SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___

Commission File No. 001-37387

ASSOCIATED CAPITAL GROUP, INC.
(Exact name of Registrant as specified in its charter)

Delaware
 
47-3965991
(State of other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
191 Mason Street, Greenwich, CT
 
06830
 
 
 
(Address of principle executive offices)
 
(Zip Code)

(203) 629-9595
(Registrant’s telephone number, including area code)

 Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share
AC
New York Stock Exchange

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    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files) Yes    No 

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

Large accelerated filer
 
Accelerated filer 
 
 
 
 
 
Non-accelerated filer
 
Smaller reporting company
 Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act.

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

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.
Class
 
Outstanding at October 30, 2020
Class A Common Stock, .001 par value
 
3,342,228
Class B Common Stock, .001 par value
 
18,962,918






ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

INDEX

PART I.
FINANCIAL INFORMATION
Page
 
 
 
Item 1.
Unaudited Condensed Consolidated Financial Statements
3
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
38
 
 
 
Item 4.
Controls and Procedures
38
 
 
 
PART II.
OTHER INFORMATION *
 
 
 
 
Item 1.
Legal Proceedings
39
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
40
 
 
 
Item 6.
Exhibits
40
 
 
 
 
Signature
40

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


Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(Dollars in thousands, except per share data)

 
September 30,
2020
   
December 31,
2019
 
ASSETS
           
Cash and cash equivalents (a)
 
$
47,331
   
$
342,001
 
Investments in government securities (a)
   
330,942
     
29,037
 
Investments in equity securities (Including GBL stock with a value of $34.0 million and $57.2 million, respectively) (a)
   
213,586
     
271,320
 
Investments in affiliated registered investment companies
   
146,391
     
159,311
 
Investments in partnerships (a)
   
127,965
     
145,372
 
Receivable from brokers (a)
   
21,065
     
23,141
 
Investment advisory fees receivable
   
1,160
     
9,582
 
Receivable from affiliates
   
588
     
4,369
 
Deferred tax assets and taxes receivable (including taxes receivable of $2,132 in 2020 and $0 for 2019)
   
10,059
     
1,820
 
Goodwill
   
3,519
     
3,519
 
Other assets (a)
   
23,003
     
13,297
 
Investments in government securities held in trust
   
175,002
     
-
 
Assets of discontinued operations (including receivable from affiliates of $31)
   
-
     
8,137
 
Total assets
 
$
1,100,611
   
$
1,010,906
 
 
               
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
               
Payable to brokers
 
$
8,443
   
$
14,889
 
Income taxes payable
   
897
     
3,622
 
Compensation payable
   
7,445
     
19,536
 
Securities sold, not yet purchased (a)
   
12,827
     
16,419
 
Payable to affiliates
   
455
     
483
 
Accrued expenses and other liabilities (a)
   
6,088
     
6,037
 
Deferred underwriting fee payable
   
6,125
     
-
 
Liabilities of discontinued operations (including payable to affiliates $986)
   
-
     
2,100
 
Total liabilities
   
42,280
     
63,086
 
 
               
Redeemable noncontrolling interests (a)
   
204,164
     
50,385
 
 
               
Equity:
               
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding
   
-
     
-
 
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,629,254 and 6,569,254 shares issued, respectively; 3,369,896 and 3,452,381 shares outstanding, respectively
   
6
     
6
 
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued; 18,962,918 and 19,022,918 shares outstanding, respectively
   
19
     
19
 
Additional paid-in capital
   
999,047
     
1,003,450
 
Accumulated deficit
   
(35,241
)
   
(701
)
Treasury stock, at cost (3,259,358 and 3,116,873 shares outstanding, respectively)
   
(111,736
)
   
(106,342
)
Total Associated Capital Group, Inc. equity
   
852,095
     
896,432
 
Noncontrolling interests (from discontinued operations in 2019)
   
2,072
     
1,003
 
Total equity
   
854,167
     
897,435
 
Total liabilities and equity
 
$
1,100,611
   
$
1,010,906
 

(a) As of September 30, 2020 and December 31, 2019, cash and cash equivalents, investments in securities, investment in partnerships, receivable from broker, other assets, securities sold, not yet purchased, accrued expenses and other liabilities and redeemable noncontrolling interests include amounts related to consolidated variable interest entities ("VIEs"). See Footnote D.

