8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 28, 2019

B. RILEY FINANCIAL, INC. 

(Exact name of registrant as specified in its charter)

Delaware	001-37503	27-0223495
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

21255 Burbank Boulevard, Suite 400 Woodland Hills, California	91367
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (818) 884-3737

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	RILY	Nasdaq Global Market
Depositary Shares (each representing a 1/1000th interest in a 6.875% Series A Cumulative Perpetual Preferred Share, par value $0.0001 per share)	RILYP	Nasdaq Global Market
7.25% Senior Notes due 2027	RILYG	Nasdaq Global Market
7.50% Senior Notes due 2027	RILYZ	Nasdaq Global Market
7.375% Senior Notes due 2023	RILYH	Nasdaq Global Market
6.875% Senior Notes due 2023	RILYI	Nasdaq Global Market
7.50% Senior Notes due 2021	RILYL	Nasdaq Global Market
6.75% Senior Notes due 2024	RILYO	Nasdaq Global Market
6.50% Senior Notes due 2026	RILYN	Nasdaq Global Market
(Title of Class)

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

EXPLANATORY NOTE

On November 1, 2019, B. Riley Financial, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original Filing”) disclosing the completion on October 28, 2019 of its previously announced acquisition of a majority of the membership interests of BR Brand Holdings LLC (“BR Brand Group”) pursuant to a Membership Interest Purchase Agreement, dated October 11, 2019 (the “MIPA”), by and among the Company, B. Riley Brand Management LLC, an indirect wholly-owned subsidiary of the Company, BR Brand Acquisition LLC (the “BR Brand Member”) and BR Brand Group, in connection with which the BR Brand Member caused the transfer of certain trademarks, domain names, license agreements and related assets from existing owners to BR Brand Group. A copy of the MIPA has been filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed November 1, 2019.

The Company is filing this Current Report on Form 8-K/A (this “Amendment”) solely to amend and supplement Item 9.01 of the Original Filing to provide the historical audited and unaudited financial statements and unaudited pro forma financial statements required by Item 9.01 of Form 8-K. No other modifications to the Original Filing are being made by this Amendment. This Amendment should be read in conjunction with the Original Filing, which provides a more complete description of the transactions contemplated by the MIPA.

1

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The audited combined balance sheets of BR Brand Group as of December 31, 2018 and December 31, 2017 and the combined statements of income, combined statements of changes in members’ equity and combined statements of cash flows of BR Brand Group for each of the two years in the period ended December 31, 2018, and the notes related thereto, are attached as Exhibit 99.1 hereto and are incorporated herein by reference.

The unaudited combined balance sheet of BR Brand Group as of September 30, 2019 and the unaudited combined statements of income, unaudited combined statements of changes in members’ equity and unaudited combined statements of cash flows of BR Brand Group for the nine months ended September 30, 2019 and 2018, and the notes related thereto, are attached as Exhibit 99.2 hereto and are incorporated herein by reference.

(b) Pro Forma Financial Information.

Unaudited pro forma condensed combined financial statements and explanatory notes as of September 30, 2019, for the nine months ended September 30, 2019 and for the year ended December 31, 2018 are attached as Exhibit 99.3 hereto and are incorporated herein by reference. Such financial statements are presented for illustrative purposes only and do not purport to indicate or project the financial results of the combined companies had the transactions contemplated by the MIPA actually been consummated at the beginning of the period presented.

(d) Exhibits

Exhibit	Description
23.1	Consent of Mayer Hoffman McCann CPAs, The New York Practice of Mayer Hoffman McCann P.C., Independent Auditor of BR Brand Group.
99.1	Audited Combined Financial Statements of BR Brand Group for the years ended December 31, 2018 and 2017.
99.2	Unaudited Combined Financial Statements of BR Brand Group for the nine months ended September 30, 2019 and 2018.
99.3	Unaudited pro forma condensed combined financial information and explanatory notes relating to the acquisition of membership interests of BR Brand Group as of and for the nine months ended September 30, 2019 and for the year ended December 31, 2018.

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

November 26, 2019	B. RILEY FINANCIAL, INC.
	By:	/s/ Phillip J. Ahn
		Name: Phillip J. Ahn Title: Chief Financial Officer and Chief Operating Officer

3

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-233907) and Form S-8 (No. 333-202876, 333-218457, 333-226589 and 333-234453) of B. Riley Financial, Inc. of our report dated November 26, 2019, relating to the combined financial statements of BR Brand Group which appears in this Amendment No. 1 to Current Report on Form 8-K.

/s/ Mayer Hoffman McCann CPAs

The New York Practice of Mayer Hoffman McCann P.C.

New York, New York

November 26, 2019

EX-99.1

Exhibit 99.1

BR BRAND GROUP

Combined Financial Statements

December 31, 2018 and 2017

BR BRAND GROUP

Index

	Page
Independent Auditor’s Report	2
Combined Balance Sheets as of December 31, 2018 and 2017	3
Combined Statements of Income for the Years Ended December 31, 2018 and 2017	4
Combined Statements of Changes in Members’ Equity for the Years Ended December 31, 2018 and 2017	5
Combined Statements of Cash Flows for the Years Ended December 31, 2018 and 2017	6
Notes to Combined Financial Statements	7-12

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INDEPENDENT AUDITOR’S REPORT

To the Members

BR Brand Group

We have audited the accompanying combined financial statements of BR Brand Group (as defined in Note 1), which comprise the combined balance sheets as of December 31, 2018 and 2017, and the related combined statements of income, changes in members’ equity and cash flows for the years then ended, and the related notes to the combined financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of BR Brand Group as of December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ Mayer Hoffman McCann CPAs

The New York Practice of Mayer Hoffman McCann P.C.

November 26, 2019

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BR BRAND GROUP

Combined Balance Sheets

December 31, 2018 and 2017

	2018		2017
ASSETS
Current assets:
Cash	$	1,818,274	$	1,585,341
Licensing income receivable (Note 3)		1,917,926		2,062,328
Total current assets		3,736,200		3,647,669
Intangible assets (Note 4)		38,184,000		38,184,000
	$	41,920,200	$	41,831,669
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Current portion of long-term debt (Note 4)	$	315,000	$	315,000
Deferred revenue		632,520		626,225
Total current liabilities		947,520		941,225
Long-term debt (Note 4)		157,500		472,500
Commitments and contingencies (Note 6)
Members’ equity		40,815,180		40,417,944
	$	41,920,200	$	41,831,669

See accompanying notes.

