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 March 31, 2019

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.)

140 Greenwich Avenue, Greenwich, CT One Corporate Center, Rye, NY	06830 10580-1422
(Address of principle executive offices)	(Zip Code)

(203) 629-9595

(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  ☒   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 ☒

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 the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.

Class	Outstanding at April 30, 2019
Class A Common Stock, .001 par value	3,531,034
Class B Common Stock, .001 par value	19,022,918

INDEX

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

PART I.	FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6.	Exhibits	29
SIGNATURES		30

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

UNAUDITED

(Dollars in thousands, except per share data)

	March 31, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	396,020		$	409,564
Investments in securities		219,104			179,011
Investment in GBL stock (3,016,501 shares)		61,838			50,949
Investments in affiliated registered investment companies		150,563			142,135
Investments in partnerships		126,139			118,729
Receivable from brokers		26,980			24,629
Investment advisory fees receivable		1,188			4,394
Receivable from affiliates		731			1,309
Deferred tax assets, net		6,871			9,422
Goodwill and intangible assets		3,519			3,519
Other assets		1,743			10,772
Total assets	$	994,696		$	954,433
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Payable to brokers	$	17,423		$	5,511
Income taxes payable		7,222			3,577
Compensation payable		7,511			11,388
Securities sold, not yet purchased		17,118			9,574
Payable to affiliates		1,135			515
Accrued expenses and other liabilities		4,502			7,820
Total liabilities		54,911			38,385
Redeemable noncontrolling interests		50,781			49,800
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; 6,569,254 and 6,537,768 shares issued, respectively; 3,552,462 and 3,530,752 shares outstanding, respectively		6			6
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,196,792 shares issued; 19,022,918 and 19,054,404 shares outstanding, respectively		19			19
Additional paid-in capital		1,008,319			1,008,319
Accumulated deficit		(16,742	)		(39,889	)
Treasury stock, at cost (3,016,792 and 3,007,016 shares, respectively)		(102,598	)		(102,207	)
Total Associated Capital Group, Inc. stockholders’ equity		889,004			866,248
Total liabilities and equity	$	994,696		$	954,433

See accompanying notes.

1

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED

(Dollars in thousands, except per share data)

	Three Months Ended March 31,
	2019			2018
Revenues
Investment advisory and incentive fees	$	2,733		$	2,529
Institutional research services		1,913			2,152
Other		6			22
Total revenues		4,652			4,703
Expenses
Compensation		6,311			6,396
Management fee		3,260			-
Other operating expenses		2,957			2,557
Total expenses		12,528			8,953
Operating loss		(7,876	)		(4,250	)
Other income (expense)
Net gain/(loss) from investments		34,979			(27,530	)
Interest and dividend income		3,786			2,707
Interest expense		(44	)		(33	)
Total other income (expense), net		38,721			(24,856	)
Income/(loss) before income taxes		30,845			(29,106	)
Income tax expense/(benefit)		6,191			(6,734	)
Net income/(loss)		24,654			(22,372	)
Net income/(loss) attributable to noncontrolling interests		1,507			(143	)
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders	$	23,147		$	(22,229	)
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders per share:
Basic	$	1.02		$	(0.95	)
Diluted	$	1.02		$	(0.95	)
Weighted average shares outstanding:
Basic		22,584			23,508
Diluted		22,584			23,508

See accompanying notes.

2

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

(Dollars in thousands)

	Three Months Ended March 31,
	2019		2018
Net income/(loss)	$	24,654	$	(22,372	)
Less: Comprehensive income/(loss) attributable to noncontrolling interests		1,507		(143	)
Comprehensive income/(loss) attributable to Associated Capital Group, Inc.	$	23,147	$	(22,229	)

See accompanying notes.

3

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

	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

See accompanying notes.

4

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

UNAUDITED

(Dollars in thousands)

For the three months ended March 31, 2018

	Associated Capital Group, Inc. shareholders
	Common Stock		Retained Earnings/ (Accumulated Deficit)			Additional Paid-in Capital		GBL 4% PIK Note			Accumulated Comprehensive Income			Treasury Stock			Total			Redeemable Noncontrolling Interests
Balance at December 31, 2017	$	25	$	13,800		$	1,010,505	$	(50,000	)	$	6,712		$	(62,895	)	$	918,147		$	46,230
Reclassifications pursuant to adoption of new accounting guidance		-		6,712			-		-			(6,712	)		-			-			-
Redemptions of noncontrolling interests		-		-			-		-			-			-			-			(1,971	)
Consolidation of certain investment funds		-		-			-		-			-			-			-			6,488
Net loss		-		(22,229	)		-		-			-			-			(22,229	)		(143	)
Stock-based compensation expense		-		-			72		-			-			-			72			-
Proceeds from payment of GAMCO Note		-		-			-		10,000			-			-			10,000			-
Exchange offer		-		-			-		-			-			(17,737	)		(17,737	)		-
Purchase of treasury stock		-		-			-		-			-			(459	)		(459	)		-
Balance at March 31, 2018	$	25	$	(1,717	)	$	1,010,577	$	(40,000	)	$	-		$	(81,091	)	$	887,794		$	50,604

See accompanying notes.

