MGHL Morgan Group Holding Co (PK)

This Prospectus is being furnished to you as a stockholder of Associated Capital Group, Inc., referred to as ACG. ACG plans to effect a distribution, referred to as the Spin-Off or the Distribution, to its stockholders of 50,000,000 shares of common stock, par value $0.01 per share, referred to as our Common Stock or Common Stock, of Morgan Group Holding Co., referred to as the Company, beneficially held by ACG immediately prior to the Spin-Off. Immediately prior to the time of the Distribution, ACG will hold approximately 83.3% of the outstanding shares of Common Stock.

At the time of the Spin-Off, ACG will distribute 50,000,000 shares of Common Stock beneficially held by it on a pro rata basis to holders of class A and class B common stock, par value $0.001 per share, of ACG, collectively referred to as ACG common stock. Each share of ACG common stock outstanding as of 5:00 p.m., New York City time, on      , 2020, referred to as the Record Date, will entitle the holder thereof to receive       shares of our Common Stock. The Distribution will be made in book-entry form by a distribution agent. Fractional shares of Common Stock will not be distributed in the Spin-Off. In lieu of fractional shares, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each holder (net of any required withholding for taxes applicable to each holder) who would otherwise have been entitled to receive a fractional share in the distribution.

The Spin-Off will be effective as of 5:00 p.m., New York City time, on      , 2020, referred to as the Distribution Date. Immediately after the Spin-Off, the Company will be a publicly-traded company, independent of ACG’s ownership and control.

ACG’s stockholders are not required to vote on or take any other action in connection with the Spin-Off. We are not asking you for a proxy, and we request that you do not send us a proxy. ACG stockholders will not be required to pay any consideration for our Common Stock they receive in the Spin-Off, and they will not be required to surrender or exchange their shares of ACG common stock or take any other action in connection with the Spin-Off.

Our Common Stock is not listed on any securities exchange and currently trades in the over-the-counter market where quotations are available through OTC Pink^®’s quotation service under the symbol “MGHL.”

In reviewing this Prospectus, you should carefully consider the matters described in the section titled “Risk Factors” beginning on page 8 of this Prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This Prospectus is not an offer to sell, or a solicitation of an offer to buy, any securities.

These rules generally apply for the two-year periods before and after the distribution date. A number of spin-off distribution transactions include a tax indemnification agreement under which the company being spun off agrees to certain covenants and representations designed to ensure the qualification of the transaction as tax free. There is no such specific tax indemnification agreement in the Spin-Off. Therefore, ACG and its stockholders may not have legal recourse if our actions lead to the Spin-Off not qualifying as a tax-free transaction as is intended. Such actions include, but are not limited to, situations in which we or our stockholders were to engage in transactions that result in a 50% or greater change by vote or value in the ownership of our Common Stock during the four-year period beginning on the date that begins two years before the date of the Spin-Off, unless it were established that such transactions and the Spin-Off were not part of a plan or series of related transactions giving effect to such a change in ownership. In such a case, the Spin-Off could be taxable to ACG, but not to ACG’s stockholders. If the Spin-Off were taxable to ACG due to such 50% or greater change in the ownership of our Common Stock, ACG would recognize gain in an amount up to the fair market value of our Common Stock held by it immediately before the Spin-Off, but we generally would not be required to indemnify ACG for the tax on such gain or related expenses.

Although we intend the Spin-Off to comply with the rules in the tax law related to a distribution under Code Section 355 in which gain or loss is not recognized, while not contemplated at this time, we may later decide to pursue strategic transactions or engage in new businesses or other transactions in order to maximize the value of our business, or transactions in our stock may be made, that may cause the Spin-Off not to satisfy the requirements for a tax-free transaction.

GAMCO and ACG have provided us with various corporate services pursuant to certain expense sharing agreements described under the section titled “Certain Relationships and Related Party Transactions —Agreements with ACG.” Further, following the Spin-Off, GAMCO and ACG will have no obligation to provide us with assistance, other than the services described in such agreements for the prescribed periods and in accordance with the terms described therein. These agreements may not reflect terms that would have resulted from arms-length negotiations between unaffiliated parties. Accordingly, if such agreements were terminated or not renewed, we would need to provide internally or obtain from unaffiliated third parties the services we currently receive from them. We may be unable to replace these services in a timely manner or on terms and conditions as favorable as those we receive from GAMCO and ACG. We may be unable to successfully operate as effectively as we have in the past or may incur additional costs. If we fail to obtain the services necessary to operate effectively or if we incur greater costs in obtaining these services, our business, financial condition and results of operations may be adversely affected.

Prior to the acquisition of G.research in October 30, 2019, we had nominal assets and no liabilities and did not conduct operations other than to pursue business combination opportunities. Following the acquisition, we wholly own and operate G.research, an institutional research and securities brokerage business. Our historical financial information included in this Prospectus does not necessarily reflect the results of operations and financial position we would have achieved as a publicly-traded company separate from ACG during the periods presented or those that we will achieve in the future.

Therefore, our historical financial statements may not be indicative of our future performance as a publicly-traded company separate from ACG. For additional information about our past financial performance and the basis of presentation of our financial statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and the notes thereto included elsewhere in this Prospectus.

From time to time we may need to access the long-term and short-term capital markets to obtain financing. Although we believe that the sources of capital in place at the time of the Spin-Off will permit us to finance our operations for the foreseeable future on acceptable terms and conditions, we have not previously accessed the capital markets as a public company separate from ACG, and our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including our financial performance, our credit ratings or absence thereof, the liquidity of the overall capital markets and the state of the economy. We cannot assure you that we will have access to the capital markets at the times and in the amounts needed or on terms acceptable to us.

Our employees or individuals whom we are attempting to recruit as employees may have concerns about our prospects as a stand-alone company, including our ability to maintain our independence and our inability to continue our current reliance on ACG resources after the Spin-Off. If we are not successful in assuring our employees or individuals whom we are attempting to recruit as employees of our prospects after the Spin Off, our employees or recruits may seek or accept other employment, which could adversely affect our business and our results of operations.

Mario J. Gabelli and his affiliates, and our president, Vincent M. Amabile, Jr., beneficially own approximately 87.3% and 8.35%, respectively, of the outstanding shares our Common Stock. Upon completion of the Spin-Off, Mario J. Gabelli and his affiliates, and our president, Vincent M. Amabile, Jr., are expected to beneficially own approximately 87.3% and 8.35%, respectively, of the outstanding shares our Common Stock. As long as Mario J. Gabelli and his affiliates beneficially own a majority of our outstanding Common Stock, Mr. Gabelli, either alone or in association with Mr. Amabile, will have the ability to elect all of the members of our board of directors (our “Board”) and thereby control our management and affairs, including determinations with respect to acquisitions, dispositions, borrowings, issuances of Common Stock or other securities, and the declaration and payment of dividends on our Common Stock. In addition, Mario J. Gabelli will be able to determine the outcome of all matters submitted to a vote of our stockholders for approval and will be able to cause or prevent a change in control of the Company. As a result of Mario J. Gabelli’s control, none of our agreements with Mario J. Gabelli and other companies controlled by him can be assumed to have been arrived at through “arm’s-length” negotiations. Although the parties to such agreements endeavored to implement market based terms we may have received more favorable terms, or offered less favorable terms to, an unaffiliated counter-party to those agreements.

Mario J. Gabelli controls GAMCO, which has wholly owned subsidiaries that are registered investment advisers, one which manages mutual and closed end funds and a second advises separately managed account clients. G.distributors, LLC, another wholly owned subsidiary of GAMCO, referred to as G.distributers, is a limited purpose, registered broker-dealer that distributes shares of the funds advised by its affiliate, Gabelli Funds, LLC (“Gabelli Funds”). In addition, Mario J. Gabelli also controls ACG. One of ACG’s wholly owned subsidiaries, Gabelli & Company Investment Advisers, Inc. (“GCIA”, f/k/a Gabelli Securities, Inc.), is a registered investment adviser with private fund and separately managed account clients. Although our business is focused on institutional research and trading, we may find ourselves competing with these subsidiaries of GAMCO and ACG for clients and opportunities. For example, it is possible that a potential client might consider investing in investment products managed by the registered investment advisory affiliates of GAMCO or ACG instead of pursuing trading opportunities with us based on our research. No assurance can be given that in the future G.distributors will not expand the scope of its permitted activities to compete directly with our institutional research and trading business.

G.research has recently operated with losses, experiencing $1.9 million and $20.3 million of losses for the fiscal years ended December 31, 2019 and 2018, respectively, and $282,454 and $1,040,642 of losses for the three months ended March 31, 2020 and 2019, respectively. There can be no assurance that we will achieve profitable operations in the foreseeable future. If we continue to incur losses, our business and prospects will suffer leading to question our ability to continue as a going concern.

