10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period fromto

 Commission File Number: 001-36638

Medley Management Inc.

(Exact name of registrant as specified in its charter)

Delaware	47-1130638
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

280 Park Avenue, 6th Floor East

New York, New York 10017

(Address of principal executive offices)(Zip Code)

(212) 759-0777

(Registrant’s telephone number, including area code)

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

(Title of each class)	(Name of each exchange on which registered)
Class A Common Stock, $0.01 par value per share	New York Stock Exchange

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

None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   ☒     No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒     No   ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒ 

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

The number of shares of the registrant’s Class A common stock, par value $0.01 per share, outstanding as of August 13, 2019 was 5,892,371. The number of shares of the registrant’s Class B common stock, par value $0.01 per share, outstanding as of August 13, 2019 was 100.

TABLE OF CONTENTS 

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018	F- 1
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018	F- 2
	Condensed Consolidated Statements of Changes in Equity (unaudited) for the Three and Six Months Ended June 30, 2019 and 2018	F- 3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2019 and 2018	F- 5
	Notes to the Condensed Consolidated Financial Statements (unaudited)	F- 7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	28
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	35
Item 6.	Exhibits, Financial Statement Schedules	36
	Signatures	38

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “may,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, and other reports we file with the Securities and Exchange Commission available on the SEC’s website at www.sec.gov, which include, but are not limited to, the following:

• difficult market and political conditions may adversely affect our business in many ways, including by reducing the value or hampering the performance of the investments made by our funds, each of which could materially and adversely affect our business, results of operations and financial condition;

• we derive a substantial portion of our revenues from funds managed pursuant to advisory agreements that may be terminated or fund partnership agreements that permit fund investors to remove us as the general partner;

• we may not be able to maintain our current fee structure as a result of industry pressure from fund investors to reduce fees, which could have an adverse effect on our profit margins and results of operations;

• a change of control of us could result in termination of our investment advisory agreements;

• the historical returns attributable to our funds should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in Medley Management Inc.'s Class A common stock ("Class A common stock");

• if we are unable to consummate or successfully integrate development opportunities, acquisitions or joint ventures, we may not be able to implement our growth strategy successfully;

• we depend on third-party distribution sources to market our investment strategies;

• an investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies;

• our funds’ investments in investee companies may be risky, and our funds could lose all or part of their investments;

• prepayments of debt investments by our investee companies could adversely impact our results of operations;

• our funds’ investee companies may incur debt that ranks equally with, or senior to, our funds’ investments in such companies;

• subordinated liens on collateral securing loans that our funds make to their investee companies may be subject to control by senior creditors with first priority liens and, if there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and our funds;

• there may be circumstances where our funds’ debt investments could be subordinated to claims of other creditors or our funds could be subject to lender liability claims;

• our funds may not have the resources or ability to make additional investments in our investee companies;

• economic recessions or downturns could impair our investee companies and harm our operating results;

• a covenant breach by our investee companies may harm our operating results;

• the investment management business is competitive;

• our funds operate in a competitive market for lending that has recently intensified, and competition may limit our funds’ ability to originate or acquire desirable loans and investments and could also affect the yields of these assets and have a material adverse effect on our business, results of operations and financial condition;

• dependence on leverage by certain of our funds and by our funds’ investee companies subjects us to volatility and contractions in the debt financing markets and could adversely affect our ability to achieve attractive rates of return on those investments;

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• some of our funds may invest in companies that are highly leveraged, which may increase the risk of loss associated with those investments;

• we generally do not control the business operations of our investee companies and, due to the illiquid nature of our investments, may not be able to dispose of such investments;

• a substantial portion of our investments may be recorded at fair value as determined in good faith by or under the direction of our respective funds’ boards of directors or similar bodies and, as a result, there may be uncertainty regarding the value of our funds’ investments;

• we may need to pay “clawback” obligations if and when they are triggered under the governing agreements with respect to certain of our funds and SMAs;