5

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(Dollars in thousands)

	Three Months Ended March 31,
	2019			2018
Operating activities
Net income (loss)	$	24,654		$	(22,372	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in net (gains) losses from partnerships		(3,838	)		499
Depreciation and amortization		6			4
Stock-based compensation expense		-			72
Loss on exchange offer		-			2,127
Donated securities		944			-
Unrealized gains on securities		(20,107	)		-
Realized losses on sales of securities		60			-
(Increase) decrease in assets:
Investments in securities		(35,098	)		(14,225	)
Investments in partnerships:
Contributions to partnerships		(4,071	)		(2,977	)
Distributions from partnerships		500			1,916
Receivable from affiliates		578			(369	)
Receivable from brokers		(2,351	)		19,523
Investment advisory fees receivable		3,206			4,254
Income taxes receivable and deferred tax assets, net		2,551			(1,241	)
Other assets		9,021			6,356
Increase (decrease) in liabilities:
Payable to brokers		11,912			(7,660	)
Income taxes payable and deferred tax liabilities, net		3,645			(5,484	)
Payable to affiliates		620			40
Compensation payable		(3,877	)		(9,803	)
Accrued expenses and other liabilities		(1,060	)		(48	)
Total adjustments		(37,359	)		(7,016	)
Net cash used in operating activities	$	(12,705	)	$	(29,388	)

6

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED (continued)

(Dollars in thousands)

	Three Months Ended March 31,
	2019			2018
Investing activities
Purchases of securities	$	(342	)	$	-
Proceeds from sales of securities		2,108			-
Return of capital on securities		571			-
Proceeds from note receivable		-			15,000
Net cash provided by investing activities		2,337			15,000
Financing activities
Redemptions of redeemable noncontrolling interests		(526	)		(1,971	)
Dividends paid		(2,259	)		(2,369	)
Purchase of treasury stock		(391	)		(459	)
Proceeds from payment of GBL 4% PIK Note		-			10,000
Net cash (used in) provided by financing activities		(3,176	)		5,201
Net decrease in cash and cash equivalents		(13,544	)		(9,187	)
Cash and cash equivalents at beginning of period		409,764			293,312
Increase in cash from consolidation		-			47
Cash and cash equivalents at end of period	$	396,220		$	284,172
Supplemental disclosures of cash flow information:
Cash paid for interest	$	44		$	33
Cash paid for taxes	$	-		$	-
Reconciliation to cash, cash equivalents and restricted cash
Cash and cash equivalents		396,020			283,972
Restricted cash included in receivable from brokers		200			200
Cash, cash equivalents and restricted cash	$	396,220		$	284,172

Non-cash activity:
	-	On January 1, 2018, AC was deemed to have control over certain investment funds which resulted in their  consolidation and an increase of approximately $47 of cash and cash equivalents, $6,441 of net assets and an  increase of approximately $6,488 of redeemable noncontrolling interests.
	-	During the first quarter of 2018, AC completed an exchange offer with respect to its Class A shares. The  Company exchanged 666,805 GBL Class A shares valued at $17,737 for 493,954 Class A shares.

See accompanying notes.

7

ASSOCIATED CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(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.

The Spin-off and Related Transactions

We are a Delaware corporation that provides alternative investment management, institutional research and underwriting services. In addition, we derive investment income/(loss) from proprietary trading of cash and other assets awaiting deployment in our operating business.

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”).

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 provide our institutional research and underwriting services through G.research, LLC (“G.research”), an indirect wholly-owned subsidiary of the Company. G.research is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and is regulated by the Financial Industry Regulatory Authority (“FINRA”). G.research’s revenues are derived primarily from institutional research services.

We may make direct investments in operating businesses using a variety of techniques and structures. For example, in April 2018, the Company completed a €110 million initial public offering of its first special purpose acquisition corporation, the Gabelli Value for Italy S.p.a., an Italian company listed on the London Stock Exchange’s Borsa Italiana AIM segment under the symbol “VALU”. VALU was created to acquire a small- to medium-sized Italian franchise business with the potential for international expansion, particularly in the United States.