Our future success depends to a substantial degree on our ability to retain and attract qualified personnel to conduct our institutional research and trading business. The market for qualified research analysts and institutional sales professionals is extremely competitive and has grown more so in recent periods as the investment management industry has experienced growth. We anticipate that it may be necessary to add research analysts as we seek to further diversify our research coverage. There can be no assurance that we will be successful in our efforts to recruit personnel. In addition, our investment professionals have direct contact with our clients, which can lead to strong client relationships. The loss of personnel could jeopardize our relationships with certain clients, and result in the loss of such accounts. The loss of key management professionals or the inability to recruit and retain sales professionals could have a material adverse effect on our business.

We are monitoring the potential impact of the global coronavirus pandemic that has severely impacted the United States, Europe, Asia and other countries throughout the world. Financial markets have been experiencing extreme fluctuations that may cause a contraction in available liquidity globally as important segments of the credit markets react to the development. The pandemic may lead to a decline in business and consumer confidence and presents the risk of an economic recession around the globe.

While at the present time, the Company is unable to estimate the potential impact of the virus on its financial condition, we anticipate lower transaction volumes from our institutional clients. It is possible that a significant prolonged disruption in the financial markets leading to materially lower trading activity of the Company’s clients would have a material adverse effect on the Company’s revenue. Our order execution services are operating remotely. The sponsored conferences are taking place as planned using virtual service providers. We will continue to monitor the virus’ impact on our customers, clients and financial results. We are unable to predict the likely duration or severity of the current disruption in financial markets and adverse economic conditions resulting from the pandemic which could materially and adversely affect our business plan. A significant prolonged disruption in the financial markets leading to materially lower trading activity of the Company’s clients would have a material adverse effect on the Company’s revenue, operating results and financial position. Any potential impact to our results of operations and financial condition will depend to a large extent on future developments and new information that could emerge regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain COVID-19 or treat its impact, all of which are beyond our control.

Our results of operations are affected by many economic factors, including the performance of the securities markets. We benefit from favorable market conditions within the U.S. securities markets, and the U.S. equity market in particular, especially when trading is stable and predictable. Moreover, securities markets regularly experience significant volatility, and such volatility may continue or increase in the future. Any deterioration in the securities market conditions, in general, and the equity markets, in particular, could reduce our revenues. In addition, any such deterioration in the equity markets, failure of these markets to sustain their prior levels of growth, or continued short-term volatility in these markets could result in investors withdrawing from the equity markets or decreasing their rate of investment, either of which would be likely to adversely affect us.

Success in the institutional research and sales trading business is dependent on quality of the securities research and success of our trading ideas. Quality research generally stimulates our institutional sales and trading

business. Conversely, inferior research and poor performance tends to result in decreased sales and trading by our clients. The failure of our research to yield positive results for clients could, therefore, have a material adverse effect on us.

Our underwriting and trading activities subject our capital to significant risks of loss. The risks of loss include those resulting from ownership of securities, extension of credit, leverage, liquidity, counterparty failure to meet commitments, client fraud, employee errors, misconduct and fraud (including unauthorized transactions by traders), failures in connection with the processing of securities transactions and litigation. We have procedures and internal controls to address such risks, but there can be no assurance that these procedures and controls will prevent losses from occurring.

G. research earned $4.9 million and $3.8 million, or approximately 76% and 62%, of its commission revenue for the years ended December 31, 2019 and 2018, respectively, and $0.7 million and $1.1 million, or approximately 67% and 74%, of its commission revenue for the three months ended March 31, 2020 and 2019, respectively, from transactions executed on behalf of clients advised by affiliates of GAMCO. G.research earned $1.5 million and $2.0 million of research service fees for the years ended December 31, 2019 and 2018, respectively, pursuant to research services agreements with affiliates of GAMCO. The research services agreements were terminated effective as of January 1, 2020. G.research also earned $730,000 and $16,000 in sales manager fees for the years ended December 31, 2019 and 2018, respectively, and $0.3 million and zero dollars in sales manager fees for the three months ended March 31, 2020 and 2019. All of these selling concessions related to funds advised by affiliates of GAMCO. We can provide no assurance that commission revenue and selling concession revenues from GAMCO and its affiliates will continue and the loss of these revenues would have an adverse effect on our results of operations.

We face operational risk arising from errors made in the execution, confirmation or settlement of transactions or from transactions not being properly recorded, evaluated or accounted for. Our business is highly dependent on our ability to process, on a daily basis, transactions across markets in an efficient and accurate manner. Consequently, we rely heavily on our financial, accounting and other data processing systems. Despite the reliability of these systems and the training and skill of our teammates and third parties we rely on, it remains likely that errors may occasionally occur due to the extremely large number of transactions we process. In addition, if systems we use are unable to accommodate an increasing volume of transactions, our ability to expand our businesses could be constrained. If any of these systems do not operate properly or are disabled, we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.

Our infrastructure, including information systems, hardware, software, networks and other technology, is vital to the competitiveness of our business. Our information systems and technology are currently provided by GAMCO pursuant to an expense sharing agreement with the Company. GAMCO will continue to provide these services to us after the acquisition pursuant to that expense sharing agreement. The failure of GAMCO to maintain an adequate infrastructure commensurate with the size and scope of our business could impede our productivity and growth, which could cause our revenues and earnings to decline. GAMCO outsources a significant portion of our information systems operations to third parties, who are responsible for providing the management, maintenance and updating of such systems. Technology is subject to rapid change, and we cannot guarantee that our competitors may not implement more advanced technology platforms for their products than we do for ours. In addition, there can be no assurance that the cost of maintaining such outsourcing arrangements will not increase from its current level, which could have a material adverse effect on us.

In addition, any inaccuracies, delays, system failures or security breaches in these and other systems could subject us to client dissatisfaction and losses. Our technology systems may be subject to unauthorized access, computer viruses or other malicious code or other events that could have a security impact. There can be no assurance that breach of our technology systems could result in material losses (such material losses including the loss of valuable information, liability for stolen assets or information, remediation costs to repair damage caused by the breach, additional security costs to mitigate against future incidents and litigation costs resulting from the incident) relating to such security breach of our technology systems. If a successful cyberattack or other security breach were to occur, our confidential or proprietary information, or the confidential or proprietary information of our clients or their counterparties, that is stored in, or transmitted through, such technology systems could be compromised or misappropriated. Moreover, loss of confidential customer identification information could harm our reputation and subject us to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenues. Further, although we take precautions to password protect and encrypt our laptops and other mobile electronic hardware, there can be no assurance that these measures will always provide sufficient protection. If such hardware is stolen, misplaced or left unattended, it may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by us.

The expense sharing agreements with GAMCO and ACG were not negotiated at arm’s length and accordingly, the terms thereof may not reflect terms that would have been reached between unaffiliated parties. Had this agreement been negotiated with an unaffiliated third party, the terms thereof might have been more favorable to us.

We license on a non-exclusive and royalty free basis the Private Market Value with a Catalyst™ service mark for use in our business. GAMCO owns the service mark and may terminate the license on 30 days prior written notice. If the license is terminated, G.research will be obligated to cease use of the service mark in connection with the marketing of G.research’s services, which may have a material negative impact on our business.

Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We and the investments we manage may have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including: brokers and dealers, commercial banks, investment banks, clearing organizations, mutual and hedge funds and other institutions. Many of these transactions exposes and the accounts we manage to credit risk in the event of the counterparty’s default. There is no assurance that any such losses would not materially and adversely impact our revenues and earnings.

The volume of litigation and arbitration claims against financial services firms and the amount of damages claimed has increased over the past several years. The types of claims that we may face are varied. For example, we may face claims against us for purchasing securities that are inconsistent with a client’s investment objectives or guidelines or arising from an employment dispute. The risk of litigation is difficult to predict, assess or quantify, and may occur years after the activities or events at issue. In addition, from time to time we may become the subject of governmental or regulatory investigations and/or examinations. Even if we prevail in a legal or regulatory action, the costs alone of defending against the action or the harm to our reputation could have a material adverse effect on us. The insurance coverage that we maintain with respect to legal and regulatory actions may be inadequate or may not cover certain proceedings.

Our reputation is critical to acquiring, maintaining and developing relationships with our clients. In recent years, there have been a number of well-publicized cases involving fraud, conflicts of interest or other

misconduct by individuals in the financial services industry. Misconduct by our staff, or even unsubstantiated allegations, could result not only in direct financial harm but also in harm to our reputation, causing injury to the value of our brands. In addition, in certain circumstances, misconduct on the part of our clients or other parties could damage our reputation. Moreover, reputational harm may cause us to lose current employees and we may be unable to attract new employees with similar qualification or skills. Damage to our reputation could substantially impair our ability to maintain or grow our business, which could have a material adverse effect on us.

We compete with numerous stock brokerage, securities research and investment banking firms. The periodic establishment of new institutional research and other competitors increases the competition that we face. At the same time, consolidation in the financial services industry has created stronger competitors with greater financial resources and broader marketing reach than our own. Competition is based on various factors, including, among others, business reputation, investment performance, product mix and offerings, service quality and innovation, strategic relationships and fees charged. Our competitive success in all of these areas cannot be assured.