• our funds may face risks relating to undiversified investments;

• third-party investors in our private funds may not satisfy their contractual obligation to fund capital calls when requested, which could adversely affect a fund’s operations and performance;

• our funds may be forced to dispose of investments at a disadvantageous time;

• hedging strategies may adversely affect the returns on our funds’ investments;

• our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, we would be unable to collect management fees or deploy such capital into investments, which would materially and adversely affect our business, results of operations and financial condition;

• we depend on our senior management team, senior investment professionals and other key personnel, and our ability to retain them and attract additional qualified personnel is critical to our success and our growth prospects;

• our failure to appropriately address conflicts of interest could damage our reputation and adversely affect our business;

• potential conflicts of interest may arise between our Class A common stockholders and our fund investors;

• rapid growth of our business may be difficult to sustain and may place significant demands on our administrative, operational and financial resources;

• we may enter into new lines of business and expand into new investment strategies, geographic markets and business, each of which may result in additional risks and uncertainties in our business;

• extensive regulation affects our activities, increases the cost of doing business and creates the potential for significant liabilities and penalties that could adversely affect our business and results of operations;

• failure to comply with “pay to play” regulations implemented by the SEC and certain states, and changes to the “pay to play” regulatory regimes, could adversely affect our business;

• new or changed laws or regulations governing our funds’ operations and changes in the interpretation thereof could adversely affect our business;

• present and future business development companies for which we serve as investment adviser are subject to regulatory complexities that limit the way in which they do business and may subject them to a higher level of regulatory scrutiny;

• we are subject to risks in using custodians, counterparties, administrators and other agents;

• a portion of our revenue and cash flow is variable, which may impact our ability to achieve steady earnings growth on a quarterly basis and may cause the price of our Class A common stock to decline;

• we may be subject to litigation risks and may face liabilities and damage to our professional reputation as a result;

• employee misconduct could harm us by impairing our ability to attract and retain investors and subjecting us to significant legal liability, regulatory scrutiny and reputational harm, and fraud and other deceptive practices or other misconduct at our investee companies could similarly subject us to liability and reputational damage and also harm our business;

• our substantial indebtedness could adversely affect our financial condition, our ability to pay our debts or raise additional capital to fund our operations, our ability to operate our business and our ability to react to changes in the economy or our industry and could divert our cash flow from operations for debt payments;

• servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends on many factors, some of which are not within our control;

ii

• despite our current level of indebtedness, we may be able to incur substantially more debt and enter into other transactions, which could further exacerbate the risks to our financial condition;

• operational risks may disrupt our business, result in losses or limit our growth;

• Medley Management Inc.’s only material asset is its interest in Medley LLC, and it is accordingly dependent upon distributions from Medley LLC to pay taxes, make payments under the tax receivable agreement or pay dividends;

• Medley Management Inc. is controlled by our pre-IPO owners, whose interests may differ from those of our public stockholders;

• Medley Management Inc. will be required to pay exchanging holders of LLC Units for most of the benefits relating to any additional tax depreciation or amortization deductions that we may claim as a result of the tax basis step-up we receive in connection with sales or exchanges of LLC Units and related transactions;

• in certain cases, payments under the tax receivable agreement may be accelerated and/or significantly exceed the actual benefits Medley Management Inc. realizes in respect of the tax attributes subject to the tax receivable agreement;

• anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition attempts for us that you might consider favorable; and

• our ability to realize anticipated cost savings and efficiencies from consolidating our business activities to our New York office.