In connection with the Spin-off, GAMCO issued a promissory note (the “GAMCO Note”) to AC Group in the original principal amount of $250 million used to partially capitalize the Company. During the year ended December 31, 2018, AC received principal repayments totaling $50 million on the GAMCO Note which fully satisfied the outstanding principal balance. The GAMCO Note bore interest at 4% per annum and had an original maturity date of November 30, 2020. In addition, GCIA acquired 4,393,055 shares of GAMCO Class A common stock for $150 million in connection with the Spin-off.

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.

8

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, 2018.

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.

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 condensed consolidated statement of financial position. The Company adopted this ASU effective January 1, 2019 with no material impact on its condensed 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. For public companies, the ASU is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. Early adoption was permitted for impairment tests that occur after January 1, 2017. The Company is currently evaluating this guidance and the impact it will have on its condensed 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 and is currently evaluating this guidance as it relates to the new disclosure requirements.

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.

9

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.

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.

The Company reserves the right to waive or reduce asset-based and performance-based fees with respect to certain investors in the investment funds which may include investments by employees and other related parties. Advisory and incentive fees payable by investment funds are typically approved by third-party administrators and paid directly from the accounts’ assets. Such fees attributable to separate accounts may be subject to review and approval by the client and may be paid either from the accounts’ assets or directly by the client.

Our advisory fee revenues are influenced by both the amount of assets under management (“AUM”) and the investment performance of our products. An overall decline in the prices of securities may cause our advisory fees to decline by either causing the value of our AUM to decrease or causing our clients to withdraw funds in favor of investments they perceive to offer greater opportunity or lower risk. Similarly, success in the investment management business is dependent on investment performance as well as distribution and client servicing. Good performance can stimulate sales of our investment products and tends to keep withdrawals and redemptions low, which generates higher asset-based management fees. Conversely, poor performance, both in absolute terms and/or relative to peers and industry benchmarks, tends to result in decreased sales, increased withdrawals and redemptions and in the loss of clients, with corresponding decreases in revenues to us.

Institutional Research Services. The Company, through G.research, generates institutional research services revenues via hard dollar payments or through commissions on securities transactions executed on an agency basis on behalf of clients. Clients include institutional investors (e.g., hedge funds and asset managers) as well as affiliated mutual funds and managed accounts. These revenues consist of:

a. Hard dollar payments – The Company receives direct payments for research services provided to related and unrelated parties. The Company may or may not have contracts for such services. Where a contract for such services is in place, the contractual fee for the period is recognized ratably over the contract period, typically a calendar year, which is considered the period over which the Company satisfies its performance obligation. Payments for contracts with affiliated parties are collected monthly. For other payments where no research contract exists, revenue is not recognized until agreement is reached with the client that the Company has satisfied its performance obligation. At that time, a value is assigned to those services and an invoice is presented to the client for payment.

10

b. Commissions – Commissions are charged on the execution of securities transactions made on behalf of client accounts on an agency basis and are based on a rate schedule. The Company meets its performance obligations and recognizes commission revenue when the related securities transactions are executed and the security is transferred to or from the customer. Commissions earned are typically collected from the clearing brokers utilized by G.research on a daily or weekly basis.

c. Selling concessions – The Company participates as a member of the selling group of underwritten equity offerings and receives compensation based on the difference between what its clients pay for the securities sold to its institutional clients and what the issuer receives. The terms of the selling concessions are set forth in contracts between the Company and the underwriter. The Company meets its performance obligations and recognizes selling commissions upon the sale of the related securities to its clients.

d. Sales manager fees – The Company participates as sales manager of at-the-market offerings of certain affiliated closed-end funds and receives a tiered percentage of proceeds as stipulated in agreements between the Company, the funds and the funds’ investment adviser and as approved by the funds’ board of directors. The Company meets its performance obligations and recognizes sales manager fees upon sale of the related closed-end funds. Sales manager fees earned are typically collected from the clearing brokers utilized by G.research on a daily or weekly basis.

Institutional research revenues are impacted by the perceived value of the research product provided to clients, the volume of securities transactions and the acquisition or loss of new client relationships.

Other. Other revenues include (a) underwriting fees representing gains, losses, and fees, net of syndicate expenses, arising from public equity and debt offerings in which G.research acts as underwriter or agent and are accrued as earned, and (b) other miscellaneous revenues.

Total revenues by type were as follows for the three ended March 31, 2019 and 2018, respectively (in thousands):

	Three months ended March 31,
	2019		2018
Investment advisory and incentive fees
Asset-based advisory fees	$	1,724	$	1,839
Performance-based advisory fees		13		7
Sub-advisory fees		996		683
		2,733		2,529
Institutional research services
Hard dollar payments		487		930
Commissions		1,426		1,196
Selling concessions		-		26
		1,913		2,152
Other
Underwriting fees		-		19
Miscellaneous		6		3
		6		22
Total	$	4,652	$	4,703

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C. Investment in Securities

Investments in United States Treasury Bills and Notes with maturities of greater than three months at the time of purchase are classified as investments in securities, and those with maturities of three months or less at the time of purchase are classified as cash equivalents.