Our business is subject to extensive regulation in the United States, primarily at the federal level, including regulation by the SEC and FINRA. We are registered with the SEC as a broker-dealer and are a member of FINRA. The Exchange Act and FINRA’s rules impose numerous obligations on broker-dealers, including record-keeping, advertising and operating requirements, disclosure obligations and a broad range of other highly-detailed and complex regulatory requirements. Our failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of our registration as a broker-dealer. Changes in laws or regulations or in governmental policies could limit the sources and amounts of our revenues, increase our costs of doing business, decrease our profitability and have a material adverse effect on our business.

A terrorist attack, political unrest, war (whether or not directly involving the United States), power failure, cyber-attack, technology failure, natural disaster, global health pandemic or many other possible catastrophic or unpredictable events could adversely affect our future revenues, expenses and earnings by, among other things: causing disruptions in United States, regional or global economic conditions; interrupting our normal business operations; inflicting employee casualties, including loss of our key executives; requiring substantial expenditures and expenses to repair, replace and restore normal business operations; and reducing investor confidence.

Pursuant to an expense sharing agreement with GAMCO, we have a disaster recovery plan to address certain contingencies, but it cannot be assured that this plan will be effective or sufficient in responding to, eliminating or ameliorating the effects of all disaster scenarios. If our employees or vendors we rely upon for support in a catastrophic event are unable to respond adequately or in a timely manner, we may lose clients which may have a material adverse effect on revenues and earnings.

Our Common Stock trades in the over-the-counter market. Approximately 87.3% and 8.35%, respectively, of our outstanding Common Stock is beneficially owned by Mario J. Gabelli and his affiliates, and Vincent M. Amabile, Jr., and, after the Spin-Off, approximately 87.3% and 8.35% is expected to be beneficially owned by Mario J. Gabelli and his affiliates, and Vincent M. Amabile, Jr., respectively. Therefore, such shares are not freely tradable as part of the public float. After the completion of the Spin-Off, a liquid public market for our Common Stock may not develop, especially because such a large percentage of our Common Stock will be held by a limited number of stockholders concentrated under the control of Mr. Gabelli. If an active trading market for our Common Stock does not develop, the market price and liquidity of the stock may be materially and adversely affected.

The market price of our Common Stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:

In particular, the realization of any of the risks described in these “Risk Factors” could have a significant and adverse impact on the market price of our Common Stock. In addition, the stock market in general has experienced extreme price and volume volatility that has often been unrelated to the operating performance of particular companies. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The price of our Common Stock could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce our stock price.

We may sell additional shares of our Common Stock in public or private offerings. We also may issue convertible debt or equity securities. In addition, ACG stockholders receiving shares of our Common Stock in the Spin-Off generally may sell those shares immediately in the public market, and sales by our current stockholders could be perceived negatively. No prediction can be made as to the effect, if any, that future sales or distributions of our Common Stock beneficially owned by Mario J. Gabelli and his affiliates and Vincent M. Amabile, Jr. will have on the market price of our Common Stock from time to time. Sales or distributions of substantial amounts of our Common Stock, or the perception that such sales or distributions are likely to occur, could adversely affect the prevailing market price for our Common Stock.

We are a “smaller reporting company” and we may avail ourselves of certain exemptions from various reporting requirements of public companies that are not “smaller reporting companies” and, like smaller reporting companies, reduced disclosure obligations regarding executive compensation and corporate governance, reduced financial statement and financial data requirements, in our periodic reports and proxy statements. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions.

We do not intend to pay cash dividends on our Common Stock in the foreseeable future. We expect to retain future earnings, if any, for reinvestment in our business. Also, any credit agreements, which we may enter into, may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion of our Board and will be dependent upon our financial condition, results of operations, cash requirements, future prospects and any other factors our Board deems relevant. Therefore, any return on your investment in our Common Stock must come from increases in the fair market value and trading price of our Common Stock. For more information, see “Dividend Policy.”

Your percentage ownership in the Company may be diluted in the future because of equity awards that we may grant to our directors, officers and other employees. In addition, we may issue equity as all or part of the consideration paid for acquisitions and strategic investments that we may make in the future or as necessary to finance our ongoing operations.

ACG currently beneficially owns through its wholly owned subsidiary, ISH, 50,000,000 shares of our Common Stock, which represents approximately 83.3% of the shares outstanding. These shares were acquired on October 31, 2019 upon consummation of the acquisition. ACG is deemed to be a beneficial owner of the shares of our Common Stock covered by this Prospectus because it has voting and dispositive power over such shares.

On March 14, 2020, the ACG Board approved the Spin-Off. ACG will distribute all of its equity interest that it holds in us, consisting of 50,000,000 shares of our Common Stock, to ACG’s stockholders on a pro rata basis. Following the Spin-Off, ACG will not own any equity interest in or possess control over us, and we will operate independently from ACG. No approval of ACG common stockholders is required in connection with the Spin-Off, and ACG’s common stockholders will not have any appraisal rights in connection with the Spin-Off.

The Spin-Off is subject to the satisfaction, or the ACG Board’s waiver, of a number of conditions. In addition, ACG has the right not to complete the Spin-Off if, at any time, the ACG Board determines, in its sole and absolute discretion, that the Spin-Off is not in the best interests of ACG or its stockholders or is otherwise not advisable. For a more detailed description, see “The Spin-Off—Conditions to the Spin-Off.”

The ACG Board previously considered undertaking block sale transactions, open market sales, potential exchange offer and other potential means of disposing of its significant ownership position in shares of our Common Stock. Ultimately, after consideration of the alternatives, the ACG Board determined that distributing pro rata all of the shares of our Common Stock that it beneficially owns to ACG’s stockholders was in the best interest of ACG’s stockholders. The ACG Board considered the following potential benefits in deciding to pursue the Spin-Off:

As of May 11, 2020, Mario J. Gabelli, through his control and majority ownership of GGCP, Inc., a private company, referred to as GGCP, through GGCP Holdings, LLC, a subsidiary of GGCP, and his individual direct ownership of ACG common stock, beneficially owns 1,851 shares of ACG class A common stock and a majority of the outstanding ACG class B common stock, representing approximately 96.3% of the combined voting power of ACG’s outstanding common stock and approximately 79% of the equity interest. Accordingly, Mr. Mario J. Gabelli is deemed to control ACG. In addition, Mario J. Gabelli beneficially owns 52,385,844, or 87.3% of our outstanding Common Stock. See “Security Ownership of Certain Beneficial Owners and Management.” After the Spin-Off, Mario J. Gabelli will become the beneficial owner of approximately 73.94% of the outstanding shares of our Common Stock.

ACG will distribute to its stockholders, as a pro rata dividend,      shares of our Common Stock for every share of ACG common stock outstanding as of 5:00 p.m., New York City time, on     , 2020, the Record Date of the Distribution.

Prior to the Spin-Off, ACG will deliver all of the issued and outstanding shares of our Common Stock to the distribution agent. American Stock Transfer & Trust Company, LLC, the transfer agent and registrar for our Common Stock, will serve as distribution agent in connection with the Distribution.

If you own ACG common stock as of 5:00 p.m., New York City time, on     , 2020, the shares of our Common Stock that you are entitled to receive in the Distribution will be issued to your account as follows:

We will not issue any physical stock certificates to any stockholders, even if requested.

If you sell any of your shares of ACG common stock on or before the Distribution Date, the buyer of those shares may in some circumstances be entitled to receive the shares of our Common Stock to be distributed in respect of the shares of ACG common stock you sold. See “The Spin-Off—Trading Prior to the Distribution Date” for more information.

We are not asking ACG stockholders to take any action in connection with the Spin-Off. No approval of the holders of ACG common stock is required for the Spin-Off. We are not asking you for a proxy and request that you not send us a proxy. We are also not asking you to make any payment or surrender or exchange any of your shares of ACG common stock for shares of our Common Stock. The number of outstanding shares of ACG common stock will not change as a result of the Spin-Off.

On the Distribution Date, you will receive      shares of our Common Stock for every share of ACG common stock you hold on the Record Date.

The distribution agent will not distribute any fractional shares of our Common Stock in connection with the Spin-Off. Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices on behalf of stockholders entitled to receive a fractional share. The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to these holders (net of any required withholding for taxes applicable to each holder). We anticipate that the distribution agent will make these sales within three trading days following the Distribution Date.

The distribution agent will send to each registered holder of ACG common stock entitled to a fractional share a check in the cash amount deliverable in lieu of that holder’s fractional share as soon as practicable following the Distribution Date. We expect the distribution agent to take up to two weeks after the Distribution Date to complete the distribution of cash in lieu of fractional shares to ACG stockholders. If you hold your shares through a bank, broker or other nominee, your bank, broker or nominee will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales.

No interest will be paid on any cash you receive in lieu of a fractional share. The cash you receive in lieu of a fractional share will generally be taxable to you for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences of the Spin-Off” for more information.