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BR BRAND GROUP

Combined Statements of Income

For the Years Ended December 31, 2018 and 2017

	2018		2017
Licensing and advertising income	$	22,602,745	$	21,371,084
Operating expenses:
Advertising and promotion		656,872		705,097
Professional fees		335,883		203,209
Corporate overhead (Note 5)		3,135,296		2,821,496
General and administrative		339,673		436,803
Management fees (Note 5)		90,000		90,000
Total operating expenses		4,557,724		4,256,605
Income from operations		18,045,021		17,114,479
Interest expense		29,717		36,568
Income before provision for income taxes		18,015,304		17,077,911
Provision for income taxes		750		811
Net income	$	18,014,554	$	17,077,100

See accompanying notes.

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BR BRAND GROUP

Combined Statements of Changes in Members’ Equity

For the Years Ended December 31, 2018 and 2017

	2018			2017
Members’ equity, beginning of year	$	40,417,944		$	39,438,348
Net income		18,014,554			17,077,100
Members’ distributions		(17,617,318	)		(16,097,504	)
Members’ equity, end of year	$	40,815,180		$	40,417,944

See accompanying notes.

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BR BRAND GROUP

Combined Statements of Cash Flows

For the Years Ended December 31, 2018 and 2017

	2018			2017
Cash flows from operating activities:
Net income	$	18,014,554		$	17,077,100
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash members’ distributions		(57,818	)		(72,504	)
Changes in assets and liabilities:
Licensing income receivable		144,402			(137,658	)
Deferred revenue		6,295			148,347
Net cash provided by operating activities		18,107,433			17,015,285
Cash flows from financing activities:
Repayments of long-term debt		(315,000	)		(315,000	)
Members’ distributions		(17,559,500	)		(16,025,000	)
Cash used in financing activities		(17,874,500	)		(16,340,000	)
Net increase in cash		232,933			675,285
Cash, beginning of year		1,585,341			910,056
Cash, end of year	$	1,818,274		$	1,585,341
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest	$	29,717		$	36,568
Income taxes	$	750		$	2,814

See accompanying notes.

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BR BRAND GROUP

Notes to Combined Financial Statements

Note 1 - The Company and Basis of Presentation

The accompanying combined financial statements include the accounts of the following entities (collectively “BR Brand Group” or the “Company”):

CM Brand Holdings LLC	KMJ Brand Holdings LLC
EL Acquisition LLC	LTD2 Brand Holdings LLC
Joan Vass Brand Holdings LLC	NL Brand Holdings LLC

The Company grants rights to use its trademarks in connection with the manufacture and sale of designated products through various distribution channels, including to retailers, wholesalers and distributors in the United States and in certain international territories.

The Company’s day-to-day operations are managed by Bluestar Alliance LLC (“Bluestar”). There are no intercompany accounts or transactions between the BR Brand Group entities.

On October 25, 2019, the members of the Company transferred the trademarks, domain names, license agreements and related assets to a newly formed entity, BR Brand Holdings LLC (“BR Brand”). On October 28, 2019, the member of BR Brand entered into a Membership Interest Purchase Agreement and sold a majority interest to B. Riley Brand Management LLC, an indirect wholly-owned subsidiary of B. Riley Financial, Inc. (“B. Riley”) in exchange for (i) aggregate consideration of $116,500,000 in cash and (ii) the issuance of a warrant to purchase up to 200,000 shares of B. Riley’s common stock to Bluestar, at an exercise price of $26.24 per share. One-third of the warrant will vest immediately and become exercisable upon its issuance at the closing and the remaining two-thirds will vest and become exercisable following the first and/or second anniversaries of the closing, subject to BR Brand’s (or another related joint venture with Bluestar) satisfaction of specified financial performance targets. Additionally, in connection with the closing, Bluestar and B. Riley entered into a participation agreement whereby Bluestar granted to B. Riley certain rights with respect to future acquisition, ownership or economic opportunities in any brand assets not currently owned or managed by Bluestar or any of its affiliates.

Note 2 - Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

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BR BRAND GROUP

Notes to Combined Financial Statements

Note 2 - Summary of Significant Accounting Policies (Continued)

Licensing Income Receivable

The Company does not maintain traditional accounts receivable, but instead records accrued revenue amounts for royalty payments that have not yet been paid at the end of the period. Licensing income receivable is recorded net of allowances for doubtful accounts, based on the Company’s ongoing discussions with its licensees and its evaluation of their creditworthiness, payment history and account aging. There is no allowance for doubtful accounts at December 31, 2018 and 2017.

Intangible Assets

The Company evaluates the initial acquisition of intangible assets under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Based on this evaluation, the Company has determined that since substantially all of what it acquires is concentrated in a single asset (the trademarks), these acquisitions have not met the definition of a business and, therefore, have been accounted for as acquisitions of assets. Intangibles acquired, including transaction costs, have been capitalized and have been determined to have an indefinite life.

The Company performs an impairment test at least annually, unless impairment indicators or a triggering event occurs that would require an earlier evaluation. Impairment is measured by a comparison of the carrying amount to the estimated discounted future cash flows expected to be generated by the asset. In the event any of the Company’s intangible assets are determined to have a decline in their fair value, an impairment loss is recognized in the combined statement of income. These are tested when a triggering event occurs that could indicate a potential impairment. During the years ended December 31, 2018 and 2017, there has been no impairment recorded.

Revenue Recognition

The Company has entered into various license agreements that provide revenue based on guaranteed minimum royalty payments and advertising/marketing fees with additional royalty revenue based on a percentage of defined sales. Guaranteed minimum royalty payments and advertising/marketing revenue are recognized on a straight-line basis over the term of each contract year, as defined in each license agreement. Royalty payments exceeding the guaranteed minimum amounts are recognized as income during the period corresponding to the licensee’s sales. Additionally, payments received for terminating licenses are recognized when termination agreements are entered into and collectibility is reasonably assured.

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BR BRAND GROUP

Notes to Combined Financial Statements

Note 2 - Summary of Significant Accounting Policies (Continued)

Revenue Recognition (Continued)

Payments received as consideration for the grant of a license are recorded as deferred revenue at the time payment is received and recognized ratably as revenue over the term of the license agreement. Advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized as revenue when earned. Revenue is not recognized unless collectibility is reasonably assured.