See accompanying notes.
3

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in thousands, except per share data)
 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2020
   
2019
   
2020
   
2019
 
Revenues
                       
Investment advisory and incentive fees
 
$
1,865
   
$
2,753
   
$
6,424
   
$
8,199
 
Other
   
80
     
1
     
550
     
12
 
Total revenues
   
1,945
     
2,754
     
6,974
     
8,211
 
Expenses
                               
Compensation
   
3,026
     
3,071
     
8,405
     
10,287
 
Other operating expenses
   
2,471
     
2,276
     
6,422
     
9,072
 
Total expenses
   
5,497
     
5,347
     
14,827
     
19,359
 
 
                               
Operating loss
   
(3,552
)
   
(2,593
)
   
(7,853
)
   
(11,148
)
Other income (expense)
                               
Net gain/(loss) from investments
   
15,603
     
7,613
     
(34,770
)
   
42,358
 
Interest and dividend income
   
1,218
     
2,581
     
4,675
     
9,541
 
Interest expense
   
(32
)
   
(70
)
   
(146
)
   
(148
)
Shareholder-designated contribution
   
(2,782
)
   
-
     
(3,007
)
   
-
 
Total other income (expense), net
   
14,007
     
10,124
     
(33,248
)
   
51,751
 
Income/(loss) before income taxes
   
10,455
     
7,531
     
(41,101
)
   
40,603
 
Income tax expense/(benefit)
   
3,564
     
1,638
     
(8,858
)
   
8,064
 
Income/(loss) from continuing operations before noncontrolling interests
   
6,891
     
5,893
     
(32,243
)
   
32,539
 
Income/(loss) attributable to noncontrolling interests
   
937
     
(359
)
   
(572
)
   
2,232
 
Income/(loss) from continuing operations
   
5,954
     
6,252
     
(31,671
)
   
30,307
 
Income/(loss) from discontinued operations, net of taxes and noncontrolling interests
   
(139
)
   
(301
)
   
(632
)
   
(2,141
)
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders
 
$
5,815
   
$
5,951
   
$
(32,303
)
 
$
28,166
 
 
                               
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders per share:
                               
Basic- Continuing operations
 
$
0.27
   
$
0.27
   
$
(1.41
)
 
$
1.34
 
Basic - Discontinued operations
   
(0.01
)
   
(0.01
)
   
(0.03
)
   
(0.09
)
Basis - Total
 
$
0.26
   
$
0.26
   
$
(1.44
)
 
$
1.25
 
                                 
Diluted- Continuing operations
 
$
0.27
   
$
0.27
   
$
(1.41
)
 
$
1.34
 
Diluted - Discontinued operations
   
(0.01
)
   
(0.01
)
   
(0.03
)
   
(0.09
)
Diluted - Total
 
$
0.26
   
$
0.26
   
$
(1.44
)
 
$
1.25
 
 
                               
Weighted average shares outstanding:
                               
Basic
   
22,354
     
22,514
     
22,391
     
22,550
 
Diluted
   
22,354
     
22,514
     
22,391
     
22,550
 
 
                               
Actual shares outstanding - end of period
   
22,333
     
22,496
     
22,333
     
22,496
 
                                 
Dividends declared:
 
$
0.10
   
$
0.10
   
$
0.10
   
$
0.10
 

See accompanying notes.

 
4

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
(Dollars in thousands)
 
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2020
   
2019
   
2020
   
2019
 
                         
Net income/(loss)
 
$
5,815
   
$
5,951
   
$
(32,303
)
 
$
28,166
 
Less: Comprehensive income/(loss) attributable to noncontrolling interests
   
937
     
(359
)
   
(572
)
   
2,232
 
 
                               
Comprehensive income/(loss) attributable to Associated Capital Group, Inc.
 
$
4,878
   
$
6,310
   
$
(31,731
)
 
$
25,934
 

See accompanying notes.

