Overview

Through G.research, we act as an underwriter and provide institutional research services. Institutional research services revenues consist of brokerage commissions derived from securities transactions executed on an agency basis or direct payments from institutional clients as well as underwriting profits, selling concessions, and management fees associated with underwriting activities. Commission revenues vary directly with the perceived value of the research provided, as well as account activity and new account generation.

Operating Results for the Year Ended December 31, 2022 as Compared to the Year Ended December 31, 2021

Revenues



Institutional research service revenues were $1.9 million for the year ended
December 31, 2022, $1.1 million, or 34.2%, lower than total revenues of $3.0
million for the year ended December 31, 2021. Institutional research services
revenues by revenue component, excluding principal transactions, were as follows
(dollars in thousands):

                           Year Ended December 31,           Increase (Decrease)
                           2022               2021              $              %
Commissions            $      1,802       $      2,024     $      (222 )      -11.0 %
Hard dollar payments            142                227             (85 )      -37.6 %
                              1,943              2,251     $      (308 )      -13.7 %
Underwriting fees                 -                702            (702 )     -100.0 %
Total                  $      1,943       $      2,953     $    (1,010 )      -34.2 %



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Commissions and hard dollar payments in 2022 were $1.9 million, a $0.3 million, or 13.7%, decrease from $2.2 million in 2021. The decrease was primarily due to lower brokerage commissions from securities transactions executed on an agency basis. For each of the years ended December 31, 2022 and 2021, G.research earned $1.2 million, or approximately 61% and 55%, respectively, of its commission revenue from transactions executed on behalf of funds advised by Gabelli Funds, LLC and clients advised by GAMCO Asset Management Inc.

Underwriting fees decreased by $0.7 million to $0 in 2022 from $0.7 million in 2021.

Principal Transactions

During 2022, net gains from principal transactions were $8 thousand, versus net losses from principal transactions of $26 thousand in 2021.

Interest and dividend income increased to $0.05 million in 2022 from $0.02 million in 2021, primarily due to a sharp increase in short-term rates.

Expenses

Total expenses were $3.0 million for the year ended December 31, 2022, a decrease of $1.6 million, or 35.1%, from $4.6 million for the year ended December 31, 2021. The decrease resulted primarily from lower compensation costs, general and administrative expenses, and occupancy and equipment expenses.

Compensation costs, which includes salaries, bonuses, and benefits, were $1.1 million for the year ended December 31, 2022, a decrease of $1.0 million from $2.1 million for the year ended December 31, 2021, which decrease was due to headcount reductions related to the cessation of research services and the continued streamlining of operations.

Income Tax Expense

For the years ended December 31, 2022 and 2021, we recorded income tax expense of $9 thousand and $1 thousand, respectively, for an effective tax rate of -1.0% and -0.05%, respectively.

Net Loss

Net loss for the year ended December 31, 2022 was $1.0 million versus $1.6 million for the year ended December 31, 2021.

Liquidity and Capital Resources

Summary Cash flow data is as follows (in thousands):



                                                                       Year Ended December 31,
                                                                      2022               2021
Cash flows used in:
Operating activities                                               $      (603 )     $      (1,708 )
Net decrease in cash and cash equivalents                                 (603 )            (1,708 )
Cash, cash equivalents, and restricted cash at beginning of year         3,239               4,946
Cash, cash equivalents, and restricted cash at end of year               2,636               3,239

Net cash used by operating activities was $0.6 million for the year ended December 31, 2022, resulting from a net loss of $1.0 million offset by net decrease in operating assets of $0.3 million. Net cash used by operating activities was $1.7 million for the year ended December 31, 2021, resulting from a net loss of $1.6 million and a net increase in operating assets of $0.4 million.



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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies

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. 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 those estimates and those differences could be material.

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

Revenue Recognition

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 operations.

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

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 consolidated 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.

Allocated Expenses

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 AC and other AC affiliates or allocated by the Company to other AC affiliates as the expenses are incurred, based upon methodologies periodically reviewed by the management of the Company and the AC affiliates. In addition, Gabelli & Company Investment Advisers, Inc., a wholly - owned subsidiary of AC, and GAMCO Investors, Inc. 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.



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Income Taxes

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 operations.

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

Credit Losses

The Company measures all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Any allowance for credit losses are 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.

Seasonality and Inflation

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.

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