Advertising Expenses

Advertising expenses are charged to operations in the period in which they are incurred. Advertising expense for the years ended December 31, 2018 and 2017 was approximately $657,000 and $705,000, respectively.

Income Taxes

Each entity is a limited liability company that is not a tax paying entity at the corporate level. Members are not obligated personally for any debt, obligation or liability of the Company solely by reason of being a member. Each member is individually responsible for their share of the income or loss for income tax reporting purposes. Accordingly, there is no provision for federal and state income taxes. The Company is subject to New York City Unincorporated Business tax.

The Company accounts for uncertainty in income taxes in accordance with FASB ASC Topic 740, Income Taxes. The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The Company’s income tax returns for the fiscal years 2015 and forward are subject to examination. As of December 31, 2018 and 2017, no interest or penalties relating to tax positions has been recorded.

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BR BRAND GROUP

Notes to Combined Financial Statements

Note 2 - Summary of Significant Accounting Policies (Continued)

New Accounting Pronouncement

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), that will supersede most current revenue recognition guidance, including industry-specific guidance. The core principle of the new guidance is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. Additionally, the guidance requires disclosures related to the nature, amount, timing and uncertainty of revenue that is recognized. The amendments are required to be adopted for the Company’s December 31, 2019 combined financial statements. Transition to the new guidance may be done using either a full or modified retrospective method.

The Company will adopt this standard effective January 1, 2019 using the modified retrospective approach. The Company has one main revenue stream, licensing income. Upon adoption, the Company will have a one-time cumulative effect to opening members’ equity of approximately $2,600,000 to reflect the change from recognizing guaranteed minimum royalty payments over the term of the entire contract instead of over the individual contract year since many of the licensing agreements have escalating guaranteed minimum royalty payments in the contract years contained in the contracts.

Note 3 - Concentration of Credit Risk and Customer Concentrations

Cash

The Company maintains cash at two commercial banks. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 in the aggregate. At times, the cash accounts may exceed this limit; however, the Company has not experienced any losses on its deposits.

Licensing Income Receivable

Three licensees in each year accounted for approximately 43% and 44% of the Company’s total licensing income receivable at December 31, 2018 and 2017, respectively. The Company does not believe that the receivable balance from these licensees represents a significant collection risk based on past collection experience.

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BR BRAND GROUP

Notes to Combined Financial Statements

Note 4 - Long-Term Debt

EL Acquisition LLC (“EL”) entered into an agreement, as amended, with a commercial bank for a term loan in the amount of $1,575,000, with a maturity date of May 1, 2020. The loan bears interest at prime minus 0.25% per year (5.25% at December 31, 2018). At December 31, 2018 and 2017, EL had $472,500 and $787,500, respectively, in outstanding borrowings under the loan. The remaining principal payments in the amount of $78,750 are due quarterly. The loan contains various financial covenants and is collateralized by the EL trademark, which has a carrying value of approximately $5,750,000 at December 31, 2018.

The approximate aggregate annual principal payments required to be made as of December 31, 2018 are as follows:

2019	$	315,000
2020	$	157,500

In October 2019, the note was paid in full.

Note 5 - Related Party Transactions

Corporate Overhead

Bluestar charges the Company a corporate overhead fee monthly which is meant to encompass back office expenses, including payroll and rent. For the years ended December 31, 2018 and 2017, the monthly charges were approximately $3,135,000 and $2,821,000, respectively.

Management Fees

EL’s operating agreement also allows for reimbursement of expenses to a member other than Bluestar. Management fee expense to this member for the years ended December 31, 2018 and 2017 was $90,000 in each year.

Note 6 - Commitments and Contingencies

NL Brand Holdings LLC (“NL”) Preferred Distributions

In accordance with the operating agreement of NL, one of the members had a preferred return of distributions up to $14,500,000 before the other member could receive distributions. As of December 31, 2018, approximately $11,888,000 has been paid to the preferred member. In October 2019, in connection with the settlement of the litigation (see below), the other member has transferred its membership interest to the preferred member.

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BR BRAND GROUP

Notes to Combined Financial Statements

Note 6 - Commitments and Contingencies (Continued)

Litigation

NL was party to an action in the Supreme Court of New York against its original owner. She had also asserted various counterclaims against NL. In October 2019, these claims were settled for a total payment of $5,000,000. The Company has allocated approximately $3,268,000 as the fair value of her ownership interest on the settlement date and the remaining $1,732,000 will be recorded as an expense during 2019.

The Company is involved in various lawsuits surrounding its trademarks, which arose in the ordinary course of business. Management is vigorously pursuing the lawsuits and believes the outcome will not have a material effect on the Company’s combined financial position, results of operations or cash flows.

Note 7 - Subsequent Events

The Company has evaluated subsequent events through November 26, 2019, which is the date the combined financial statements were available to be issued.

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EX-99.2

Exhibit 99.2

BR BRAND GROUP

Unaudited Combined Financial Statements

Nine Months Ended September 30, 2019 and 2018

BR BRAND GROUP

Index

	Page
Combined Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018	2
Combined Statements of Income for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)	3
Combined Statements of Changes in Members’ Equity for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)	4
Combined Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (Unaudited)	5
Notes to Unaudited Combined Financial Statements	6-11

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BR BRAND GROUP

Combined Balance Sheets

	September 30, 2019		December 31, 2018
	(Unaudited)		(Audited)
ASSETS
Current assets:
Cash	$	1,007,364	$	1,818,274
Contract assets - licensing income receivable (Note 4)		3,067,872		1,917,926
Total current assets		4,075,236		3,736,200
Intangible assets (Note 5)		38,184,000		38,184,000
	$	42,259,236	$	41,920,200
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Current portion of long-term debt (Note 5)	$	236,250	$	315,000
Accrued litigation settlement		1,732,000		-
Contract liabilities - deferred revenue		96,667		632,520
Total current liabilities		2,064,917		947,520
Long-term debt (Note 5)		-		157,500
Commitments and contingencies (Note 7)
Members’ equity		40,194,319		40,815,180
	$	42,259,236	$	41,920,200

See accompanying notes to unaudited combined financial statements.