This quarterly report on Form 10-Q also includes “forward-looking” statements regarding the proposed transactions. Because forward-looking statements, such as the date that the parties expect the proposed transactions to be completed and the expectation that the proposed transactions will provide improved liquidity for Sierra, MCC, and the Company’s stockholders and will be accretive to net investment income for both Sierra and MCC, include risks and uncertainties, actual results may differ materially from those expressed or implied and include, but are not limited to, those discussed in each of Sierra’s, MCC’s and the Company’s filings with the SEC, and (i) the satisfaction or waiver of closing conditions relating to the proposed transactions described herein, including, but not limited to, the requisite approvals of the stockholders of each of Sierra, MCC, and the Company; Sierra successfully taking all actions reasonably required with respect to certain outstanding indebtedness of MCC and the Company to prevent any material adverse effect relating thereto; certain required approvals of the SEC (including necessary exemptive relief to consummate the merger transactions), approval by the Court of Chancery of the State of Delaware of the Stipulation of Settlement in connection with the consolidated actions under caption of In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM, the necessary consents of certain third-party advisory clients of the Company; and any applicable waiting period (and any extension thereof) applicable to the transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or been terminated; (ii) the parties’ ability to successfully consummate the proposed transactions, and the timing thereof; (iii) the results of the go-shop process that will be conducted by MCC’s special committee; and (iv) the possibility that competing offers or acquisition proposals related to the proposed transactions will be made and, if made, could be successful. Additional risks and uncertainties specific to Sierra, MCC and the Company include, but are not limited to, (i) the costs and expenses that Sierra, MCC and the Company have, and may incur, in connection with the proposed transactions (whether or not they are consummated); (ii) the impact that any litigation relating to the proposed transactions may have on any of Sierra, MCC and the Company; (iii) that projections with respect to distributions may prove to be incorrect; (iv) Sierra’s ability to invest its portfolio of cash in a timely manner following the closing of the proposed transactions; (v) the market performance of the combined portfolio; (vi) the ability of portfolio companies to pay interest and principal in the future; (vii) the ability of the Company to grow its fee earning assets under management; (viii) whether Sierra, as the surviving company, will trade with more volume and perform better than MCC and the Company prior to the proposed transactions; and (ix) negative effects of entering into the proposed transactions on the trading volume and market price of the MCC’s or the Company’s common stock. There can be no assurance of the level of any distributions to be paid, if any, following consummation of the proposed transactions.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Form 10-Q, the risk factors and other cautionary statements in our Annual Report on Form 10-K for the year ended December 31, 2018 and other reports we file with the Securities and Exchange Commission. Forward-looking statements speak as of the date on which they are made, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. 

Unless the context suggests otherwise, references herein to the “Company,” “Medley,” "MDLY," “we,” “us” and “our” refer to Medley Management Inc., Medley LLC, and their consolidated subsidiaries.

The “pre-IPO owners” refers to the senior professionals who were the owners of Medley LLC immediately prior to the Offering Transactions. The “Offering Transactions” refer to Medley Management Inc.’s purchase upon the consummation of its

iii

IPO of 6,000,000 newly issued limited liability company units (the “LLC Units”) from Medley LLC, which correspondingly diluted the ownership interests of the pre-IPO owners in Medley LLC and resulted in Medley Management Inc.’s holding a number of LLC Units in Medley LLC equal to the number of shares of Class A common stock it issued in its IPO.

Unless the context suggests otherwise, references herein to:

• “Aspect” refers to Aspect-Medley Investment Platform A LP;

• “Aspect B” refers to Aspect-Medley Investment Platform B LP;

• “AUM” refers to the assets of our funds, which represents the sum of the NAV of such funds, the drawn and undrawn debt (at the fund level, including amounts subject to restrictions) and uncalled committed capital (including commitments to funds that have yet to commence their investment periods);

• “base management fees” refers to fees we earn for advisory services provided to our funds, which are generally based on a defined percentage of fee earning AUM or, in certain cases, a percentage of originated assets in the case of certain of our SMAs;

• “BDC” refers to business development company;

• "Caddo" refers to Caddo Investors Holdings 1 LLC;

• “Consolidated Funds” refers to, with respect to periods after December 31, 2013 and before January 1, 2015, MOF II, with respect to periods prior to January 1, 2014, MOF I LP, MOF II and MOF III, subsequent to its formation; and, with respect to periods after May 31, 2017, Sierra Total Return Fund, subsequent to its formation.