5

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(Dollars in thousands, except per share data)
For the three months ended March 31, 2020, June 30, 2020 and September 30, 2020
 
 
Associated Capital Group, Inc. shareholders
       
   
Common
Stock
   
Accumulated
Deficit
   
Additional
Paid-in
Capital
   
Treasury
Stock
   
Noncontrolling
Interest
   
Total
   
Redeemable
Noncontrolling
Interests
 
Balance at December 31, 2019
 
$
25
   
$
(701
)
 
$
1,003,450
   
$
(106,342
)
 
$
1,003
   
$
897,435
   
$
50,385
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
(531
)
Net loss
   
-
     
(73,355
)
   
-
     
-
     
(52
)
   
(73,407
)
   
(3,945
)
Purchase of treasury stock
   
-
     
-
     
-
     
(3,225
)
   
-
     
(3,225
)
   
-
 
Balance at March 31, 2020
 
$
25
   
$
(74,056
)
 
$
1,003,450
   
$
(109,567
)
 
$
951
   
$
820,803
   
$
45,909
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
(1,167
)
Net income/(loss)
   
-
     
35,237
     
-
     
-
     
(48
)
   
35,189
     
2,436
 
Dividends declared ($0.10 per share)
   
-
     
(2,237
)
   
-
     
-
     
-
     
(2,237
)
   
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
(1,068
)
   
-
     
(1,068
)
   
-
 
Balance at June 30, 2020
 
$
25
   
$
(41,056
)
 
$
1,003,450
   
$
(110,635
)
 
$
903
   
$
852,687
   
$
47,178
 
Contributions from redeemable noncontrolling interests (1)
   
-
     
-
     
-
     
-
     
-
     
-
     
156,049
 
Spin-off of MGHL
   
-
     
-
     
(4,403
)
   
-
     
(903
)
   
(5,306
)
   
-
 
PMV Sponsor members' interest
   
-
     
-
     
-
     
-
     
2,072
     
2,072
     
-
 
Net income
   
-
     
5,815
     
-
     
-
     
-
     
5,815
     
937
 
Purchase of treasury stock
   
-
     
-
     
-
     
(1,101
)
   
-
     
(1,101
)
   
-
 
Balance at September 30, 2020
 
$
25
   
$
(35,241
)
 
$
999,047
   
$
(111,736
)
 
$
2,072
   
$
854,167
   
$
204,164
 

(1) Net of deferred underwriting fees

See accompanying notes.

6

Index

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(Dollars in thousands, except per share data)
For the three months ended March 31, 2019, June 30, 2019 and September 30, 2019
 
 
Associated Capital Group, Inc. shareholders
       
   
Common
Stock
   
Accumulated
Deficit
   
Additional
Paid-in
Capital
   
Treasury
Stock
   
Total
   
Redeemable
Noncontrolling
Interests
 
Balance at December 31, 2018
 
$
25
   
$
(39,889
)
 
$
1,008,319
   
$
(102,207
)
 
$
866,248
   
$
49,800
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
(526
)
Net income
   
-
     
23,147
     
-
     
-
     
23,147
     
1,507
 
Purchase of treasury stock
   
-
     
-
     
-
     
(391
)
   
(391
)
   
-
 
Balance at March 31, 2019
 
$
25
   
$
(16,742
)
 
$
1,008,319
   
$
(102,598
)
 
$
889,004
   
$
50,781
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
(2,197
)
Net income
   
-
     
(932
)
   
-
     
-
     
(932
)
   
1,084
 
Dividends declared ($0.10 per share)
   
-
     
-
     
(2,254
)
   
-
     
(2,254
)
   
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
(1,630
)
   
(1,630
)
   
-
 
Balance at June 30, 2019
 
$
25
   
$
(17,674
)
 
$
1,006,065
   
$
(104,228
)
 
$
884,188
   
$
49,668
 
Redemptions of noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
390
 
Net income
   
-
     
5,951
     
-
     
-
     
5,951
     
(359
)
Purchase of treasury stock
   
-
     
-
     
-
     
(1,342
)
   
(1,342
)
   
-
 
Balance at September 30, 2019
 
$
25
   
$
(11,723
)
 
$
1,006,065
   
$
(105,570
)
 
$
888,797
   
$
49,699
 

See accompanying notes.

7

Index


ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in thousands)
 
 
Nine Months Ended
September 30,
 
   
2020
   
2019
 
Operating activities
           
Net income (loss)
 
$
(32,875
)
 
$
30,398
 
Loss from discontinued operations, net of taxes
   
632
     
2,141
 
Loss from continuing operations
   
(32,243
)
   
32,539
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
from continuing activities
               
Equity in net (gains) losses from partnerships
   
(4,316
)
   
(5,029
)
Deferred income taxes
   
(5,923
)
   
4,739
 
Depreciation and amortization
   
40
     
10
 
Donated securities
   
441
     
1,875
 
Unrealized (gains) losses on securities
   
37,511
     
(18,450
)
Realized gains (losses) on sales of securities
   
1,017
     
(220
)
(Increase) decrease in assets:
               