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BR BRAND GROUP

Combined Statements of Income

For the Nine Months Ended September 30, 2019 and 2018

(Unaudited)

	2019		2018
Licensing and advertising income	$	14,411,003	$	16,646,227
Operating expenses:
Advertising and promotion		466,910		480,066
Professional fees		285,817		107,162
Corporate overhead (Note 6)		2,435,697		2,339,897
General and administrative		441,047		371,619
Management fees (Note 6)		67,500		67,500
Litigation settlement (Note 7)		1,732,000		-
Total operating expenses		5,428,971		3,366,244
Income from operations		8,982,032		13,279,983
Interest expense		14,498		23,265
Income before provision for income taxes		8,967,534		13,256,718
Provision for income taxes		325		750
Net income	$	8,967,209	$	13,255,968

See accompanying notes to unaudited combined financial statements.

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BR BRAND GROUP

Combined Statements of Changes in Members’ Equity 

For the Nine Months Ended September 30, 2019 and 2018

(Unaudited)

	2019			2018
Members’ equity, beginning of year	$	40,815,180		$	40,417,944
Net income		8,967,209			13,255,968
Cumulative effect of accounting change for adoption of FASB ASC Topic 606 (Note 3)		2,599,543			-
Members’ distributions		(12,187,613	)		(12,953,080	)
Members’ equity, end of period	$	40,194,319		$	40,720,832

See accompanying notes to unaudited combined financial statements.

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BR BRAND GROUP

Combined Statements of Cash Flows

For the Nine Months Ended September 30, 2019 and 2018

(Unaudited)

	2019			2018
Cash flows from operating activities:
Net income	$	8,967,209		$	13,255,968
Adjustments to reconcile net income to net cash  provided by operating activities:
Non-cash members’ distributions		(50,363	)		(45,580	)
Changes in assets and liabilities:
Licensing income receivable		832,072			240,723
Accrued litigation settlement		1,732,000			-
Deferred revenue		81,672			(112,278	)
Net cash provided by operating activities		11,562,590			13,338,833
Cash flows from financing activities:
Repayments of long-term debt		(236,250	)		(236,250	)
Members’ distributions		(12,137,250	)		(12,907,500	)
Cash used in financing activities		(12,373,500	)		(13,143,750	)
Net increase (decrease) in cash		(810,910	)		195,083
Cash, beginning of year		1,818,274			1,585,341
Cash, end of period	$	1,007,364		$	1,780,424
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	14,498		$	23,265
Income taxes	$	325		$	750

See accompanying notes to unaudited combined financial statements.

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BR BRAND GROUP

Notes to Unaudited Combined Financial Statements

Note 1 - The Company and Basis of Presentation

The accompanying combined financial statements include the accounts of the following entities (collectively “BR Brand Group” or the “Company”):

CM Brand Holdings LLC	KMJ Brand Holdings LLC
EL Acquisition LLC	LTD2 Brand Holdings LLC
Joan Vass Brand Holdings LLC	NL Brand Holdings LLC

The Company grants rights to use its trademarks in connection with the manufacture and sale of designated products through various distribution channels, including to retailers, wholesalers and distributors in the United States and in certain international territories.

The Company’s day-to-day operations are managed by Bluestar Alliance LLC (“Bluestar”). There are no intercompany accounts or transactions between the BR Brand Group entities.

On October 25, 2019, the members of the Company transferred the trademarks, domain names, license agreements and related assets to a newly formed entity, BR Brand Holdings LLC (“BR Brand”). On October 28, 2019, the member of BR Brand entered into a Membership Interest Purchase Agreement and sold a majority interest to B. Riley Brand Management LLC, an indirect wholly-owned subsidiary of B. Riley Financial, Inc. (“B. Riley”) in exchange for (i) aggregate consideration of $116,500,000 in cash and (ii) the issuance of a warrant to purchase up to 200,000 shares of B. Riley’s common stock to Bluestar, at an exercise price of $26.24 per share. One-third of the warrant will vest immediately and become exercisable upon its issuance at the closing and the remaining two-thirds will vest and become exercisable following the first and/or second anniversaries of the closing, subject to BR Brand’s (or another related joint venture with Bluestar) satisfaction of specified financial performance targets. Additionally, in connection with the closing, Bluestar and B. Riley entered into a participation agreement whereby Bluestar granted to B. Riley certain rights with respect to future acquisition, ownership or economic opportunities in any brand assets not currently owned or managed by Bluestar or any of its affiliates.

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. These unaudited combined financial statements should be read in conjunction with the audited financial statements and notes for the fiscal year ended December 31, 2018. In the opinion of management, all material adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited combined financial statements. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

- 6 -

BR BRAND GROUP

Notes to Unaudited Combined Financial Statements

Note 2 - Summary of Significant Accounting Policies

Intangible Assets

The Company evaluates the initial acquisition of intangible assets under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Based on this evaluation, the Company has determined that since substantially all of what it acquires is concentrated in a single asset (the trademarks), these acquisitions have not met the definition of a business and, therefore, have been accounted for as acquisitions of assets. Intangibles acquired, including transaction costs, have been capitalized and have been determined to have an indefinite life.

The Company performs an impairment test at least annually, unless impairment indicators or a triggering event occurs that would require an earlier evaluation. Impairment is measured by a comparison of the carrying amount to the estimated discounted future cash flows expected to be generated by the asset. In the event any of the Company’s intangible assets are determined to have a decline in their fair value, an impairment loss is recognized in the combined statement of income. These are tested when a triggering event occurs that could indicate a potential impairment. During the nine months ended September 30, 2019 and 2018, there has been no impairment recorded.

Note 3 - Revenue Recognition

Adoption of FASB ASC 606, Revenue from Contracts with Customers

On January 1, 2019, the Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), using the modified retrospective method applied to those license agreements which were not completed as of January 1, 2019. Results for the reporting period beginning January 1, 2019 are presented under Topic 606 while the prior period is not adjusted and continues to be reported in accordance with the historical accounting policy, FASB ASC Topic 605, Revenue Recognition (“Topic 605”). Under Topic 605, the Company recognized guaranteed minimum royalty/advertising and marketing revenue on a straight-line basis over the term of each contract year, as defined in each license agreement, and royalties exceeding the defined guaranteed minimum amounts were recognized as income during the period corresponding to the licensee’s sales. Additionally, payment received for terminating licenses was recognized when termination agreements were entered into and collectibility is reasonably assured. Under Topic 606, revenue is recognized as discussed below.