• “fee earning AUM” refers to the assets under management on which we directly earn base management fees;

• “hurdle rates” refers to the rates above which we earn performance fees, as defined in the long-dated private funds’ and SMAs’ applicable investment management or partnership agreements;

• “investee company” refers to a company to which one of our funds lends money or in which one of our funds otherwise makes an investment;

• “long-dated private funds” refers to MOF II, MOF III, MOF III Offshore, MCOF, Aspect, Aspect B and any other private funds we may manage in the future;

• “management fees” refers to base management fees, other management fees and Part I incentive fees;

• “MCOF” refers to Medley Credit Opportunity Fund LP;

• “MDLY” refers to Medley Management Inc.;

• “Medley LLC” refers to Medley LLC and its consolidated subsidiaries;

• “MOF II” refers to Medley Opportunity Fund II LP;

• “MOF III” refers to Medley Opportunity Fund III LP;

• "MOF III Offshore" refers to Medley Opportunity Fund Offshore III LP;

• “our funds” refers to the funds, alternative asset companies and other entities and accounts that are managed or co-managed by us and our affiliates;

• “our investors” refers to the investors in our permanent capital vehicles, our private funds and our SMAs;

• “Part I incentive fees” refers to fees that we receive from our permanent capital vehicles, and since 2017, MCOF and Aspect, which are paid in cash quarterly and are driven primarily by net interest income on senior secured loans subject to hurdle rates. As it relates to Medley Capital Corporation (NYSE: MCC) (TASE:MCC) (“MCC”), these fees are subject to netting against realized and unrealized losses;

• “Part II incentive fees” refers to fees related to realized capital gains in our permanent capital vehicles;

• “performance fees” refers to incentive allocations in our long-dated private funds and incentive fees from our SMAs, which are typically 15% to 20% of the total return after a hurdle rate, accrued quarterly, but paid after the return of all invested capital and in an amount sufficient to achieve the hurdle rate;

• “permanent capital” refers to capital of funds that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital, except as required by applicable law, which funds

iv

currently consist of MCC, Sierra Total Return Fund ("STRF") and Sierra Income Corporation (“SIC” or "Sierra"). Such funds may be required, or elect, to return all or a portion of capital gains and investment income. In certain circumstances, the investment adviser of such a fund may be removed;

• “SMA” refers to a separately managed account;

• "standalone" refers to our financial results without the consolidation of any fund(s); and

• "Tac Ops" refers to Medley Tactical Opportunities LLC.

v

PART I.

Item 1. Financial Statements (Unaudited)

Medley Management Inc.

Condensed Consolidated Balance Sheets (unaudited)

(Amounts in thousands, except share and per share amounts)

	As of
	June 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	10,211		$	17,219
Investments, at fair value	33,575			36,425
Management fees receivable	9,226			10,274
Right-of-use assets under operating leases	7,418			—
Other assets	15,159			14,298
Total Assets	$	75,589		$	78,216
Liabilities, Redeemable Non-controlling Interests and Equity
Liabilities
Senior unsecured debt, net	$	117,999		$	117,618
Loans payable, net	10,000			9,892
Due to former minority interest holder, net	9,301			11,402
Operating lease liabilities	9,267			—
Accounts payable, accrued expenses and other liabilities	19,036			26,739
Total Liabilities	165,603			165,651
Commitments and Contingencies (Note 12)
Redeemable Non-controlling Interests	19,577			23,186
Equity
Class A common stock, $0.01 par value, 3,000,000,000 shares authorized;5,870,821 and 5,701,008 issued and outstanding as of June 30, 2019 and December 31, 2018, respectively	59			57
Class B common stock, $0.01 par value, 1,000,000 shares authorized; 100 shares issued and outstanding	—			—
Additional paid in capital	10,434			7,529
Accumulated deficit	(19,812		)	(19,618		)
Total stockholders' deficit, Medley Management Inc.	(9,319		)	(12,032		)
Non-controlling interests in consolidated subsidiaries	(416		)	(747		)
Non-controlling interests in Medley LLC	(99,856		)	(97,842		)
Total deficit	(109,591		)	(110,621		)
Total Liabilities, Redeemable Non-controlling Interests and Equity	$	75,589		$	78,216