Investments in securities are stated at fair value, with any unrealized gains or losses reported in current period earnings.

Investments in securities, including GBL stock, at March 31, 2019 and December 31, 2018 consisted of the following (in thousands):

	March 31, 2019				December 31, 2018
	Cost		Fair Value		Cost		Fair Value
Government obligations	$	28,489	$	28,648	$	11,694	$	11,707
Common stocks		258,470		247,485		244,557		213,151
Mutual funds		762		1,332		761		1,161
Other investments		5,284		3,477		5,285		3,941
Total investments in securities	$	293,005	$	280,942	$	262,297	$	229,960

Securities sold, not yet purchased at March 31, 2019 and December 31, 2018 consisted of the following (in thousands):

	March 31, 2019				December 31, 2018
	Proceeds		Fair Value		Proceeds		Fair Value
Common stocks	$	16,393	$	17,011	$	10,150	$	9,485
Other investments		-		107		-		89
Total securities sold, not yet purchased	$	16,393	$	17,118	$	10,150	$	9,574

Investments in affiliated registered investment companies at March 31, 2019 and December 31, 2018 consisted of the following (in thousands):

	March 31, 2019				December 31, 2018
	Cost		Fair Value		Cost		Fair Value
Closed-end funds	$	73,717	$	93,434	$	73,950	$	85,090
Mutual funds		47,550		57,129		49,714		57,045
Total investments in affiliated registered investment companies	$	121,267	$	150,563	$	123,664	$	142,135

The Company recognizes all equity derivatives as either assets or liabilities measured at fair value and includes them in either investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition. From time to time, the Company and/or the partnerships and offshore funds that the Company consolidates will enter into hedging transactions to manage their exposure to foreign currencies and equity prices related to their investments.

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The following table identifies the fair values of all derivatives held by the Company (in thousands):

	Asset Derivatives					Liability Derivatives
	Statement of Financial Condition Location	Fair Value				Statement of Financial Condition Location	Fair Value
		March 31, 2019		December 31, 2018			March 31, 2019		December 31, 2018
Derivatives designated as hedging
instruments under FASB ASC 815-20
Foreign exchange contracts	Receivable from brokers	$	285	$	204	Payable to brokers	$	-	$	-
Derivatives not designated as hedging
instruments under FASB ASC 815-20
Equity contracts	Investments in securities	$	145	$	464	Securities sold, not yet purchased	$	107	$	89
Total derivatives		$	430	$	668		$	107	$	89

The following table identifies gains and losses of all derivatives held by the Company (in thousands):

Type of Derivative	Income Statement Location	Three Months ended March 31,
		2019			2018
Foreign exchange contracts	Net gain/(loss) from investments	$	81		$	-
Equity contracts	Net gain/(loss) from investments		(2,022	)		1,778
Total		$	(1,941	)	$	1,778

At March 31, 2019 and December 31, 2018, we held derivative contracts on 2.1 million and 1.0 million equity shares, respectively, that are included in investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition. Except for the foreign exchange contract 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 condensed consolidated statements of income.

The Company is a party to enforceable master netting arrangements for equity swaps entered into with major U.S. financial institutions as part of the investment strategy of the Company’s proprietary portfolio. They are typically not used as hedging instruments. These swaps, while settled on a net basis with the counterparties, are shown gross in assets and liabilities on the condensed consolidated statements of financial condition. The swaps have a firm contract end date and are closed out and settled when each contract expires.

	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statements of Financial Condition		Net Amounts of Assets Presented in the Statements of Financial Condition		Gross Amounts Not Offset in the Statements of Financial Condition
							Financial Instruments			Cash Collateral Received		Net Amount
Swaps:	(In thousands)
March 31, 2019	$	70	$	-	$	70	$	(70	)	$	-	$	-
December 31, 2018		416		-		416		(89	)		-		327

	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statements of Financial Condition		Net Amounts of Liabilities Presented in the Statements of Financial Condition		Gross Amounts Not Offset in the Statements of Financial Condition
							Financial Instruments			Cash Collateral Pledged		Net Amount
Swaps:	(In thousands)
March 31, 2019	$	106	$	-	$	106	$	(70	)	$	-	$	36
December 31, 2018		89		-		89		(89	)		-		-

D. Investment Partnerships and Variable Interest Entities

The Company is general partner or co-general partner of various affiliated entities (“Affiliated Entities”) in which the Company had investments totaling $107.2 million and $100.1 million at March 31, 2019 and December 31, 2018, respectively, and whose underlying assets consist primarily of marketable securities. We also had investments in unaffiliated partnerships, offshore funds and other entities (“Unaffiliated Entities”) of $19.0 million and $18.6 million at March 31, 2019 and December 31, 2018, respectively. We evaluate each entity to determine its appropriate accounting treatment and disclosure. Certain of the Affiliated Entities, and none of the Unaffiliated Entities, are consolidated.