- 7 -

BR BRAND GROUP

Notes to Unaudited Combined Financial Statements

Note 3 - Revenue Recognition (Continued)

Adoption of FASB ASC 606, Revenue from Contracts with Customers (Continued)

The Company recorded a net increase to opening members’ equity due to the cumulative impact of adopting Topic 606, with the impact primarily related to revenue associated with license agreements which have escalating guaranteed minimum royalties in the various contract years. The following tables summarize the retrospective effects of adopting Topic 606:

Combined Balance Sheet - as of September 30, 2019:

	As Reported		Impact of Adoption of Topic 606			Under Topic 605
Licensing income receivable	$	3,067,872	$	(1,310,834	)	$	1,757,038
Deferred revenue	$	96,667	$	600,424		$	697,091
Members’ equity	$	40,194,319	$	(1,911,258	)	$	38,283,061

Combined Income Statement - Nine months ended September 30, 2019:

	As Reported		Impact of Adoption of Topic 606		Under Topic 605
Licensing and advertising income	$	14,411,003	$	688,285	$	15,099,288
Net income	$	8,967,209	$	688,285	$	9,655,494

Licensing Revenue

The Company licenses its brands across a broad range of product categories, including fashion apparel, accessories, beauty and fragrance. The Company seeks licensees with the ability to produce and sell quality products in their licensed categories and to meet and exceed minimum sales and royalty payment thresholds.

The Company’s license agreements typically require the licensee to pay royalties based upon net sales with guaranteed minimum royalties in the event that net sales do not reach certain specified targets. The Company’s licenses also typically require the licensees to pay certain minimum amounts for the advertising and marketing of the respective licensed brands.

- 8 -

BR BRAND GROUP

Notes to Unaudited Combined Financial Statements

Note 3 - Revenue Recognition (Continued)

Licensing Revenue (Continued)

Licensing revenue is comprised of revenue related to various trade name license agreements that provide revenue based on minimum royalties and advertising/marketing fees and additional revenue based on a percentage of defined sales. Minimum royalty amounts are recognized as revenue on a straight-line basis over the full contract term. Minimum royalties that escalate on an annual basis over the contract term are recognized on a straight-line basis over the full contract term. Royalties exceeding the defined minimum amounts in a specific contract year (sales-based royalties), as defined in each license agreement, are recognized only in the subsequent periods to when the minimum guarantee for the contract year has been achieved and when the later of the following events occur: (i) the subsequent sale, or (ii) the performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied (or partially satisfied).

Guaranteed minimum amounts are normally paid quarterly and sales-based royalties are typically due forty-five days after the end of the quarter.

Remaining Performance Obligation

The Company enters into long-term license agreements. Revenue is recognized on a straight-line basis consistent with the nature, timing and extent of services, which primarily relate to the ongoing brand management and maintenance of the intellectual property.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to licensees. The Company records a receivable when amounts are contractually due or when revenue is recognized prior to invoicing.

Deferred revenue is recorded when amounts are contractually due prior to satisfying the performance obligations of the contracts or when cash payment is received in advance of performance.

For multi-year license agreements, as the performance obligation is providing the licensee with the right of access to the Company’s intellectual property for the contractual term, the Company uses a time-lapse measure of progress and straight-lines the guaranteed minimum royalties over the contract term.

- 9 -

BR BRAND GROUP

Notes to Unaudited Combined Financial Statements

Note 4 - Concentration of Credit Risk and Customer Concentrations

Cash

The Company maintains cash at two commercial banks. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 in the aggregate. At times, the cash accounts may exceed this limit; however, the Company has not experienced any losses on its deposits.

Licensing Income Receivable

Two and three licensees accounted for approximately 25% and 43% of the Company’s total licensing income receivable at September 30, 2019 and December 31, 2018, respectively. The Company does not believe that the receivable balance from these licensees represents a significant collection risk based on past collection experience.

Note 5 - Long-Term Debt

EL Acquisition LLC (“EL”) entered into an agreement, as amended, with a commercial bank for a term loan in the amount of $1,575,000, with a maturity date of May 1, 2020. The loan bears interest at prime minus 0.25% per year (4.75% at September 30, 2019). At September 30, 2019 and December 31, 2018, EL had $236,250 and $472,500, respectively, in outstanding borrowings under the loan. The remaining principal payments in the amount of $78,750 are due quarterly and the entire loan is current as of September 30, 2019. The loan contains various financial covenants and is collateralized by the EL trademark, which has a carrying value of approximately $5,750,000 at September 30, 2019. In October 2019, the note was paid in full.

Note 6 - Related Party Transactions

Corporate Overhead

Bluestar charges the Company a corporate overhead fee monthly which is meant to encompass back office expenses, including payroll and rent. For the nine months ended September 30, 2019 and 2018, the monthly charges were approximately $2,436,000 and $2,340,000, respectively.

Management Fees

EL’s operating agreement also allows for reimbursement of expenses to a member other than Bluestar. Management fee expense to this member for the nine months ended September 30, 2019 and 2018 was $67,500 in each period.

- 10 -

BR BRAND GROUP

Notes to Unaudited Combined Financial Statements

Note 7- Commitments and Contingencies

NL Brand Holdings LLC (“NL”) Preferred Distributions

In accordance with the operating agreement of NL, one of the members had a preferred return of distributions up to $14,500,000 before the other member could receive distributions. As of September 30, 2019, the preferred member has been paid the required distributions. In October 2019, in connection with the settlement of the litigation (see below), the other member has transferred its membership interest to the preferred member.

Litigation

NL was party to an action in the Supreme Court of New York against its original owner. She had also asserted various counterclaims against NL. In October 2019, these claims were settled for a total payment of $5,000,000. The Company has allocated approximately $3,268,000 as the fair value of her ownership interest on the settlement date and the remaining $1,732,000 has been recorded as an expense during the nine months ended September 30, 2019.

The Company is involved in various lawsuits surrounding its trademarks, which arose in the ordinary course of business. Management is vigorously pursuing the lawsuits and believes the outcome will not have a material effect on the Company’s combined financial position, results of operations or cash flows.

Note 8 - Subsequent Events

The Company has evaluated subsequent events through November 26, 2019, which is the date the combined financial statements were available to be issued.