Investments in trading securities
   
(283,070
)
   
(54,341
)
Investments in partnerships:
               
Contributions to partnerships
   
(4,229
)
   
(22,671
)
Distributions from partnerships
   
24,841
     
2,772
 
Receivable from affiliates
   
3,600
     
688
 
Receivable from brokers
   
2,077
     
856
 
Investment advisory fees receivable
   
8,423
     
3,107
 
Income taxes receivable
   
(2,207
)
   
8
 
Other assets
   
1,260
     
8,604
 
Increase (decrease) in liabilities:
               
Payable to brokers
   
(6,446
)
   
4,766
 
Income taxes payable
   
(2,833
)
   
311
 
Payable to affiliates
   
122
     
176
 
Compensation payable
   
(12,092
)
   
723
 
Accrued expenses and other liabilities
   
1,824
     
(2,784
)
Total adjustments
   
(239,960
)
   
(74,860
)
Net cash used in operating activities
 
$
(272,203
)
 
$
(42,321
)

8

Index
ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (continued)
(Dollars in thousands)
 
 
Nine Months Ended
September 30,
 
   
2020
   
2019
 
Investing activities
           
Purchases of securities
 
$
(434
)
 
$
(1,366
)
Proceeds from sales of securities
   
8,406
     
2,699
 
Return of capital on securities
   
1,320
     
1,326
 
Purchase of building
   
(11,084
)
   
(6,250
)
Investment of cash in Trust Account
   
(175,000
)
   
-
 
Net cash used in investing activities
   
(176,792
)
   
(3,591
)
 
               
Financing activities
               
Contributions from redeemable noncontrolling interests
   
162,020
     
-
 
Redemptions of redeemable noncontrolling interests
   
-
     
(2,333
)
Dividends paid
   
(4,486
)
   
(4,513
)
Purchase of treasury stock
   
(5,395
)
   
(3,363
)
Contributions from nonredeemable noncontrolling interests
   
2,072
     
-
 
Proceeds from promissory note from Executive Chairman
   
-
     
2,124
 
Repayment of promissory note to Executive Chairman
   
-
     
(2,126
)
Net cash used in financing activities
   
154,211
     
(10,211
)
Cash flows of discontinued operations
               
Net cash provided by (used in) operating activities
   
114
     
(2,507
)
Net decrease in cash and cash equivalents
   
(294,670
)
   
(58,630
)
Cash and cash equivalents at beginning of period
   
342,001
     
398,363
 
Cash and cash equivalents at end of period
 
$
47,331
   
$
339,733
 
 
               
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
114
   
$
79
 
Cash paid for taxes
 
$
2,000
   
$
2,200
 
   
Non-cash activity:
 
- On September 21, 2020 a deferred underwriting fee of $6.1 million was recorded with an offset to redeemable noncontrolling interests.
               

See accompanying notes.

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ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)

A.  Basis of Presentation and Significant Accounting Policies

Unless we have indicated otherwise, or the context otherwise requires, references in this report to “Associated Capital Group, Inc.,” “AC Group,” “the Company,” “AC,” “we,” “us” and “our” or similar terms are to Associated Capital Group, Inc., its predecessors and its subsidiaries.
 
Organization
 
We are a Delaware corporation that provides alternative investment management services. In addition, we derive investment income/(loss) from proprietary trading of cash and other assets awaiting deployment in our operating business.
 
We conduct our investment management activities through our wholly-owned subsidiary Gabelli & Company Investment Advisers, Inc. (“GCIA” f/k/a Gabelli Securities, Inc.). GCIA and its wholly-owned subsidiary, Gabelli & Partners, LLC (“Gabelli & Partners”), collectively serve as general partners or investment managers to investment funds including limited partnerships and offshore companies (collectively, “Investment Partnerships”), and separate accounts. We primarily manage assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios. The business earns management and incentive fees from its advisory activities. Management fees are largely based on a percentage of assets under management. Incentive fees are based on the percentage of the investment returns of certain clients’ portfolios. GCIA is an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended.
  