See accompanying notes to condensed consolidated financial statements

F- 1

Medley Management Inc.

Condensed Consolidated Statements of Operations (unaudited)

(in thousands, except share and per share amounts)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Revenues
Management fees (there were no Part I incentive fees recognized for each of the three and six months ended June 30, 2019 and 2018)	$	10,208		$	11,965		$	21,121		$	24,050
Other revenues and fees	2,669			3,038			5,110			5,367
Investment income:
Carried interest	441			432			793			597
Other investment loss, net	(436		)	(284		)	(373		)	(467		)
Total Revenues	12,882			15,151			26,651			29,547
Expenses
Compensation and benefits	6,958			7,307			14,979			15,638
General, administrative and other expenses	4,106			4,342			7,360			8,851
Total Expenses	11,064			11,649			22,339			24,489
Other Income (Expenses)
Dividend income	188			960			760			2,389
Interest expense	(2,874		)	(2,715		)	(5,772		)	(5,396		)
Other expenses, net	(5,980		)	(4,011		)	(2,409		)	(13,766		)
Total other expenses, net	(8,666		)	(5,766		)	(7,421		)	(16,773		)
Loss before income taxes	(6,848		)	(2,264		)	(3,109		)	(11,715		)
(Benefit from) provision for income taxes	(70		)	195			(93		)	385
Net Loss	(6,778		)	(2,459		)	(3,016		)	(12,100		)
Net loss attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries	(5,674		)	(2,464		)	(1,479		)	(6,978		)
Net (loss) income attributable to non-controlling interests in Medley LLC	(921		)	133			(1,282		)	(3,766		)
Net Loss Attributable to Medley Management Inc.	$	(183	)	$	(128	)	$	(255	)	$	(1,356	)
Dividends declared per share of Class A common stock	$	—		$	0.20		$	0.03		$	0.40
Net Loss Per Share of Class A Common Stock:
Basic (Note 14)	$	(0.03	)	$	(0.08	)	$	(0.04	)	$	(0.34	)
Diluted (Note 14)	$	(0.03	)	$	(0.08	)	$	(0.04	)	$	(0.34	)
Weighted average shares outstanding - Basic and Diluted	5,847,883			5,543,802			5,801,531			5,513,719

See accompanying notes to condensed consolidated financial statements

F- 2

Medley Management Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in thousands, except share and per share amounts)

For the Three Months Ended June 30, 2019

	Class A Common Stock			Class B Common Stock			Additional Paid in Capital			Accumulated Deficit			Non- controlling Interests in Consolidated Subsidiaries			Non- controlling Interests in Medley LLC			Total Deficit
	Shares	Dollars		Shares	Dollars
Balance at March 31, 2019	5,817,298	$	58	100	$	—	$	8,999		$	(19,734	)	$	(502	)	$	(98,203	)	$	(109,382	)
Net (loss) income	—	—		—	—		—			(183		)	309			(921		)	(795		)
Stock-based compensation	—	—		—	—		1,436			—			—			—			1,436
Dividend equivalent payments made to holders of restricted stock units ($0.03 per restricted stock unit)	—	—		—	—		—			(64		)	—			—			(64		)
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	—	—		—	—		—			169			—			—			169
Distributions	—	—		—	—		—			—			(223		)	(732		)	(955		)
Issuance of Class A common stock related to vesting of restricted stock units	53,523	1		—	—		(1		)	—			—			—			—
Balance at June 30, 2019	5,870,821	$	59	100	$	—	$	10,434		$	(19,812	)	$	(416	)	$	(99,856	)	$	(109,591	)