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The value of entities where consolidation is not deemed appropriate is included in investments in partnerships on condensed consolidated statements of financial condition. This caption includes investments in Affiliated Entities and Unaffiliated Entitieswhich the Company accounts for under the equity method of accounting. The Company reflects the equity in earnings of these Affiliated Entities and Unaffiliated Entities as net gain/(loss) from investments on the condensed consolidated statements of income.

The following table highlights the number of entities that we consolidate as well as the basis under which they are consolidated:

	VIEs		VOEs
Entities consolidated at December 31, 2017		1		3
Additional consolidated entities		-		2
Deconsolidated entities		-		-
Entities consolidated at March 31, 2018		1		5
Additional consolidated entities		-		-
Deconsolidated entities		-		-
Entities consolidated at December 31, 2018		1		5
Additional consolidated entities		-		-
Deconsolidated entities		-		-
Entities consolidated at March 31, 2019		1		5

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The following table includes the net impact by line item on the condensed consolidated statements of financial condition for the consolidated entities (in thousands):

	March 31, 2019
	Prior to Consolidation		Consolidated Entities			As Reported
Assets
Cash and cash equivalents	$	377,343	$	18,677		$	396,020
Investments in securities (including GBL stock)		171,339		109,603			280,942
Investments in affiliated investment companies		202,066		(51,503	)		150,563
Investments in partnerships		146,256		(20,117	)		126,139
Receivable from brokers		4,992		21,988			26,980
Investment advisory fees receivable		1,212		(24	)		1,188
Other assets		12,437		427			12,864
Total assets	$	915,645	$	79,051		$	994,696
Liabilities and equity
Securities sold, not yet purchased	$	5,920	$	11,198		$	17,118
Accrued expenses and other liabilities		20,721		17,072			37,793
Redeemable noncontrolling interests		-		50,781			50,781
Total equity		889,004		-			889,004
Total liabilities and equity	$	915,645	$	79,051		$	994,696

	December 31, 2018
	Prior to Consolidation		Consolidated Entities			As Reported
Assets
Cash and cash equivalents	$	396,074	$	13,490		$	409,564
Investments in securities (including GBL stock)		131,764		98,196			229,960
Investments in affiliated investment companies		193,006		(50,871	)		142,135
Investments in partnerships		138,119		(19,390	)		118,729
Receivable from brokers		7,998		16,631			24,629
Investment advisory fees receivable		4,427		(33	)		4,394
Other assets		24,551		471			25,022
Total assets	$	895,939	$	58,494		$	954,433
Liabilities and equity
Securities sold, not yet purchased	$	4,631	$	4,943		$	9,574
Accrued expenses and other liabilities		25,060		3,751			28,811
Redeemable noncontrolling interests		-		49,800			49,800
Total equity		866,248		-			866,248
Total liabilities and equity	$	895,939	$	58,494		$	954,433

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The following table includes the net impact by line item on the condensed consolidated statements of income for the consolidated entities (in thousands):

	Three Months Ended March 31, 2019
	Prior to Consolidation			Consolidated Entities			As Reported
Total revenues	$	4,817		$	(165	)	$	4,652
Total expenses		11,462			1,066			12,528
Operating loss		(6,645	)		(1,231	)		(7,876	)
Total other income, net		35,983			2,738			38,721
Income before income taxes		29,338			1,507			30,845
Income tax expense		6,191			-			6,191
Net income before NCI		23,147			1,507			24,654
Net income attributable to noncontrolling interests		-			1,507			1,507
Net income	$	23,147		$	-		$	23,147

	Three Months Ended March 31, 2018
	Prior to Consolidation			Consolidated Entities			As Reported
Total revenues	$	4,720		$	(17	)	$	4,703
Total expenses		8,441			512			8,953
Operating loss		(3,721	)		(529	)		(4,250	)
Total other income/(expense), net		(25,242	)		386			(24,856	)
Loss before income taxes		(28,963	)		(143	)		(29,106	)
Income tax benefit		(6,734	)		-			(6,734	)
Net loss before NCI		(22,229	)		(143	)		(22,372	)
Net loss attributable to noncontrolling interests		-			(143	)		(143	)
Net loss	$	(22,229	)	$	-		$	(22,229	)

Variable Interest Entities

With respect to the consolidated VIE, its assets may only be used to satisfy its obligations. The investors and creditors of any consolidated VIE have no recourse to the Company’s general assets. In addition, the Company neither benefits from such VIE’s assets nor bears the related risk beyond its beneficial interest in the VIE.