We may make direct investments in operating businesses using a variety of techniques and structures. We added Gabelli Special Purpose Acquisition Vehicles (“SPAC”) in 2018.  Gabelli Value for Italy (VALU), our initial vehicle launched and listed on the Italian Borsa, approached its second anniversary at the apex of the pandemic in Italy.  In light of this challenge, the board voted to commence liquidation which was completed on July 8, 2020.  The VALU effort successfully canvassed private company opportunities in Italy, with deal flow expanding throughout Europe.  We believe the platform is in place to further expand our direct investment efforts across the European continent.

A private company owns 84%of the economics and controls 97% of AC Group’s outstanding voting shares.

PMV Consumer Acquisition Corp.

On September 22, 2020, Associated Capital announced the $175 million initial public offering of its special purpose acquisition corporation, PMV Consumer Acquisition Corp. (NYSE:PMVC).

PMV Consumer Acquisition Corp. (“PMV”) was created to pursue an initial business combination following the consumer globally with companies having an enterprise valuation in the range of $200 million to $3.5 billion. PMV Consumer Acquisition Holding Company, LLC (“Sponsor”) was created to assist PMV in sourcing, analyzing and consummating acquisition opportunities for that initial business combination.

The Sponsor and PMV have been consolidated in the financial statements of AC as of September 30, 2020 because AC has a controlling financial interest in these entities.  This resulted in total assets of $1.1 billion at September 30, 2020, inclusive of $177.7 million of assets, $6.6 million of liabilities and $155.0 million of redeemable noncontrolling interests and $2.1 million of noncontrolling interests relating to PMV and the Sponsor. In addition to PMV and the Sponsor, there are several other entities that are consolidated within the financial statements. The details to the impact of consolidating these entities on the condensed consolidated financial statements can be seen in Footnote D. Investment Partnerships and Other Entities

See footnote D for a further discussion of PMV Consumer Acquisition Corp. as well as their registration statement and Form 10Q as of September 30, 2020 both located on the U.S. Securities and Exchange Commission website https://www.sec.gov/edgar/searchedgar/companysearch.html under the symbol PMVC.

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Associated Capital Group, Inc. Spin-Off
 
On November 30, 2015, GAMCO Investors, Inc. (“GAMCO” or “GBL”) distributed all the outstanding shares of each class of AC common stock on a pro rata one-for one basis to the holders of each class of GAMCO’s common stock (the “Spin-off”).
 
Morgan Group Holding Co. Merger and Spin-Off
 
On October 31, 2019, the Company closed on a transaction whereby Morgan Group Holding Co., (“Morgan Group”) a company that trades in the over the counter market under the symbol “MGHL” and is under common control of AC’s majority shareholder, acquired all of the Company’s interest in G.research for 50,000,000 shares of Morgan Group common stock.  In addition, immediately prior to the closing, 5.15 million Morgan Group shares were issued under a private placement for $515,000.  Subsequent to the transaction and private placement, the Company had an 83.3% ownership interest in Morgan Group and consolidated the entity, which includes G.research.  The transaction has been accounted for pursuant to Accounting Standards Codification (“ASC”) 805-50, Transactions Between Entities Under Common Control.  A common-control transaction is similar to a business combination, however, does not meet the definition of a business combination because there is no change in control over the entity by the parent.
 
On March 16, 2020, the Company announced that its Board of Directors approved the spin-off of Morgan Group to AC’s shareholders in which AC would distribute to its shareholders on a pro rata basis the 50,000,000 shares of Morgan Group that it owns upon close of the spin-off.
 
On May 5, 2020, the Morgan Group board approved a reverse stock split of the issued and outstanding shares of their common stock, par value $0.01 per share, in a ratio of 1‑for‑100 that was effective on June 10, 2020.

On August 5, 2020 the distribution of Morgan Group shares was completed to shareholders of record as of July 30, 2020. Based on the distribution ratio, on the distribution date, AC stockholders of record as of 5:00 pm, New York City time, on the record date, received  approximately. 0.022356 shares of Morgan Group common stock for each share of AC common stock they held on the record date.

Associated Capital held 83.3% of the outstanding shares of Morgan Group through August 5, 2020.

The historical financial results of Morgan Group have been reflected in the Company’s consolidated financial statements as discontinued operations in both the condensed consolidated statements of income and financial condition for all periods presented through August 5, 2020.

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Basis of Presentation
 
The unaudited interim condensed consolidated financial statements of AC Group included herein have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP in the United States for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of the Company for the interim periods presented and are not necessarily indicative of a full year’s results.
 
The interim condensed consolidated financial statements include the accounts of AC Group and its subsidiaries. All material intercompany transactions and balances have been eliminated.
 