- 11 -

EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The unaudited pro forma condensed combined financial information and explanatory notes presented below, which we refer to as the pro forma financial statements, show the impact of the acquisition by B. Riley Brand Management LLC (the “B. Riley Member”), an indirect wholly owned subsidiary of B. Riley Financial Inc. (“B. Riley”), of an 80% interest in BR Brand Holdings LLC (“BR Brand Group”), which was completed on October 28, 2019 pursuant to the terms of a Membership Interest Purchase Agreement, dated October 11, 2019 (the “MIPA”), by and among B. Riley, the B. Riley Member, BR Brand Acquisition LLC (the “BR Brand Member”) and BR Brand Group. In connection with the completion of the transactions contemplated by the MIPA, the BR Brand Member caused the transfer of certain trademarks, domain names, license agreements and related assets (the “Brand Assets”) from existing brand owners to BR Brand Group. Pursuant to the terms of the MIPA, the B. Riley Member acquired the 80% interest in BR Brand Group in exchange for (i) cash consideration of $116,500 and (ii) the issuance to certain affiliates of the BR Brand Member of a warrant (the “Warrant”) to purchase up to 200,000 shares of B. Riley’s Common Stock, par value $0.001 per share, at an exercise price of $26.24 per share, subject to the vesting of two-thirds of such shares upon BR Brand Group’s satisfaction of specified financial performance targets. The aggregate consideration paid by B. Riley, including approximately $932 of consideration attributable to the fair value of the Warrant, is approximately $117,432.

Under the asset acquisition method of accounting, the assets and liabilities of BR Brand Group, as of the effective date of the B. Riley Member’s acquisition of the 80% interest in BR Brand Group, will be recorded by B. Riley at their respective fair values, and the excess of the acquisition consideration over the fair value of BR Brand Group’s net assets will be allocated proportionately to assets acquired. The unaudited pro forma condensed combined balance sheet as of September 30, 2019 is presented as if the acquisition of the 80% interest in BR Brand Group had occurred on September 30, 2019. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2019 is presented as if the acquisition of the 80% interest in BR Brand Group had occurred on January 1, 2019, the first day of B. Riley’s 2019 fiscal year. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2018 is presented as if B. Riley’s acquisition of the 80% interest in BR Brand Group and B. Riley’s acquisition of magicJack VocalTec Ltd. (“magicJack”) had each occurred on January 1, 2018, the first day of B. Riley’s 2018 fiscal year. The historical combined financial information has been adjusted to reflect factually supportable items that are directly attributable to the acquisition and, with respect to the statement of operations only, expected to have a continuing impact on combined results of operations. 

The pro forma financial statements are presented for illustrative purposes only and do not purport to indicate or project the financial results of the combined companies had the acquisition of the 80% interest in BR Brand Group and B. Riley’s acquisition of magicJack been completed at the beginning of the period presented. The adjustments included in these pro forma financial statements are preliminary and may be revised. The pro forma financial statements also do not consider any potential impacts of potential revenue enhancements, anticipated cost savings and expense efficiencies, or asset dispositions, among other factors.

The pro forma financial statements and accompanying notes should be read in conjunction with the separate historical financial statements and accompanying notes of B. Riley’s Annual Report on Form 10-K for the year ended December 31, 2018, Quarterly Report on Form 10-Q for the nine months ended September 30, 2019 and the Current Report on Form 8-K filed by B. Riley with the SEC on November 1, 2019 incorporated herein by reference.

Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2019

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED BALANCE SHEET

(UNAUDITED)

AS OF SEPTEMBER 30, 2019

	B. RILEY FINANCIAL, INC. (a)			BR BRAND GROUP (b)			PRO FORMA ADJUSTMENTS			PRO FORMA TOTAL
	(Dollars in thousands, except par value)
Assets
Cash and cash equivalents	$	170,587		$	1,007	(1)	$	(116,500	)	$	54,087
						(3)		(236	)
						(4)		(771	)
Restricted cash		471			-			-			471
Due from clearing brokers		27,791			-			-			27,791
Securities and other investments owned, at fair value		326,616			-			-			326,616
Securities borrowed		720,207			-			-			720,207
Accounts receivable, net		47,419			3,068			-			50,487
Due from related parties		6,689			-			-			6,689
Loans receivable		295,898			-			-			295,898
Prepaid expenses and other assets		112,309			-			-			112,309
Operating lease right-of-use assets		49,642			-			-			49,642
Property and equipment, net		13,171			-			-			13,171
Goodwill		220,562			-			-			220,562
Other intangible assets, net		79,488			38,184	(1)		69,577			223,074
						(1)		6,700
						(2)		29,125
Deferred income taxes		36,041			-			-			36,041
Total assets	$	2,106,891		$	42,259		$	(12,105	)	$	2,137,045
Liabilities
Accounts payable	$	6,239		$	-		$	-		$	6,239
Accrued expenses and other liabilities		115,062			1,732	(1)		(1,732	)		115,062
Deferred revenue		68,385			97			-			68,482
Due to related parties and partners		2,814			-			-			2,814
Securities sold not yet purchased		29,092			-			-			29,092
Securities loaned		714,947			-			-			714,947
Mandatorily redeemable noncontrolling interests		4,395			-			-			4,395
Operating lease liabilities		63,817			-			-			63,817
Notes payable		1,193			236	(3)		(236	)		1,193
Loan participations sold		28,872			-			-			28,872
Term loan		71,393			-			-			71,393
Senior notes payable		701,278			-			-			701,278
Total liabilities		1,807,487			2,065			(1,968	)		1,807,584
Equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding at September 30, 2019		-			-			-			-
Common stock, $0.0001 par value; 100,000,000 shares authorized; 26,921,500 issued and outstanding at September 30, 2019		3			-			-			3
Additional paid-in capital		259,237			-			-			259,237
Members’ equity		-			40,194	(2)		(38,491	)		932
						(4)		(771	)
								-
Retained earnings		41,957			-			-			41,957
Accumulated other comprehensive loss		(2,345	)		-			-			(2,345	)
Total stockholders’ equity		298,852			40,194			(39,262	)		299,784
Noncontrolling interests		552			-	(3)		29,125			29,677
Total equity		299,404			40,194			(10,137	)		329,461
Total liabilities and equity	$	2,106,891		$	42,259		$	(12,105	)	$	2,137,045

The accompanying notes are an integral part of this statement.