The following table presents the balances related to the VIE that is consolidated and included on the condensed consolidated statements of financial condition as well as the Company’s net interest in this VIE (in thousands):

	March 31, 2019			December 31, 2018
Cash and cash equivalents	$	2,561		$	2,560
Investments in securities		8,538			7,253
Receivable from brokers		(5	)		553
Other assets		1			(11	)
Accrued expenses and other liabilities		(291	)		(31	)
Redeemable noncontrolling interests		(424	)		(419	)
AC Group’s net interests in consolidated VIE	$	10,380		$	9,905

E. Fair Value

The following tables present information about the Company’s assets and liabilities by major category measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. Investments in certain entities that calculate net asset value per share and other investments that are not held at fair value are provided as separate items to permit reconciliation of the fair value of investments included in the fair value hierarchy to the total amounts presented in the condensed consolidated statements of financial condition.

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The following tables present assets and liabilities measured at fair value on a recurring basis as of the dates specified (except for Investment Partnerships) (in thousands):

	March 31, 2019
Assets	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Investments Using NAV as Fair Value (a)		Other Assets Not Held at Fair Value (b)		Total
Cash equivalents	$	394,490	$	-	$	-	$	-	$	-	$	394,490
Investments in partnerships		-		-		-		121,753		4,386		126,139
Investments in securities (including GBL stock):
Gov’t obligations		28,648		-		-		-		-		28,648
Common stocks		240,131		7,321		33		-		-		247,485
Mutual funds		1,332		-		-		-		-		1,332
Other		21		145		3,311		-		-		3,477
Total investments in securities		270,132		7,466		3,344		-		-		280,942
Investments in affiliated registered investment companies:
Closed-end funds		93,434		-		-		-		-		93,434
Mutual funds		57,129		-		-		-		-		57,129
Total investments in affiliated registered investment companies		150,563		-		-		-		-		150,563
Total investments		420,695		7,466		3,344		121,753		4,386		557,644
Total assets at fair value	$	815,185	$	7,466	$	3,344	$	121,753	$	4,386	$	952,134
Liabilities
Common stocks	$	17,011	$	-	$	-	$	-	$	-	$	17,011
Other		-		107		-		-		-		107
Securities sold, not yet purchased	$	17,011	$	107	$	-	$	-	$	-	$	17,118

	December 31, 2018
Assets	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Investments Using NAV as Fair Value (a)		Other Assets Not Held at Fair Value (b)		Total
Cash equivalents	$	407,239	$	-	$	-	$	-	$	-	$	407,239
Investments in partnerships		-		-		-		114,449		4,280		118,729
Investments in securities (including GBL stock):
Gov’t obligations		11,707		-		-		-		-		11,707
Common stocks		205,978		7,161		12		-		-		213,151
Mutual funds		1,161		-		-		-		-		1,161
Other		19		464		3,458		-		-		3,941
Total investments in securities		218,865		7,625		3,470		-		-		229,960
Investments in affiliated registered investment companies:
Closed-end funds		85,090		-		-		-		-		85,090
Mutual funds		57,045		-		-		-		-		57,045
Total investments in affiliated registered investment companies		142,135		-		-		-		-		142,135
Total investments		361,000		7,625		3,470		114,449		4,280		490,824
Total assets at fair value	$	768,239	$	7,625	$	3,470	$	114,449	$	4,280	$	898,063
Liabilities
Common stocks	$	9,485	$	-	$	-	$	-	$	-	$	9,485
Other		-		89		-		-		-		89
Securities sold, not yet purchased	$	9,485	$	89	$	-	$	-	$	-	$	9,574

(a) Amounts include certain equity method investments in Investment Partnerships which qualify for investment company specialized accounting. These Investment Partnerships account for their financial assets and liabilities using fair value measures and, therefore, the Company’s investment approximates fair value. At March 31, 2019 and December 31, 2018, investments in these Investment Partnerships were $111,940 and $105,020, respectively. In addition, certain investments in Investment Partnerships were held by a consolidated entity. At March 31, 2019 and December 31, 2018, these amounts were $9,813 and $9,429, respectively. None of these investments have been classified in the fair value hierarchy.

(b) Amounts include certain equity method investments which are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.