After the Spin-Off, we will remain a publicly-traded company, and ACG will have no continuing stock ownership interest in or possess control over us. Immediately following the Spin-Off, we expect to have approximately     holders of shares of our Common Stock, based on the number of ACG stockholders and shares of ACG common stock outstanding on    , 2020. The actual number of holders of shares of our Common Stock will depend on the actual number of holders of shares of ACG common stock outstanding on the Record Date. The Spin-Off will not affect the number of outstanding shares of ACG common stock or any rights of ACG stockholders, although it is possible that the trading price of shares of ACG common stock immediately following the Distribution may be lower than immediately prior to the Distribution because the trading price of ACG common stock will no longer reflect the value of ACG’s ownership stake in the Company. Nevertheless, we do not expect the trading price of shares of ACG common stock immediately following the Spin-Off to be materially lower than immediately prior to the Spin-Off because the value of Morgan Group Holding Co. and our subsidiary reflects an immaterial amount of ACG’s assets. However, until the market has fully analyzed the value of ACG without the Company, the trading price of shares of ACG common stock may fluctuate.

Our Common Stock is not listed on any securities exchange and currently trades in the over-the-counter market where quotations are available through OTC Pink^®’s quotation service under the symbol “MGHL.”

Neither we nor ACG can assure you as to the trading price of ACG common stock or our Common Stock after the Spin-Off, or as to whether the combined trading prices of our Common Stock and the ACG common stock after the Spin-Off will be less than, equal to or greater than the trading prices of ACG common stock prior to the Spin-Off. The trading price of our Common Stock may fluctuate following the Spin-Off. See “Risk Factors—Risks Relating to the Spin-Off” for more detail.

The shares of our Common Stock distributed to ACG stockholders will be freely transferable, except for shares received by individuals who are considered an “affiliate” of ours under Rule 144 under the Securities Act. Individuals who may be considered our affiliates after the Spin-Off include individuals who control, are controlled by or are under common control with us, as those terms generally are interpreted for federal securities law purposes. These individuals include some or all of our directors and executive officers and Mario J. Gabelli. Individuals who are our affiliates will be permitted to sell their shares of our Common Stock only pursuant to an effective registration statement under the Securities Act, or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 thereunder.

We anticipate that trading in our Common Stock to be issued in the Distribution will begin on a “when-issued” basis as early as two trading days prior to the Record Date for the Distribution and continue up to and including the Distribution Date. “When-issued” trading in the context of a spin-off refers to a sale or purchase made conditionally on or before the Distribution Date because the securities of the spun-off entity have not yet been distributed. If you own shares of ACG common stock at the close of business on the Record Date, you will be entitled to receive shares of our Common Stock in the Distribution. You may trade this entitlement to receive shares of our Common Stock, without the shares of ACG common stock you own, on the “when-issued” market. We expect “when-issued” trades of our Common Stock to settle within four trading days after the Distribution Date. On the first trading day following the Distribution Date, we expect that “when-issued” trading of our Common Stock will end and “regular-way” trading will continue for all of our outstanding Common Stock.

We also anticipate that, as early as two trading days prior to the Record Date and continuing up to and including the Distribution Date, there will be two markets in ACG common stock: a “regular-way” market and an “ex-distribution” market. Shares of ACG common stock that trade on the regular-way market will trade with an entitlement to receive shares of our Common Stock in the Distribution. Shares that trade on the ex-distribution market will trade without an entitlement to receive shares of our Common Stock in the Distribution. Therefore, if you sell shares of ACG common stock in the regular-way market up to and including the Distribution Date, you will be selling your right to receive shares of our Common Stock in the Distribution. However, if you own shares of ACG common stock at the close of business on the Record Date and sell those shares on the ex-distribution market up to and including the Distribution Date, you will still receive the shares of our Common Stock that you would otherwise be entitled to receive in the Distribution.

If “when-issued” trading occurs, the trading in our Common Stock is expected to be under a trading symbol different from our regular-way trading symbol. We will announce our “when-issued” trading symbol when and if it becomes available. If the Spin-Off does not occur, all “when-issued” trading will be null and void.

We expect that the separation will be effective on the Distribution Date, provided that the following conditions shall have been satisfied or waived by ACG:

ACG shall, in its sole and absolute discretion, determine the Record Date, the Distribution Date and all terms of the Distribution, including the form, structure and terms of any transactions and/or offerings to effect the Distribution and the timing of and conditions to the consummation thereof. In addition and notwithstanding anything to the contrary set forth in this Prospectus, ACG may at any time and from time to time until the Distribution decide to abandon the Distribution including by accelerating or delaying the timing of the consummation of all or part of the Distribution or modifying or changing the terms of the Distribution if, at any time, the ACG Board determines, in its sole and absolute discretion, that the Distribution is not in the best interests of ACG or its stockholders or is otherwise not advisable.

We are furnishing this Prospectus solely to provide information to ACG’s stockholders who will receive shares of our Common Stock in the Distribution. You should not construe this Prospectus as an inducement or encouragement to buy, hold or sell any of our securities or any securities of ACG. We believe that the information contained in this Prospectus is accurate as of the date set forth on the cover. Changes to the information contained in this Prospectus may occur after that date, and neither we nor ACG undertakes any obligation to update the information except in the normal course of our and ACG’s public disclosure obligations and practices and except as required by applicable law.

Subject to the qualifications and limitations set forth herein (including the discussion below relating to the receipt of cash in lieu of fractional shares), the Company and ACG expect that the consequences of the Spin-Off for U.S. federal income tax purposes will be:

U.S. Holders that have acquired different blocks of ACG common stock at different times or at different prices should consult their tax advisors regarding the allocation of their aggregate adjusted tax basis among, and the holding period of, shares of our Common Stock distributed with respect to such blocks of ACG common stock.

If a U.S. Holder receives cash in lieu of a fractional share of Common Stock as part of the Distribution, the U.S. Holder will be treated as though it first received a distribution of the fractional share in the Distribution and then sold it for the amount of cash actually received. Provided the fractional share is considered to be held as a capital asset on the date of the Distribution, the U.S. Holder will generally recognize capital gain or loss measured by the difference between the cash received for such fractional share and the U.S. Holder’s tax basis in that fractional share, as determined above. Such capital gain or loss will be long-term capital gain or loss if the U.S. Holder’s holding period for the ACG common stock is more than one year on the date of the Distribution.

The positions above do not address any U.S. state or local or foreign tax consequences of the Distribution and assume that the Distribution will be completed in a manner and under circumstances consistent with the description of the Distribution contained in this Prospectus.

If the Distribution were determined not to qualify for non-recognition of gain and loss, the above consequences would not apply and U.S. Holders could be subject to tax. In this case, each U.S. Holder who receives our Common Stock in the Distribution would generally be treated as receiving a distribution in an amount equal to the fair market value of our Common Stock received, which would generally result in:

Payments of cash in lieu of a fractional share of our Common Stock may, under certain circumstances, be subject to federal “backup withholding” at the current rate of 24% unless a U.S. Holder provides proof of an applicable exemption from backup withholding or a correct taxpayer identification number, and otherwise complies with the requirements of the backup withholding rules. Corporations are generally exempt from backup withholding, but may be required to provide a certification to establish their entitlement to the exemption. Backup withholding is not an additional tax, and all or a portion of the amount withheld may be refunded or credited against a U.S. Holder’s U.S. federal income tax liability if the required information is timely provided to the IRS.

Treasury Regulations require each ACG stockholder that, immediately before the Spin-Off, owned 5% or more (by vote or value) of the total outstanding stock of ACG to attach to such stockholder’s U.S. federal income tax return for the year in which the Spin-Off occurs a statement setting forth certain information related to the Spin-Off.

The following is a summary of the material U.S. federal income tax consequences to ACG in connection with the Spin-Off that may be relevant to holders of ACG common stock.

ACG expects that the Spin-Off should qualify for non-recognition of gain and loss under Section 355 of the Code for U.S. federal income tax purposes. This conclusion is subject to the same qualifications and limitations as are set forth above in relation to the tax consequences of the Spin-Off to U.S. Holders.

If the Spin-Off were determined not to qualify for non-recognition of gain and loss under Section 355 of the Code, then ACG would recognize gain in an amount up to the fair market value of our Common Stock held by it immediately before the Spin-Off.

Commissions and hard dollar payments in the 2020 period were $1.0 million, a $0.5 million, or 32.3%, decrease from $1.5 million in the 2019 period. The decrease was primarily due to lower brokerage commissions from fewer securities transactions executed on an agency basis. For the three months ended March 31, 2020 and 2019, respectively, G.research earned $0.7 million and $1.1 million, or approximately 62% and 74%, of its commission revenue from transactions executed on behalf of funds advised by Gabelli Funds, LLC (“Gabelli Funds”) and clients advised by GAMCO Asset Management Inc. (“GAMCO Asset”).

The agreements between G.research and Gabelli Funds and GAMCO Asset to provide institutional research services were terminated effective January 1, 2020. Amounts earned for the three months ended March 31, 2019 were $0.4 million.

The Company participated as agent in the secondary offerings of the GAMCO Global Gold, Natural Resources & Income Trust (“GGN”). Pursuant to sales agreements between the parties, the Company earned sales manager fees related to this offering of $0.3 million and $0 for the three months ended March 31, 2020 and 2019, respectively.

During the three months ended March 31, 2020 and 2019, net losses from principal transactions were negligible.