2

Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2019

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

	B. RILEY FINANCIAL, INC. (a)			BR BRAND GROUP (b)			PRO FORMA ADJUSTMENTS			PRO FORMA TOTAL
	(Dollars in thousands, except share data)
Revenues:
Services and fees	$	428,705		$	14,411		$	-		$	443,116
Interest income - Loans and securities lending		54,147			-			-			54,147
Sale of goods		4,023			-			-			4,023
Total revenues		486,875			14,411			-			501,286
Operating expenses:
Direct cost of services		55,210			-			-			55,210
Cost of goods sold		3,835			-			-			3,835
Selling, general and administrative expenses		274,468			5,429	(5)		(384	)		280,518
						(6)		1,005
Restructuring charge		1,699						-			1,699
Interest expense - Securities lending and loan participations sold		22,579			-			-			22,579
Total operating expenses		357,791			5,429			621			363,841
Operating income		129,084			8,982			(621	)		137,445
Other income (expense):
Interest income		1,329			-			-			1,329
Loss from equity investments		(4,049	)		-			-			(4,049	)
Interest expense		(35,130	)		(14)			-			(35,144	)
Other, net		-			(1)			-			(1	)
Income before income taxes		91,234			8,967			(621	)		99,580
Provision for income taxes		(26,802	)		-	(7)		(2,454	)		(29,256	)
Net income (loss)		64,432			8,967			(3,075	)		70,324
Net (loss) income attributable to noncontrolling interests		(50	)		-	(8)		1,178			1,128
Net income attributable to B. Riley Financial, Inc.	$	64,482		$	8,967		$	(4,253	)	$	69,196
Basic earnings per share	$	2.45								$	2.63
Diluted earnings per share	$	2.37								$	2.54
Weighted average basic shares outstanding		26,351,839									26,351,839
Weighted average diluted shares outstanding		27,251,837									27,251,837

The accompanying notes are an integral part of this statement.

3

Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2018

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(UNAUDITED)

FOR THE YEAR ENDED DECEMBER 31, 2018

	B. RILEY FINANCIAL, INC. (a)			BR BRAND GROUP (b)			MAGICJACK VOCALTEC LTD. (c)			PRO FORMA ADJUSTMENTS			PRO FORMA TOTAL
	(Dollars in thousands, except share data)
Revenues:
Services and fees	$	390,555		$	22,603			$ 66,565	(9)	$	(814	)	$	478,909
Interest income - Securities lending		31,798			-			-			-			31,798
Sale of goods		638			-			-			-			638
Total revenues		422,991			22,603			66,565			(814	)		511,345
Operating expenses:
Direct cost of services		51,580			-			22,795			-			74,375
Cost of goods sold		800			-			-			-			800
Selling, general and administrative expenses		293,682			4,558			35,616	(10)		67			335,263
									(11)		1,340
Restructuring charge		8,506			-			-			-			8,506
Impairment of goodwill and intangible assets		-			-			131			-			131
Interest expense - Securities lending		23,039			-			-			-			23,039
Total operating expenses		377,607			4,558			58,542			1,407			442,114
Operating income (loss)		45,384			18,045			8,023			(2,221	)		69,231
Other income (expense):
Interest income		1,326			-			623			-			1,949
Income from equity investments		7,986			-			-			-			7,986
Interest expense		(33,393	)		(30	)		-			-			(33,423	)
Other income (expense), net		(24,081	)		(30	)		623			-			(23,488	)
Income (loss) before income taxes		21,303			18,015			8,646			(2,221	)		45,743
Benefit (provision) for income taxes		(4,903	)		(1	)		(2,378)	(12)		(4,342	)		(11,624	)
Net income (loss)		16,400			18,014			6,268			(6,563	)		34,119
Net income attributable to noncontrolling interests		891			-			-	(13)		2,290			3,181
Net income (loss) attributable to common stockholders	$	15,509		$	18,014		$	6,268		$	(8,853	)	$	30,938
Basic earnings per share	$	0.60											$	1.19
Diluted earnings per share	$	0.58											$	1.16
Weighted average basic shares outstanding		25,937,305												25,937,305
Weighted average diluted shares outstanding		26,764,856												26,764,856

The accompanying notes are an integral part of this statement.

4

Notes to Unaudited Pro Forma Condensed Combined Financial Information

(Dollar amounts in thousands, except share data)

NOTE 1 - ACQUISITION

On October 28, 2019, B. Riley Brand Management LLC (the “B. Riley Member”), an indirect wholly owned subsidiary of B. Riley Financial, Inc. (“B. Riley”), completed its acquisition of an 80% interest in BR Brand Holdings LLC (“BR Brand Group”) pursuant to the terms of a Membership Interest Purchase Agreement, dated October 11, 2019 (the “MIPA”), by and among B. Riley, the B. Riley Member, BR Brand Acquisition LLC (the “BR Brand Member”) and BR Brand Group. In connection with the completion of the transactions contemplated by the MIPA, the BR Brand Member caused the transfer of certain trademarks, domain names, license agreements and related assets (the “Brand Assets”) from existing brand owners to BR Brand Group. Pursuant to the terms of the MIPA, the B. Riley Member acquired the 80% interest in exchange for (i) cash consideration of $116,500 and (ii) the issuance to certain affiliates of the BR Brand Member of a warrant (the “Warrant”) to purchase up to 200,000 shares of B. Riley’s Common Stock, par value $0.001 per share, at an exercise price of $26.24 per share, subject to the vesting of two-thirds of such shares upon BR Brand Group’s satisfaction of specified financial performance targets. The aggregate consideration paid by B. Riley, including approximately $932 of consideration attributable to the Warrant, is approximately $117,432. In addition, the preparation of the pro forma financial statements includes the proportionate value of $29,125 assigned to the 20% noncontrolling interest of BR Brand Group that is not owned by B. Riley.

NOTE 2 – PRO FORMA ADJUSTMENTS AND ASSUMPTIONS

The pro forma adjustments to the condensed combined balance sheet give effect to the B. Riley Member’s acquisition of the 80% interest in BR Brand Group as if the transaction had occurred on September 30, 2019. The pro forma adjustments to the condensed combined statement of operations for the nine months ended September 30, 2019 give effect to the acquisition of the 80% interest in BR Brand Group as if the transactions had been completed as of January 1, 2019. The pro forma adjustments to the condensed combined statement of operations for the year ended December 31, 2018 give effect to the acquisition of the 80% interest in BR Brand Group and B. Riley’s acquisition of magicJack VocalTec Ltd. (“magicJack”) as if the transactions had been completed as of January 1, 2018. The pro forma financial statements were based on, and should be read in conjunction with, the financial statements indicated below. The pro forma financial statements have been presented for informational purposes only and do not purport to indicate or project what the combined company’s results of operations and financial position would have been had the acquisition of the 80% interest in BR Brand Group and B. Riley’s acquisition of magicJack been completed on the dates indicated. The pro forma financial statements do not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities or corporate overhead that will not be duplicated. In addition, the pro forma financial statements do not purport to project the future results of operations or financial position of the combined company.