These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.
 
The Company separately presented investments in debt securities and investments in equity securities in the condensed consolidated statement of financial condition as of September 30, 2020. A reclassification was made to conform prior period information as of December 31, 2019 to the current period presentation. This change has also been made to the corresponding notes to condensed consolidated financial statements.

Use of Estimates
 
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported on the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Investments in government securities held in trust account

At September 30, 2020, government securities of our consolidated SPAC, PMV, are held in a trust account and consist of U.S. Treasury Bills accounted for as held-to-maturity in accordance with ASC 320 “Investments – Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying condensed consolidated balance sheet and adjusted for the amortization or accretion of premiums or discounts.

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Recent Accounting Developments
 
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which amends the guidance in GAAP for the accounting for leases. ASU 2016-02 requires a lessee to recognize assets and liabilities arising from most operating leases in the consolidated statement of financial position. The Company adopted this ASU effective January 1, 2019 with no material impact on its consolidated financial statements.
 
In June 2016, the FASB issued ASU 2016-13, Accounting for Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), which requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Currently, U.S. GAAP requires an “incurred loss” methodology that delays recognition until it is probable a loss has been incurred. Under ASU 2016-13, the allowance for credit losses must be deducted from the amortized cost of the financial asset to present the net amount expected to be collected. The Statement of Income will reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period.  In November 2019, the FASB issued ASU 2019-10, which deferred the effective date of this guidance for smaller reporting companies for three years.  This guidance is effective for the Company on January 1, 2023 and requires a modified retrospective transition method, which will result in a cumulative-effect adjustment in retained earnings upon adoption.  Early adoption is permitted.  The Company is currently assessing the potential impact of this new guidance on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, to simplify the process used to test for impairment of goodwill. Under the new standard, an impairment loss must be recognized in an amount equal to the excess of the carrying amount of a reporting unit over its fair value, limited to the total amount of goodwill allocated to that reporting unit. As a smaller reporting company pursuant to ASU 2019-10, the ASU is effective for the Company on January 1, 2023. This guidance will be effective for the Company on January 1, 2023 using a prospective transition method and early adoption is permitted.  The Company is currently evaluating the potential effect of this new guidance on the Company’s consolidated financial statements.
 
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU adds certain disclosure requirements and modifies or eliminates requirements under current GAAP. This ASU is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company has early adopted the eliminated and modified disclosure requirements effective January 1, 2019.

B.  Revenue
 
The Company’s revenue is accounted for as contracts with customers, and the timing of revenue recognition is based on the Company’s analysis of the provisions of each respective contract. Depending upon the specific terms, revenue may be recognized over time or at a point in time. Modifications to contracts may affect the timing of the satisfaction of performance obligations, the determination of the transaction price, and the allocation of the price to performance obligations, any of which may impact the timing of the recognition of the related revenue.
 
The Company’s major revenue sources are as follows:
 
Investment advisory and incentive fees. The Company and its subsidiaries act as general partner, investment manager or sub-advisor to investment funds and/or separately managed accounts of institutional investors (e.g., corporate pension plans). The fees that are paid to the Company are set forth in the offering documents for the investment fund or the separately managed account agreement. Investment advisory and incentive fee revenue consists of:
 
 
a.
Asset-based advisory fees – The Company receives a management fee, payable monthly in advance based on value of the net assets of the client. It is generally set at a rate of 1%-1.5% per annum. Asset-based management fee revenue is recognized only as the services are performed over the period.
 
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b.
Performance-based advisory fees – Certain client contracts call for additional fees and or allocations of income tied to a certain percentage, generally 20%, of the investment performance of the account over a measurement period, typically the calendar year. In addition, the contracts provide that performance-based fees or allocations become fixed in the event of an investor redemption prior to the end of the measurement period. In the event that an account suffers a loss in one period, it must be recovered before incentive fees are earned by the Company; this is commonly referred to as a “high water mark” provision. While the Company’s performance obligation is satisfied over time, the Company does not recognize performance-based fees until the end of the measurement period or the time of the investor redemption when the uncertainty surrounding the amount of the variable consideration is resolved.

 
c.
Sub-advisory fees – Pursuant to agreements with other investment advisors, the Company receives a percentage of advisory fees received by such advisors from certain of their investment fund clients. These fees may be either asset- or performance-based. In addition, they may be subject to reduction by certain expenses as set forth in the respective agreements. Sub-advisory fee revenue which is asset-based is recognized ratably as the services are performed over the relevant contractual performance period. Sub-advisory fee revenue which is performance-based is recognized only when it becomes fixed and not subject to adjustment.
 