Interest and dividend income declined $0.03 million to $0.03 million in 2020 from $0.06 million in 2019 primarily due to lower cash and cash equivalents balances.

Total expenses were $1.9 million for the three months ended March 31, 2020, a decrease of $1.4 million, or 43.4%, from $3.3 million in the 2019 period. The decrease results primarily from lower compensation costs and a reduction of expenses across all categories.

Compensation costs, which includes salaries, bonuses, and benefits, were $1.1 million for the three months ended March 31, 2020, a decrease of $1.4 million from $2.5 million for the three months ended March 31, 2019 and was due to headcount reductions.

We recorded income tax benefits of $0.1 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively. The ETR was 32.6% and 20.4% for the periods ended March 31, 2020 and 2019, respectively.

Net loss for the three months ended March 31, 2020 was $0.3 million versus $1.0 million for the three months ended March 31, 2019.

Institutional research service revenues were $9 million for the year ended December 31, 2019, $0.7 million, or 8.9%, higher than total revenues of $8.3 million for the year ended December 31, 2018. Institutional research services revenues by revenue component, excluding principal transactions, were as follows (dollars in thousands):

Commissions and hard dollar payments in the 2019 period were $6.4 million, a $0.2 million or 3.6% increase from $6.2 million. The increase was primarily due to higher brokerage commissions from securities transactions executed on an agency basis. For the years ended December 31, 2019 and 2018, respectively, G.research earned $4.9 million and $3.8 million, or approximately 76% and 62%, of its commission revenue from transactions executed on behalf of funds advised by Gabelli Funds and clients advised by GAMCO Asset.

A significant portion of G.research institutional research services are provided to GAMCO and its affiliates pursuant to research services agreements. Research services were $1.5 million in 2019 representing a decline of $0.5 million or 26% from 2018 due to amended lower fees to reflect the reduced research staff. The agreements between G.research and GAMCO and its affiliates to provide institutional research services were terminated effective January 1, 2020. Underwriting fees increased $0.3 million during 2019 over the prior year amount.

The Company participated as agent in the secondary offerings of the GAMCO Global Gold, Natural Resources & Income Trust (“GGN”). Pursuant to sales agreements between the parties, the Company earned sales manager fees related to this offering of $729,893 and $15,616 during 2019 and 2018, respectively.

During 2019, net losses from principal transactions were negligible. For the year ended December 31, 2018, net losses from principal transactions were $22.3 million due to mark-to-market changes in the value of securities and other investments that were held but were sold before year-end 2018.

Interest and dividend income declined $1.7 million to $0.2 million in 2019 from $1.9 million in 2018 primarily due to the GAMCO stock and other investments no longer held in 2019. In December 2018 these investments were distributed to the parent as a return of capital.

Total expenses were $11.7 million during 2019, a decrease of $2.6 million, or 18.2%, from $14.3 million in the 2018 period. The decrease results primarily from lower compensation costs and a reduction of expenses across all categories.

Compensation costs, which includes salaries, bonuses and benefits, were $8.4 million for the year ended December 31, 2019, a decrease of $2.5 million from $10.9 million for the year ended December 31, 2018 and is due to headcount reductions related to the cessation of research services and the streamlining of operations.

We recorded income tax benefits of $0.5 million and $6.1 million for the years ended December 31, 2019 and 2018, respectively. The effective tax rate (“ETR”) was 20.9% and 23.1% for the periods ended December 31, 2019 and 2018, respectively.

Net loss for the year ended December 31, 2019 was $1.9 million versus $20.3 million for the year ended December 31, 2018. In 2018, the loss was due to large principal transactions that did not occur in 2019.

Our principal assets are highly liquid in nature and consist of cash and cash equivalents, comprised primarily of a 100% U.S. Treasury money market fund, The Gabelli U.S. Treasury Money Market Fund, advised by Gabelli Funds, LLC, which is an affiliate of the Company.

Summary cash flow data for the first three months of 2020 and 2019 was as follows (in thousands):

Net cash used by operating activities was $0.9 million for the three months ended March 31, 2020, resulting from a net loss of $0.3 million and net decrease in operating liabilities of $0.9 million offset by an increase in operating assets of $0.4. Net cash used by operating activities was $1.8 million for the three months ended March 31, 2019, primarily as a result of a net loss of $1.0 million and a decrease in operating liabilities of $0.8 million.

Summary cash flow data for the fiscal year ended December 31, 2019 and 2018 is as follows (in thousands):

Net cash used by operating activities was $2.4 million for the year ended December 31, 2019, resulting from a net loss of $1.9 million and net decrease in operating assets of $0.5 million. Net cash used by operating activities was $0.2 million for the year ended December 31, 2018, resulting from a net loss of $20.3 million offset by decreases in securities owned of $23.8 million, an increase in other non-cash amounts of $4.7 million and a net increase of operating assets of $0.9 million.

Financing activities included stock issuances of $0.515 million and $0.180 million, for December 31, 2019 and 2018, respectively. During 2019, other financing activities included a return of capital of $3.3 million and contributions of $0.41 million. In 2018, there were no other financing activities.

G.research is registered as broker-dealer with the SEC and is subject to regulation by FINRA and various states. In its capacity as a broker-dealer, G.research is required to maintain certain minimum net capital amounts. These requirements also provide that equity capital may not be withdrawn, advances to affiliates may not be made or cash dividends paid if certain minimum net capital requirements are not met. G.research’s net capital, as defined, met or exceeded all minimum requirements as of December 31, 2019. As a registered broker-dealer, G.research is also subject to periodic examination by FINRA, the SEC and the state regulatory authorities.

As a registered broker-dealer, G.research is subject to the SEC Uniform Net Capital Rule 15c3-1 (the “Rule”), which specifies, among other requirements, minimum net capital requirements for registered broker-dealers. G.research computes its net capital under the alternative method as permitted by the Rule, which requires that minimum net capital be the greater of $250,000 or 2% of the aggregate debit items in the reserve formula for those broker-dealers subject to Rule 15c3-3. G.research is exempt from Rule 15c3-3 pursuant to paragraph (k)(2)(ii) of that rule which exempts all customer transactions cleared through another broker-dealer on a fully disclosed basis. In addition, our assets at the clearing broker-dealer are treated as allowable assets for net capital purposes as we have in place PAIB agreements pursuant to Rule 15c3-3. These requirements also provide that equity capital may not be withdrawn, advances to affiliates may not be made or cash dividends paid if certain minimum net capital requirements are not met. G.research had net capital, as defined, of $4,618,033 and $9,093,349, exceeding the required amount of $250,000 by $4,368,033 and $8,843,349 at December 31, 2019 and 2018, respectively. Net capital at March 31, 2020 was $4,347,017, exceeding the required amount of $250,000 by $4,097,017.

We do not have any off-balance sheet arrangements.

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We base our estimates on historical experience, when available, and on other various assumptions that are believed to be reasonable under the circumstances. Actual results could differ significantly from those estimates under different assumptions and conditions.

We believe that the following critical accounting policies require management to exercise significant judgment:

The Company provides institutional research services and earns brokerage commissions and sales manager fees from securities transactions executed on an agency basis on behalf of institutional clients and mutual funds, private wealth management clients and retail customers of affiliated companies. Commission revenue and related clearing charges are recorded on a trade-date basis and are included in institutional research services and other operating expenses, respectively, on the consolidated statements of income.

The Company has also been involved in syndicated underwriting activities that included public equity and debt offerings managed by major investment banks. Underwriting fees include gains, losses, selling concessions and fees, net of syndicate expenses, arising from securities offerings in which the Company acts as underwriter or agent and are accrued as earned.

See Note C, Revenue from Contracts with Customers, in the consolidated financial statements.

Securities owned, at fair value, including common stocks, closed-end funds and mutual funds, are recorded at fair value with the resulting realized and unrealized gains and losses reflected in principal transactions in the Statements of Operations. Realized gains and losses from securities transactions are recorded on the identified cost basis. All securities transactions and transaction costs are recorded on a trade date basis. Dividends are recorded on the ex-dividend date. Interest income and interest expense are accrued as earned or incurred.

The Company is charged or incurs certain overhead expenses that are included in general and administrative and occupancy and equipment expenses in the Consolidated Statements of Operations. These overhead expenses are allocated to the Company by ACG and other ACG affiliates or allocated by the Company to other ACG affiliates as the expenses are incurred, based upon methodologies periodically reviewed by the management of the Company and the ACG affiliates. In addition, GCIA, a wholly owned subsidiary of ACG, and GAMCO serve as paymasters for the Company under compensation payment sharing agreements. This includes compensation expense and related payroll taxes and benefits which are allocated to the Company for professional staff performing duties related entirely to the Company and those compensation expenses and related payroll taxes and benefits which relate to professional staff who serve more than one entity and whose compensation is therefore allocated to the Company as well as to its affiliates. These compensation expenses are included in compensation and related costs in the Consolidated Statements of Operations.

Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts on the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is expected to be recovered or settled, respectively. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying values of deferred tax assets to the amount that is more likely than not to be realized. For each tax position taken or expected to be taken in a tax return, the Company determines whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The Company recognizes the accrual of interest on uncertain tax positions and penalties in the income tax provision on the consolidated statements of income.

See Note B, Significant Accounting Policies – Income Taxes and G. Income Taxes, in the consolidated financial statements.

See Note B, Significant Accounting Policies – Recent Accounting Developments, in the consolidated financial statements.

We do not believe that our operations are subject to significant seasonal fluctuations. We do not believe inflation will significantly affect our compensation costs, as they are substantially variable in nature. The rate of inflation may affect certain other expenses, however, such as information technology and occupancy costs.

A significant portion of G.research institutional research services are provided to GAMCO and its affiliates. For the years ended December 31, 2019 and 2018, respectively, G.research earned $4.9 million and $3.8 million, or approximately 76% and 62%, of its commission revenue from transactions executed on behalf of funds advised by Gabelli Funds and clients advised by GAMCO Asset Management Inc. (“GAMCO Asset”). For the three months ended March 31, 2020 and 2019, G.research earned $0.7 million and $1.1 million, or approximately 67% and 74% respectively, of such commission revenue. For the years ending December 31, 2019 and December 31, 2018, GAMCO Asset paid $0.8 million and $1.0 million and Gabelli Funds paid $0.7 million and $1.0 million to G.research pursuant to research service agreements. These agreements were terminated on January 1, 2020 and compensation from Gabelli Funds and GAMCO Asset and costs related to servicing these arrangements are expected to decrease. We can provide no assurance that GAMCO and its affiliates will continue to use G.research’s institutional research and brokerage services to the same extent in the future. G.research continues to pursue expansion of third party and affiliated activities.

During 2019, G.research participated as Sales Manager in the at market offerings of The GAMCO Global Gold, Natural Resources & Income Trust and acted as Dealer Manager for The Gabelli Dividend and Income Rights Offering. During 2018, G.research participated as Sales Manager in the at market offerings of The GAMCO Global Gold, Natural Resources & Income Trust and acted as Dealer Manager for The Gabelli Equity Trust Rights Offering, the Gabelli Multimedia Trust Rights Offering, the Gabelli Healthcare & Wellness Trust Rights Offering, and acted as co-manager in The Gabelli Health & Wellness Trust 5.875% series B Cumulative Preferred Stock Offering. For the year ended December 31, 2019, G.research earned $733,422 for these roles. For the year ended December 31, 2018, G.research earned $16,000 for these roles.

Our strategy is to continue to operate and expand our institutional research and securities brokerage business through the coverage of additional market sectors and companies. In order to achieve performance and growth in revenues and profitability, we are pursuing a strategy which includes the following key elements:

We offer significant variable compensation that provides opportunities to our staff. Our ability to attract and retain highly experienced investment and other professionals with a long-term commitment to us and our clients has been, and will continue to be, a significant factor in our long term growth.

Our fundamental (event driven value investing) methodology marketed under our licensed “Private Market Value with a Catalyst™” service mark will remain an important element of our business operations. This investment method is based on the investing principles articulated by Graham & Dodd in 1934, and has been further augmented by our founder Mario J. Gabelli. This method, however, will not necessarily be used in connection with all of our products.

We intend to leverage our research and investment capabilities to selectively and opportunistically pursue acquisitions of complementary research businesses that will allow us to expand and diversify our research coverage.

G.research co-sponsors industry conferences and management events throughout the year. At these conferences and events, senior management from leading companies share their thoughts on the industry, competition, regulation and the challenges and opportunities in their businesses with portfolio managers and securities analysts. These meetings are an important component of the research services provided to institutional clients. Specifically, in 2019, we hosted seven such meetings: our 43^rd Annual Automotive Aftermarket

Symposium, 29^th Annual Pump Valve & Water Systems Conference, 25^th Annual Aerospace & Defense Conference, 11^th Annual Entertainment & Broadcasting Conference, 5^th Annual Waste & Environmental Sciences Conference, 10^th Annual Specialty Chemicals Conference and our 13^th Annual Omaha Research Trip.

The institutional research and brokerages services industry is intensively competitive and is expected to remain so. We face competition in all aspects of our business and in each of our investment strategies from other managers both in the United States and globally. We compete with other institutional research firms, insurance companies, brokerage firms, banks, and other financial institutions that offer services that have similar features and investment objectives. Many of these competitors are subsidiaries of large diversified financial companies and may have access to greater resources, including liquidity sources, not available to us. Historically, we have competed primarily on the basis of the superior service. However, we have taken steps to increase our outreach to the investment community, brand name awareness and marketing efforts. However, no assurance can be given that our efforts to obtain new business will be successful.

Virtually all aspects of our business are subject to various federal, state and foreign laws and regulations. These laws and regulations are primarily intended to protect investors, the markets and customers of broker-dealers. Under such laws and regulations, agencies that regulate broker-dealers have broad powers, including the power to limit, restrict or prohibit such broker-dealer from carrying on its business in the event that it fails to comply with such laws and regulations. In such an event, the possible sanctions that may be imposed include civil and criminal liability, the suspension of individual employees, injunctions, limitations on engaging in certain lines of business for specified periods of time, revocation of registrations, censures and fines.

G.research is registered as broker-dealer with the SEC and is subject to regulation by FINRA and various states. In its capacity as a broker-dealer, G.research is required to maintain certain minimum net capital amounts. These requirements also provide that equity capital may not be withdrawn, advances to affiliates may not be made or cash dividends paid if certain minimum net capital requirements are not met. G.research’s net capital, as defined, met or exceeded all minimum requirements as of December 31, 2019. As a registered broker-dealer, G.research is also subject to periodic examination by FINRA, the SEC and the state regulatory authorities.

Our trading and investment activities for client accounts are regulated under the Exchange Act, as well as the rules of various U.S. and non-U.S. securities exchanges and self-regulatory organizations, including laws governing trading on inside information, market manipulation and a broad number of technical requirements (e.g., short sale limits, volume limitations and reporting obligations) and market regulation policies in the United States and globally. Violation of any of these laws and regulations could result in restrictions on our activities and damage our reputation.

The institutional research and brokerage services industry is likely to continue facing a high level of regulatory scrutiny and become subject to additional rules designed to increase disclosure, tighten controls and reduce potential conflicts of interest. In addition, the SEC has substantially increased its use of focused inquiries which request information from broker dealers regarding particular practices or provisions of the securities laws. We participate in some of these inquiries in the normal course of our business. Changes in laws, regulations and administrative practices by regulatory authorities, and the associated compliance costs, have increased our cost structure and could in the future have a material adverse impact. Although we have installed procedures and utilize the services of experienced administrators, accountants and lawyers to assist us in adhering to regulatory guidelines and satisfying these requirements, and maintain insurance to protect ourselves in the case of client losses, there can be no assurance that the precautions and procedures that we have instituted and installed, or the insurance that we maintain to protect ourselves in case of client losses, will protect us from all potential liabilities.

The USA Patriot Act of 2001 contains anti-money laundering and financial transparency laws and mandates the implementation of various new regulations applicable to broker-dealers and other financial services

companies, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities. Anti-money laundering laws outside of the United States contain some similar provisions. Our failure to comply with these requirements could have a material adverse effect on us.

We are currently not aware of any pending legal proceedings to which we are a party, nor are we aware of any such proceedings that are contemplated by any governmental authority. From time to time, we 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. Examinations or investigations can result in adverse judgments, settlements, fines, injunctions, restitutions or other relief. For any such matters, the Company’s financial statements include the necessary provisions for losses that we believe are probable and estimable. Furthermore, we evaluate whether there exist losses which may be reasonably possible and, if material, make the necessary disclosures. However, management believes 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, 2020.

The Company has two executive officers and 17 employees performing day-to-day functions. The Company is a subsidiary of ACG and can avail itself of the transition services agreement with GAMCO. None of our employees are covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.

Neither the Company nor G.research owns any properties. The Company is currently renting office space located at 401 Theodore Fremd Avenue in Rye, New York from ACG under ACG’s leasehold with GAMCO.

Under the Exchange Act, we qualify as a “smaller reporting company,” which is defined as a company with either (a) public float of less than $250 million or (b) less than $100 million in annual revenues and (1) no public float or (2) public float of less than $700 million. As a smaller reporting company, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “smaller reporting companies.” These exemptions include reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and two, instead of three, fiscal years of audited financial statements.

We may take advantage of some or all of the reduced regulatory and reporting requirements that will be available to us as long as we qualify as a smaller reporting company, except that we have irrevocably elected not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 107(b) of the JOBS Act.

on the Company and other personal attributes that need to be possessed by independent-minded directors. Based on the independence criteria and these considerations, the Board concluded Mr. Moore is independent without a material relationship with us which would impair his ability to act as an independent director.

The following table sets forth the information as of    , 2020 regarding the individuals who are currently expected to serve as our executive officers after the Spin-Off, including their positions.

The biographical information of each of our executive officers is included above under the section titled “Management—Board of Directors Following the Spin-Off.”