Balance Sheet – September 30, 2019

a. Derived from the unaudited balance sheet of B. Riley as of September 30, 2019 contained in Form 10-Q filed with the SEC on November 1, 2019.

b. Derived from the unaudited balance sheet of BR Brand Group as of September 30, 2019 contained in Exhibit 99.2 to B. Riley’s Current Report on Form 8-K filed November 26, 2019.

(1) Reflects the acquisition of the 80% interest in BR Brand Group in exchange for aggregate consideration of $117,432, which includes cash consideration of $116,500 and consideration of approximately $932 attributable to the to the fair value of the Warrant. The preparation of the pro forma financial statements includes the proportionate value of $29,125 assigned to the 20% noncontrolling interest of BR Brand Group that is not owned by B. Riley. The pro forma purchase price adjustments are based on B. Riley management’s estimate of the fair value of the assets and liabilities acquired, and are subject to change and future adjustment upon completion of a final valuation, and have been made solely for the purpose of providing the unaudited pro forma combined financial information presented herewith. Differences between these provisional estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying pro forma financial statements and B. Riley’s future results of operations and financial position.

5

The following table summarizes the consideration paid by B. Riley and the estimated fair values of the assets acquired.

Consideration paid by B. Riley:
Cash consideration for purchase of 80% membership interest in BR Brand Group	$	116,500
Consideration attributable to the fair value of 200,000 warrants issued to purchase
B. Riley common stock at $26.24 per share		932
Total consideration	$	117,432
Tangible assets acquired and assumed:
Accounts receivable	$	3,068
Deferred revenue		(97	)
Noncontrolling interest		(29,125	)
Other intangible assets		6,700
Tradenames		136,886
Total	$	117,432

The total consideration for the asset acquisition has been reflected as $117,432. Total consideration paid was allocated to the tangible and intangible assets and liabilities assumed based on B. Riley management’s estimate of their respective fair values at the date of the asset acquisition. Management is responsible for the valuation of net assets and considered a number of factors when estimating the fair values and estimated useful lives of acquired assets and liabilities.

(2) Reflects the proportionate value assigned to the 20% noncontrolling interest of BR Brand Group not purchased by B. Riley.

(3) Reflects the repayment of a note payable in the amount of $236 prior to the closing of the asset acquisition.

(4) Reflects the distribution of cash on hand of $771 that was distributed to the members of BR Brand Group prior to the completion of the acquisition by B. Riley.

Statement of Operations – Nine Months Ended September 30, 2019

a. Derived from the unaudited statement of income of B. Riley for the nine months ended September 30, 2019 contained in the Form 10-Q filed with the SEC on November 1, 2019.

b. Derived from the unaudited statement of income of BR Brand Group for the nine months ended September 30, 2019 contained in Exhibit 99.2 to B. Riley’s Current Report on Form 8-K filed November 26, 2019.

BR Brand Group Pro Forma Adjustments

(5) Reflects the estimated reduction in selling general and administrative expenses of $384 attributable to the new management agreement that limits management fees to 15% of annual revenues and total operating expenses (excluding certain legal and professional fees) to 21% of annual revenues as set forth in the new operating agreement of BR Brand Group that was entered into in connection with the acquisition.

(6) Reflects the estimated amortization expense of the $6,700 for intangible assets related to licensing contracts acquired as a result of the acquisition of the BR Brand Group using the straight-line method. The estimated useful life of the amortizable intangible assets is estimated to be 5 years. Upon completion of the final valuation of BR Brand Group the fair value of intangible assets for accounting for the asset acquisition and the estimated useful life of the intangible assets may change.

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(7) Reflects pro forma adjustment for the provision for income taxes of $2,454 for the nine months ended September 30, 2019 based on the impact of a combined federal and state statutory tax rate of 29.4% on the pro forma income and pro forma adjustments that is subject to income tax expense for BR Brand Group.

(8) Reflects the pro forma adjustment for the 20% noncontrolling interest not owned by B. Riley.

Statement of Operations – Year Ended December 31, 2018

a. Derived from the audited statement of operations of B. Riley for the year ended December 31, 2018 contained in the Form 10-K filed with the SEC on March 13, 2019.

b. Derived from the audited statement of income of BR Brand Group for the year ended December 31, 2018 contained in Exhibit 99.1 to B. Riley’s Current Report on Form 8-K filed November 26, 2019.

c. Derived from the results of operations of magicJack prior to the acquisition date of November 15, 2018 which are not included in the historical statement of operations of B. Riley in a. above for the year ended December 31, 2018.

BR Brand Group Pro Forma Adjustments

(9) Reflects the estimated reduction in revenues of $814 for the fair value adjustment for impact of the implementation of ASC 606 as if it was implemented on January 1, 2018.

(10) Reflects the estimated increase in selling general and administrative expenses of $67 attributable to the new management agreement that limits management fees to 15% of annual revenues and total operating expenses (excluding certain legal and professional fees) to 21% of annual revenues as set forth in the new operating agreement of BR Brand Group that was entered into in connection with the acquisition.

(11) Reflects the estimated amortization expense of the $6,700 for intangible assets related to licensing contracts acquired as a result of the acquisition of the BR Brand Group using the straight-line method. The estimated useful life of the amortizable intangible assets is estimated to be 5 years. Upon completion of the final valuation of BR Brand Group the fair value of intangible assets for accounting for the asset acquisition and the estimated useful life of the intangible assets may change.

(12) Reflects pro forma adjustment for the provision for income taxes of $4,342 for the year ended December 31, 2018 based on the impact of a combined federal and state statutory tax rate of 27.5% on the pro forma income and pro forma adjustments that is subject to income tax expense for BR Brand Group.

(13) Reflects the pro forma adjustment for the 20% noncontrolling interest not owned by B. Riley.

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