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Investments using NAV as fair value shown in the above tables include investments in Affiliated and Unaffiliated Entities. Capital may generally be redeemed from Affiliated Entities on a monthly basis upon adequate notice as determined in the sole discretion of each entity’s investment manager. Capital invested in Unaffiliated Entities may generally be redeemed at various intervals ranging from monthly to annually upon notice of 30 to 95 days. Certain Unaffiliated Entities may require a minimum investment period before capital can be voluntarily redeemed (a “Lockup Period”). No investment in an Unaffiliated Entity has an unexpired Lockup Period. The Company has no outstanding capital commitments to any Affiliated or Unaffiliated Entity.

The following table presents additional information about assets by major category measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Three months ended March 31, 2019									Three months ended March 31, 2018
	Common Stocks			Other			Total			Common Stocks			Other			Total
Beginning balance	$	12		$	3,458		$	3,470		$	618		$	1,169		$	1,787
Consolidated fund		-			-			-			-			984			984
Total gains/(losses)		(42	)		(147	)		(189	)		(11	)		8			(3	)
Purchases		-			-			-			-			-			-
Sales		-			-			-			-			(21	)		(21	)
Transfers		63			-			63			-			-			-
Ending balance	$	33		$	3,311		$	3,344		$	607		$	2,140		$	2,747
Changes in net unrealized gain/(loss) included in Net gain/(loss) from investments related to level 3 assets still held as of the reporting date	$	(42	)	$	(147	)	$	(189	)	$	(11	)	$	-		$	(11	)

Total realized and unrealized gains and losses for level 3 assets are reported in net gain/(loss) from investments in the condensed consolidated statements of income.

During the three months ended March 31, 2019, the Company transferred investments with values of approximately $63,000, respectively, from level 1 to level 3 due to the unavailability of observable inputs.

F. Income Taxes

The effective tax rate (“ETR”) for the three months ended March 31, 2019 and March 31, 2018 was 20.1% and 23.1%, respectively. The ETR in the first quarter of 2019 differs from the standard corporate tax rate of 21% primarily due to state and local taxes (net of federal benefit) and the benefit of (a) the donation of appreciated securities and (b) the dividends received deduction. The  ETR  in  the  first  quarter  of  2018  differs  from  the  standard  corporate  tax  rate  of  21% primarily due to state and local taxes (net of federal benefit).

G. Earnings Per Share

Basic earnings per share is computed by dividing net income/(loss) per share attributable to our shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net income/(loss) per share attributable to our shareholders by the weighted average number of shares outstanding during the period, adjusted for the dilutive effect of outstanding RSAs. There were no outstanding AC RSAs during the three months ended March 31, 2019 and 2018.

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The computations of basic and diluted net income/(loss) per share are as follows:

	Three Months Ended March 31,
(amounts in thousands, except per share amounts)	2019		2018
Basic:
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders	$	23,147	$	(22,229	)
Weighted average shares outstanding		22,584		23,508
Basic net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders per share	$	1.02	$	(0.95	)
Diluted:
Net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders	$	23,147	$	(22,229	)
Weighted average share outstanding		22,584		23,508
Dilutive restricted stock awards		-		-
Total		22,584		23,508
Diluted net income/(loss) attributable to Associated Capital Group, Inc.’s shareholders per share	$	1.02	$	(0.95	)

H. Stockholders’ Equity

Shares outstanding were 22.6 million at March 31, 2019 and December 31, 2018.

Dividends

There were no dividends declared during each of the three months ended March 31, 2019 and 2018.

Stock Repurchase Program

During first quarter 2019, the Company repurchased approximately 10 thousand shares at an average price of $40.03 per share for a total investment of $0.4 million. During first quarter 2018, the Company repurchased approximately 13 thousand shares at an average price of $35.87 per share for a total investment of $0.5 million.

Exchange Offers

In February 2018, AC completed an exchange offer with respect to its Class A shares. Tendering shareholders received 1.35 GAMCO Class A shares for each AC Class A share, together with cash in lieu of any fractional share. Upon completion of the offer, shareholders tendered 493,954 Class A shares in exchange for 666,805 GAMCO Class A shares with a value of $17.7 million.

In October 2018, the Company completed an exchange offer with respect to its Class A shares. Tendering shareholders received 1.9 GAMCO Class A shares for each AC Class A share, together with cash in lieu of any fractional share. Upon completion of the offer, shareholders tendered 373,581 shares in exchange for 709,749 GAMCO shares with a value of approximately $14.6 million.

Voting Rights

The holders of Class A Common stock (“Class A Stock”) and Class B Common stock (“Class B Stock”) have identical rights except that (a) holders of Class A Stock are entitled to one vote per share, while holders of Class B Stock are entitled to ten votes per share on all matters to be voted on by shareholders in general, and (b) holders of each share class are not eligible to vote on matters relating exclusively to the other share class.