Our common stock trades in the over-the-counter market where quotations are available through OTC Pink^®’s quotation service under the symbol “MGHL.”

Mario J. Gabelli, together with shares of our Common Stock held directly by his affiliates, Institutional Services Holdings, LLC (as subsidiary of Associated Capital Group, Inc.) and LICT Corporation, beneficially owns, in the aggregate, approximately 87.3% of our outstanding Common Stock. Following the Spin-Off, Mr. Gabelli will, directly or indirectly, beneficially own approximately 73.94% of our Common Stock.

Our Board has adopted a corporate code of conduct that is applicable to our directors, officers and employees with additional requirements for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and will post a copy of which is available on our corporate website at https://morgangroupholdingco.com. Any stockholder may also obtain a copy of the code of conduct upon request. Stockholders may address a written request for a printed copy of the code of conduct to our secretary at our principal executive offices following the acquisition, Morgan Group Holding Co., One Corporate Center, 401 Theodore Fremd Avenue, Rye, NY 10580. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a provision of the Code of Conduct by posting such information on our website.

We presently do not have any committee of our Board. Currently, our full Board serves as the audit committee and approves, when applicable, the appointment of auditors and the inclusion of financial statements in our periodic reports.

None of directors and executive officers has been involved in legal proceedings that would be material to an evaluation of our management.

The Company has not paid any compensation to any directors since inception.

See “Security Ownership of Certain Beneficial Owners and Management.”

G.research has licensed on a non-exclusive and royalty free basis, the Private Market Value with a Catalyst™ service mark owned by GAMCO, for use in connection with the marketing of G.research’s services. The license agreement is terminable by GAMCO on 30 days prior written notice.

The Company pays ACG a management fee equal to 20% of the Company’s year-to-date pretax profits before consideration of this fee. In 2019 and 2018, and the three months ended March 31, 2020 and 2019, the Company did not pay any management fee to ACG as there were no pretax profits.

As required by ACG’s Code of Ethics, ACG staff members are required to maintain their brokerage accounts at G.research unless they receive permission to maintain an outside account. G.research offers all of these staff members the opportunity to engage in brokerage transactions at negotiated rates. Accordingly, many of ACG’s staff members, including the executive officers or entities controlled by them, have brokerage accounts at G.research and have engaged in securities transactions through it at discounted rates.

Our directors, Mr. Amabile and Mr. Fernandez are, respectively, President and Executive Vice President, Financial Operations of G.research, our wholly-owned subsidiary. Mr. Moore, our director, has served as vice president of finance at LICT Corporation, a publicly traded telecommunications and multimedia company under common control with the Company, since April 2014.

Following the Spin-Off, we and ACG will operate independently, and neither will have any ownership interest in the other. In order to facilitate an orderly transition, we and ACG expect that our existing services and expense share agreements we have with GAMCO and ACG to remain in place following the Spin Off. See “—Existing Agreements with ACG.”

In general, Section 203 defines a “business combination” to include the following:

In general, Section 203 defines an “interested shareholder” as an entity or person who, together with the person’s affiliates and associates, beneficially owns or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.

A Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation or an express provision in its amended and restated certificate of incorporation or amended and restated bylaws resulting from a stockholders’ amendment approved by at least a majority of the outstanding voting shares. We have not opted out of these provisions. As a result, mergers or other takeover or change in control attempts of us may be discouraged or prevented.

Among other things, our certificate of incorporation permits our Board to issue up to 1,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change of control. The authorization of undesignated preferred stock makes it possible for our Board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control. Stockholders may only call special meetings of stockholders upon the request stockholders that own a majority of the issued and outstanding capital stock entitled to entitled to vote and our common stock does not provide for cumulative voting rights, which enables holders of a majority of the shares of our common stock entitled to elect all of the directors standing for election.

Our certificate of incorporation contains provisions that limit the liability of our current and former directors for monetary damages to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for:

Such limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.

Our certificate of incorporation and bylaws provide that we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law and may indemnify our other persons. Our certificate of incorporation and bylaws provide that, on satisfaction of certain conditions, we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding. We may also secure

insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We believe that our certificate of incorporation and bylaw indemnification provisions are necessary to attract and retain qualified persons as directors and officers. We also maintain customary directors’ and officers’ liability insurance.

The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

The transfer agent and registrar for our Common Stock is American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th Avenue, Brooklyn, New York 11219 and the telephone number is (800) 937-5449.

Our Common Stock is not listed on any securities exchange and currently trades in the over-the-counter market where quotations are available through OTC Pink^®’s quotation service under the symbol “MGHL.”

Morgan Group Holding Co. (the “Company,” “Morgan Group,” or “Morgan”) was incorporated in November 2001 as a Delaware corporation to serve as a holding company which seeks acquisitions as part of its strategic alternatives. Prior to the October 31, 2019 merger with G.research, LLC (“G.research”), discussed below, Morgan Group had no operating companies.

The Company acquired G.research from Associated Capital Group, Inc. (“AC”), an affiliate of the Company, on October 31, 2019, in exchange for issuing 50,000,000 shares of the Company’s common stock to AC (the “Merger”). Accordingly, G.research became a wholly owned subsidiary of the Company. Prior to the transaction, G.research was a wholly-owned subsidiary of Institutional Services holdings, LLC, which, in turn, is a wholly-owned subsidiary of AC. After the transaction, AC has an 83.3% ownership interest in the Company. As a result of this common ownership, the transaction was treated as a combination between entities under common control that led to a change in the reporting entity. The recognized assets and liabilities were transferred at their carrying amounts at the date of the transaction. Further, the companies were also combined retrospectively for prior year comparative information in the financial statements of the Company issued after the Merger, including for the three months ended March 31, 2019 in these condensed consolidated financial statements. Consistent with our financial statements as of December 31, 2019 included in our annual report on Form 10-K, the common stock, additional paid in capital, and accumulated deficit amounts in these condensed consolidated financial statements have been restated as of December 31, 2018 to reflect the recapitalization in accordance with the shares issued as a result of the Merger.

On March 16, 2020, AC’s Board of Directors approved the spin-off of the shares of common stock held by AC to AC’s shareholders. Upon execution of the spin-off, AC will distribute to its shareholders on a pro rata basis the 50,000,000 shares of Morgan that AC owns.

G.research is a broker-dealer registered with the Securities and Exchange Commission (the “SEC”) and is regulated by the Financial Industry Regulatory Authority (“FINRA”).

The Company provides institutional investors and investment partnerships with investment research with a particular focus on small-cap and mid-cap companies. The team of sell-side analysts follows industry sectors on a global basis and performs fundamental security analysis using a Private Market Value (“PMV”) framework. PMV investing is a disciplined, research-driven approach based on security analysis. In this process, the analyst selects stocks whose intrinsic value, based on the analyst’s estimate of current asset value and future growth and earnings power, is significantly different from the public market value as reflected in the public market. PMV is defined as the price an informed industrial buyer would be likely to pay to acquire the business. The research focuses on company fundamentals, cash flow statistics, and catalysts that will help realize returns.

The Company generates brokerage commission revenues from securities transactions executed on an agency basis on behalf of institutional clients and mutual funds, private wealth management clients, and retail customers of affiliated companies. The Company generates revenue from syndicated underwriting activities. It primarily participates in the offerings of certain closed-end funds advised by Gabelli Funds, LLC, a wholly-owned subsidiary of GAMCO Investors, Inc. (“GBL”), an affiliate. The Company also earns investment income generated from its proprietary trading activities.

The Company acts as an introducing broker, and all securities transactions for the Company and its customers are cleared through and carried by three New York Stock Exchange (“NYSE”) member firms on a fully disclosed basis. The Company has Proprietary Accounts of Introducing Brokers (“PAIB”) agreements with these firms. Accordingly, open customer transactions are not reflected in the accompanying Condensed Consolidated Statement of Financial Condition. The Company is exposed to credit losses on these open transactions in the event of nonperformance by its customers, pursuant to conditions of its clearing agreements with its clearing brokers. This exposure is mitigated by the clearing brokers’ policy of monitoring the collateral and credit of the counterparties until the transaction is completed.

The Company’s principal market is in the United States (“U.S”).

The unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP 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 the fair presentation of financial position, results of operations, and cash flows of Morgan 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 the Company and its wholly-owned subsidiary, G.research, from the date of the Merger with retrospective application. Intercompany accounts and transactions have been eliminated.

These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2019.

The Company’s financial statements are prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during that reporting period. Actual results could differ from those estimates.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), which amends the guidance in U.S. 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 statements of financial condition. 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 consolidated statements of operations 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, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), Leases (Topic 842): Effective Dates (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.

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when the Company satisfies a performance obligation.

Significant judgments that affect the amounts and timing of revenue recognition:

The Company’s analysis of the timing of revenue recognition of each revenue stream is based on the provisions of each respective contract. Performance obligations could, however, change from time to time if and when existing contracts are modified or new contracts are entered into. These changes could potentially affect the timing of satisfaction of performance obligations, the determination of the transaction price, and the allocation of the price to performance obligations. In the case of the revenue streams discussed below, the performance obligation is satisfied either at a point in time or over time. The judgments outlined below, where the determination as to these factors is discussed in detail, are continually reviewed and monitored by the Company when new contracts or contract modifications occur. Transaction price is in all instances formulaic and not subject to significant (or any) judgment at the current time.