Total revenues by type were as follows for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):
 
 
Three months ended September 30,
   
Nine months ended September 30,
 
   
2020
   
2019
   
2020
   
2019
 
Investment advisory and incentive fees
                       
Asset-based advisory fees
 
$
1,161
   
$
1,723
   
$
4,284
   
$
5,208
 
Performance-based advisory fees
   
8
     
35
     
8
     
61
 
Sub-advisory fees
   
696
     
995
     
2,132
     
2,930
 
 
   
1,865
     
2,753
     
6,424
     
8,199
 
 
                               
Other
                               
Miscellaneous
   
80
     
1
     
550
     
12
 
 
   
80
     
1
     
550
     
12
 
Total
 
$
1,945
   
$
2,754
   
$
6,974
   
$
8,211
 
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C.  Investment in Securities
 
Investments in debt securities at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
 
 
September 30, 2020
   
December 31, 2019
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
Trading Securities
                       
Government securities
 
$
330,795
   
$
330,942
   
$
28,428
   
$
29,037
 
Total investments in debt securities
 
$
330,795
   
$
330,942
   
$
28,428
   
$
29,037
 

Investments in equity securities at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
 
 
September 30, 2020
   
December 31, 2019
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
Equity Securities
                       
Common stocks
 
$
244,611
   
$
205,413
   
$
271,627
   
$
262,562
 
Mutual funds
   
555
     
1,128
     
1,207
     
2,196
 
Other investments
   
8,040
     
7,045
     
7,847
     
6,562
 
Total investments in securities
 
$
253,206
   
$
213,586
   
$
280,681
   
$
271,320
 

Securities sold, not yet purchased at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
 
 
September 30, 2020
   
December 31, 2019
 
   
Proceeds
   
Fair Value
   
Proceeds
   
Fair Value
 
Equity securities
                       
Common stocks
 
$
10,730
   
$
11,661
   
$
13,863
   
$
16,300
 
Other investments
   
645
     
1,166
     
13
     
119
 
Total securities sold, not yet purchased
 
$
11,375
   
$
12,827
   
$
13,876
   
$
16,419
 

Investments in affiliated registered investment companies at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):
 
 
September 30, 2020
   
December 31, 2019
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
Equity securities
                       
Closed-end funds
 
$
74,741
   
$
87,307
   
$
75,646
   
$
99,834
 
Mutual funds
   
48,287
     
59,084
     
48,348
     
59,477
 
Total investments in affiliated registered investment companies
 
$
123,028
   
$
146,391
   
$
123,994
   
$
159,311
 

The Company recognizes all equity derivatives as either assets or liabilities measured at fair value and includes them in either investment in securities or securities sold, not yet purchased on the consolidated statements of financial condition. From time to time, the Company and/or consolidated funds will enter into hedging transactions to manage their exposure to foreign currencies and equity prices related to their proprietary investments. At September 30, 2020 and December 31, 2019 we held derivative contracts on 2.2 million and 3.4 million equity shares, respectively, that are included in investments in securities or securities sold, not yet purchased on the consolidated statements of financial condition as shown in the table below. We had two foreign exchange contracts outstanding at December 31, 2019. Except for the foreign exchange contracts entered into by the Company, these transactions are not designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in net gain/(loss) from investments on the consolidated statements of income and included in investments in securities, securities sold, not yet purchased, or receivable from or payable to brokers on the consolidated statements of financial condition.
 
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The following table identifies the fair values of all derivatives and foreign currency positions held by the Company (in thousands):

Asset Derivatives
 
Liability Derivatives
 
Statement of
 
Fair Value
 
Statement of
 
Fair Value
 
Financial Condition
 
September 30,
 
December 31,
 
Financial Condition
 
September 30,
 
December 31,
 
Location
 
2020
 
2020
 
Location
 
2020
 
2019
Derivatives designated as hedging
instruments under FASB ASC 815-20
Foreign exchange contracts
Receivable from brokers
 
$
-
 
$
23
 
Payable to brokers
 
$
-
 
$
-
                               
                               
Derivatives not designated as hedging
instruments under FASB ASC 815-20
Equity contracts
                             
Investments in securities
 
$
771
 
$
291