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Stock Award and Incentive Plan

On November 30, 2015, in connection with the Spin-off, the Company issued 554,100 AC RSA shares to GAMCO employees (including GAMCO employees who became AC employees) who held 554,100 GAMCO RSA shares at that date. The purpose of the issuance was to ensure that any employee who had GAMCO RSAs were granted an equal number of AC RSAs so that the total value of the RSAs post-spin-off was equivalent to the total value pre-spin-off. In accordance with GAAP, we have allocated the stock compensation costs of both the AC RSAs and the GAMCO RSAs between GAMCO and AC based upon the allocation of each employee’s responsibilities between the companies. The vesting of the GAMCO RSAs outstanding was accelerated in the first quarter of 2018. There were no AC RSAs outstanding at March 31, 2019 and 2018.

There were no RSAs issued by AC during the three months ended March 31, 2019 or 2018.

In August and December 2018, the Company’s Board of Directors approved the grant of 172,800 shares of Phantom Restricted Stock awards (“Phantom RSAs”). Under the terms of the grants, which were effective August 8 and December 31, the Phantom RSAs vest 30% and 70% after three and five years, respectively. The Phantom RSAs will be settled by a cash payment, net of applicable withholding tax, on the vesting dates. In addition, an amount equivalent to the cumulative dividends declared on shares of the Company’s Class A common stock during the vesting period will be paid to participants on vesting. Based on the price of the Company’s stock, the total value of the Phantom RSAs was $6.1 million as of the grant dates.

Pursuant to ASC 718, the Phantom RSAs will be treated as a liability because cash settlement is required and compensation will be recognized over the vesting period. In determining the compensation expense to be recognized each period, the Company will remeasure the fair value of the liability at each reporting date taking into account the remaining vesting period attributable to each award and the current market value of the Company’s Class A stock. In making these determinations, the Company will consider the impact of Phantom RSAs that have been forfeited prior to vesting (e.g., due to an employee termination). The Company has elected to consider forfeitures as they occur.

As of March 31, 2019, there were 160,300 Phantom RSAs outstanding. The unrecognized compensation cost related to these was $5.3 million which is expected to be recognized over a weighted-average period of 2.4 years.

For the three months ended March 31, 2019 and 2018, the Company recorded approximately $0.4 million and $0.1 million in stock-based compensation expense, respectively.

I. Goodwill and Identifiable Intangible Assets

At March 31, 2019, goodwill and intangible assets on the condensed consolidated statements of financial condition includes $3.4 million of goodwill related to GCIA. The Company assesses the recoverability of goodwill at least annually, or more often should events warrant, using a qualitative assessment of whether it is more likely than not that an impairment has occurred to determine if a quantitative analysis is required. There were no indicators of impairment for the three months ended March 31, 2019 or March 31, 2018, and as such there was no impairment analysis performed or charge recorded.

J. Commitments and Contingencies

From time to time, the Company may be named in legal actions and proceedings. These actions may seek substantial or indeterminate compensatory as well as punitive damages or injunctive relief. We are also subject to governmental or regulatory examinations or investigations. The examinations or investigations could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief. For any such matters, the condensed consolidated financial statements include the necessary provisions for losses that the Company believes are probable and estimable. Furthermore, the Company evaluates whether losses exist which may be reasonably possible and will, if material, make the necessary disclosures. Management believes, however, that such amounts, both those that are probable and those that are reasonably possible, are not material to the Company’s financial condition, results of operations or cash flows at March 31, 2019.

20

G.research has agreed to indemnify clearing brokers for losses they may sustain from customer accounts introduced by G.research that trade on margin. At each of March 31, 2019 and December 31, 2018, the total amount of customer balances subject to indemnification (i.e., unsecured margin debits) was immaterial.

The Company has also entered into arrangements with various other third parties, many of which provide for indemnification of the third parties against losses, costs, claims and liabilities arising from the performance of obligations under the agreements. The Company has had no claims or payments pursuant to these or prior agreements and believes the likelihood of a claim being made is remote, and, therefore, no accrual has been made on the condensed consolidated financial statements.

K. Subsequent Events

From April 1, 2019 to May 8, 2019, the Company repurchased 21,961 shares at an average price of $39.59 per share.

On April 23, 2019, the Company issued a promissory note for $2.1 million to our Executive Chairman. The note bears interest at 1% per annum and is payable upon demand.

On May 7, 2019, the Board of Directors (“Board”) approved a semi-annual dividend of $0.10 per share to all of its Class A and Class B shareholders paya