing
 activities              102,591       (20,672)    2,065,254       658,159
                    ============  ============  ============  ============

CASH FLOWS FROM
 FINANCING
 ACTIVITIES
Dividends paid                 -      (454,252)            -      (909,407)
Distributions paid
 to noncontrolling
 interest holders       (914,637)   (2,312,885)   (2,723,439)   (3,070,143)
Issuance of common
 stock upon
 exercise of
 warrants                      -    14,389,485             -    14,389,485
Repurchase of
 common stock                  -             2    (1,735,611)      (83,725)
Repurchase of
 warrants                      -    (1,402,100)   (1,823,083)   (1,548,225)
                    ============  ============  ============  ============
Net cash provided
 by (used in)
 financing
 activities             (914,637)   10,220,250    (6,282,133)    8,777,985
                    ============  ============  ============  ============

Net increase in
 cash and cash
 equivalents           1,846,414    12,167,606     1,974,552    13,626,949
Cash and cash
 equivalents -
 beginning of
 period                7,404,683    11,703,812     7,276,545    10,244,469
                    ============  ============  ============  ============
Cash and cash
 equivalents - end
 of period          $  9,251,097  $ 23,871,418  $  9,251,097  $ 23,871,418
                    ============  ============  ============  ============

Supplemental
 schedule of
 non-cash investing
 and financing
 activities:
Issuance of Series
 B Convertible
 Preferred Stock    $          -  $ 22,500,000  $          -  $ 22,500,000
Issuance of 22,150
 shares of common
 stock upon
 exchange of
 443,000 warrants   $          -  $          -  $          -  $          -
Dividends declared
 and not yet paid   $          -  $ 25,551,877  $          -  $ 25,551,877

Supplemental
 disclosure of cash
 flow information:
Cash paid for
 income taxes       $    460,000  $     32,258  $    936,708  $     32,258

Highbury Financial Inc.

Notes

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

Since our acquired assets do not generally depreciate or require replacement by us, and since they generate deferred tax expenses that are unlikely to reverse, we add back these non-cash expenses to Net Income to measure operating performance. We will add back amortization attributable to acquired client relationships because this expense does not correspond to the changes in value of these assets, which do not diminish predictably over time. The portion of deferred taxes generally attributable to intangible assets (including goodwill) that we do not amortize but which generates tax deductions is added back, because these accruals would be used only in the event of a future sale of Aston or an impairment charge. We will add back the portion of consolidated depreciation expense incurred by Aston because under Aston's operating agreement we are not required to replenish these depreciating assets. We also add back expenses that we incur for financial reporting purposes for which there is no corresponding cash expense because such expenses cause our Net Income to be understated relative to our ability to generate cash flow to service debt, if any, finance accretive acquisitions, and repurchase securities, if appropriate.

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

(3) Net income attributable to noncontrolling interest on the Company's income statement represents the profits or losses allocated to the Aston management owners for that period. Noncontrolling interest on the Company's balance sheet represents the undistributed profits and capital owned by the Aston management.

(4) Cash Net Income per share represents Cash Net Income divided by the diluted average shares outstanding. In this calculation, the potential share issuance in connection with our warrants is measured using a treasury stock method. Under this method, only the net number of shares of common stock equal to the value of the warrants in excess of the exercise price, if any, is deemed to be outstanding. We believe the inclusion of net shares under a treasury stock method best reflects the benefit of the increase in available capital resources (which could be used to repurchase shares of common stock) that occurs when these securities are exercised. This method does not take into account any increase or decrease in our cost of capital in an assumed exercise.

Contact Information

Questions and inquiries for further information may be directed to Richard S. Foote, President and Chief Executive Officer of Highbury Financial Inc. He can be reached via telephone at 212-688-2341. More information is also available at www.highburyfinancial.com.