The Company’s assessment of the recognition of these revenues is as follows:

Revenue from contracts with customers includes commissions, fees earned from affiliated entities pursuant to research services agreements, underwriting fees, and sales manager fees.

Brokerage commissions. Acting as agent, the Company buys and sells securities on behalf of its customers. Commissions are charged on the execution of these securities transactions made on behalf of client accounts and are negotiated. The Company recognizes commission revenue when the related securities transactions are executed on the trade date. The Company believes that the performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to/from the customer. Commissions earned are typically collected from the clearing brokers utilized by the Company on a daily or weekly basis.

Hard dollar payments. The Company provides research services to unrelated parties, for which direct payment is received. 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, which is considered the period over which the Company satisfies its performance obligation. For payments where no research contract exists, revenue is not recognized until agreement is reached with the client at which time the performance obligation is considered to have been met and revenue is recognized.

Commission 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.

The Company receives direct payments for research services provided to related parties pursuant to contracts. The contractual fee for the period is fixed and 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.

Underwriting fees. The Company acts as underwriter in an agent capacity. Revenues are earned from fees arising from these offerings and the terms are set forth in contracts between the underwriters and the issuer. The Company’s underwriting revenue is considered to be conditional revenue because it is subject to reduction to zero once the offsetting syndicate expenses have been quantified by the syndicate manager (i.e., lead underwriter) and allocated to each underwriter in proportion to their participation in the offering. Revenue recognition is therefore delayed until it is probable that a significant reversal in the amount of revenue recognized will not occur. That is, it is recognized only when uncertainty associated with the syndicate expenses is subsequently resolved and final settlement of syndicate accounts is affected by the syndicate manager. Payment is typically received from the syndicate manager within ninety days after settlement date.

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 customers 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. Revenue is recognized on the trade date (the date on which

the Company purchases the securities from the issuer) for the portion the Company is contracted to buy. The Company believes that the trade date is the appropriate point in time to recognize revenue for securities underwriting transactions as there are no significant actions the Company needs to take subsequent to this date, and the issuer obtains the control and benefit of the capital markets offering at this point. Selling concessions earned are typically collected from the clearing brokers utilized by the Company on a daily or weekly basis.

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. The Company recognizes sales manager fees upon sale of the related closed-end funds. Sales manager fees earned are fixed and typically collected from the clearing brokers utilized by the Company on a daily or weekly basis.

Total revenues from contracts with customers by type were as follows for the three months ended March 31, 2020 and 2019:

At March 31, 2020 and December 31, 2019, the Company had an investment of $5,661,750 and $6,579,577, respectively, in The Gabelli U.S. Treasury Money Market Fund advised by Gabelli Funds, LLC, which is an affiliate of the Company. The amount is recorded in cash and cash equivalents in the Condensed Consolidated Statements of Financial Condition. Income earned from this investment totaled $29,550 and $59,035 for the three months ended March 31, 2020 and 2019, respectively, and is included in dividends and interest revenues in the Condensed Consolidated Statements of Operations.

For the three months ended March 31, 2020 and 2019, the Company earned $691,784 and $1,132,845, or approximately 67% and 74%, respectively, of its commission revenue from transactions executed on behalf of funds advised by Gabelli Funds, LLC. (“Gabelli Funds”) and private wealth management clients advised by GAMCO Asset Management Inc., (“GAMCO Asset”), each affiliates of the Company. GAMCO Asset and Gabelli Funds paid a total of $377,500 to the Company pursuant to research services agreements (see Note 2) for the three months ended March 31, 2019. No amounts for such services were paid during the three months ended March 31, 2020. These agreements were terminated effective January 1, 2020.

The Company participated as agent in the secondary offerings of the GAMCO Global Gold, Natural Resources & Income Trust (“GGN”). Pursuant to sales agreements between the parties, the Company earned sales manager fees related to this offering of $334,825 and $0 during the three months ended March 31, 2020 and 2019, respectively. Sales manager fees are separately disclosed in the Condensed Consolidated Statements of Operations.

The Company participated in the secondary offerings of the preferred stock of affiliated closed end funds in December 2019. The final settlements were received during March 2020 resulting in additional underwriting profit of $30,488.

The Company pays AC a management fee equal to 20% of the Company’s year-to-date pretax profits before consideration of this fee. In the three months ended March 31, 2020 and 2019, the Company did not pay a management fee to AC as there were no pretax profits.

AC has a sublease agreement with GBL that expired on April 1, 2020 and continues on a month to month basis. AC allocates this expense to the Company based on the percentage of square footage occupied by the Company’s employees (including pro rata allocation of common space). For the three months ended March 31, 2020 and 2019, the Company paid $27,113 and $82,913, respectively, to AC. These amounts are included within occupancy and equipment expenses on the Condensed Consolidated Statements of Operations.

The carrying amounts of all financial instruments in the Condensed Consolidated Statements of Financial Condition approximate their fair values.

The Company’s financial instruments have been categorized based upon a fair value hierarchy:

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, 2020 and December 31, 2019 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

There were no transfers between any Levels during the three months ended March 31, 2020.

There were no transfers between any Levels during the year ended December 31, 2019.

Cash equivalents primarily consist of an affiliated money market mutual fund which is invested solely in U.S. Treasuries and valued based on the net asset value of the fund.

The carrying value of other financial assets and liabilities approximates their fair value based on the short term nature of these items.

The Company participates in Associated Capital’s incentive savings plan (the “Plan”), covering substantially all employees. Company contributions to the Plan are determined annually by management of the Company and AC’s Board of Directors but may not exceed the amount permitted as a deductible expense under the Internal

Revenue Code. Amounts expensed for allocated contributions to this Plan amounted to approximately $4,436 and $4,436 for the three months ended March 31, 2020 and 2019, respectively, and were recorded as compensation and related costs in the Condensed Consolidated Statements of Operations.

The effective tax rate for the three months ended March 31, 2020 and 2019 was 32.6% and 20.4%, respectively. For the three months ended March 31, 2020 the rate impact was related to a net operating loss carryback at higher federal rates.

Basic earnings per share is computed by dividing net income / (loss) attributable to shareholders by the weighted average number of shares outstanding during the period. There were no dilutive shares outstanding during the periods.

The computations of basic and diluted net loss per share are as follows:

In conjunction with the Merger on October 31, 2019, the Company issued 50,000,000 shares of common stock to AC. The common stock, additional paid in capital, earnings per share, and accumulated deficit amounts in these consolidated financial statements for the period prior to the Merger have been restated to reflect the recapitalization in accordance with the shares issued as a result of the Merger.

See the Organization and Business Description Note above for detail.

The Company has agreed to indemnify its clearing brokers for losses they may sustain from the customer accounts that trade on margin introduced by the Company. At March 31, 2020 and December 31, 2019, the total amount of customer balances subject to indemnification (i.e., unsecured margin debits) was immaterial. The Company also has 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 the Company’s obligations under the agreements. The Company has had no claims or payments pursuant to these or prior agreements, and management believes the likelihood of a claim being made is remote, and therefore, an accrual has not been made in the consolidated financial statements.

From time to time, the Company is named in legal actions and proceedings. These actions may seek substantial or indeterminate compensatory as well as punitive damages or injunctive relief. The Company is 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. The Company cannot predict the ultimate outcome of such matters. The consolidated financial statements include the necessary provisions for losses that the Company believes are probable and estimable, if any. Furthermore, the Company evaluates whether losses exist which may be reasonably possible and, if material, makes the necessary disclosures. Such amounts, both those that are probable and those that are reasonably possible, are not considered material to the Company’s financial condition, operations, or cash flows.

As a registered broker-dealer, G.research is subject to the SEC Uniform Net Capital Rule 15c3-1 (the “Rule”), which specifies, among other requirements, minimum net capital requirements for registered broker-dealers. G.research computes its net capital under the alternative method as permitted by the Rule, which

requires that minimum net capital be the greater of $250,000 or 2% of the aggregate debit items in the reserve formula for those broker-dealers subject to Rule 15c3-3. G.research is exempt from Rule 15c3-3 pursuant to paragraph (k)(2)(ii) of that rule which exempts all customer transactions cleared through another broker-dealer on a fully disclosed basis. In addition, our assets at the clearing broker-dealer are treated as allowable assets for net capital purposes as we have in place PAIB agreements pursuant to Rule 15c3-3. These requirements also provide that equity capital may not be withdrawn, advances to affiliates may not be made, or cash dividends paid if certain minimum net capital requirements are not met. G.research had net capital, as defined, of $4,347,017 and $4,618,033, exceeding the required amount of $250,000 by $4,097,017 and $4,368,033 at March 31, 2020 and December 31, 2019, respectively.

On May 4, 2020, the Company’s Board of Directors approved a 1-for-100 reverse split of the authorized, issued, and outstanding shares of common stock, par value $0.01, subject to shareholder approval.