For the Six Months Ended June 30, 2019

	Class A Common Stock			Class B Common Stock			Additional Paid in Capital			Accumulated Deficit			Non- controlling Interests in Consolidated Subsidiaries			Non- controlling Interests in Medley LLC			Total Deficit
	Shares	Dollars		Shares	Dollars
Balance at December 31, 2018	5,701,008	$	57	100	$	—	$	7,529		$	(19,618	)	$	(747	)	$	(97,842	)	$	(110,621	)
Net (loss) income	—	—		—	—		—			(255		)	554			(1,282		)	(983		)
Stock-based compensation	—	—		—	—		3,222			—			—			—			3,222
Dividends declared and paid on Class A common stock ($0.03 per share) and dividend equivalent payments made to holders of restricted stock units ($0.03 per restricted stock unit)	—	—		—	—		—			(238		)	—			—			(238		)
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	—	—		—	—		—			299			—			—			299
Distributions	—	—		—	—		—			—			(223		)	(732		)	(955		)
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings	169,813	2		—	—		(317		)	—			—			—			(315		)
Balance at June 30, 2019	5,870,821	$	59	100	$	—	$	10,434		$	(19,812	)	$	(416	)	$	(99,856	)	$	(109,591	)

See accompanying notes to condensed consolidated financial statements

F- 3

Medley Management Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in thousands, except share and per share amounts)

For The Three Months Ended June 30, 2018

	Class A Common Stock			Class B Common Stock			Additional Paid in Capital			Accumulated Other Comprehensive Loss		Accumulated Deficit			Non- controlling Interests in Consolidated Subsidiaries			Non- controlling Interests in Medley LLC			Total Deficit
	Shares	Dollars		Shares	Dollars
Balance at March 31, 2018	5,495,343	$	55	100	$	—	$	3,805		$	—	$	(14,080	)	$	(1,644	)	$	(78,976	)	$	(90,840	)
Net (loss) income	—	—		—	—		—			—		(128		)	—			133			5
Stock-based compensation	—	—		—	—		1,598			—		—			—			—			1,598
Dividends on Class A common stock ($0.20 per share)	—	—		—	—		—			—		(1,469		)	—			—			(1,469		)
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	—	—		—	—		—			—		40			—			—			40
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings	67,628	1		—	—		(248		)	—		—			—			—			(247		)
Distributions	—	—		—	—		—			—		—			—			(5,560		)	(5,560		)
Balance at June 30, 2018	5,562,971	$	56	100	$	—	$	5,155		$	—	$	(15,637	)	$	(1,644	)	$	(84,403	)	$	(96,473	)

For The Six Months Ended June 30, 2018

	Class A Common Stock			Class B Common Stock			Additional Paid in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Non- controlling Interests in Consolidated Subsidiaries			Non- controlling Interests in Medley LLC			Total Deficit
	Shares	Dollars		Shares	Dollars
Balance at December 31, 2017	5,481,068	$	55	100	$	—	$	2,820		$	(1,301	)	$	(9,545	)	$	(1,702	)	$	(67,401	)	$	(77,074	)
Cumulative effect of accounting change due to the adoption of the new revenue recognition standard	—	—		—	—		—			—			(686		)	—			(2,905		)	(3,591		)
Cumulative effect of accounting change due to the adoption of updated guidance on equity securities not accounted for under the equity method of accounting and the tax effects stranded in other comprehensive loss as a result of tax reform	—	—		—	—		—			1,301			(1,301		)	—			—			—
Net loss	—	—		—	—		—			—			(1,356		)	—			(3,766		)	(5,122		)
Stock-based compensation	—	—		—	—		2,644			—			—			—			—			2,644
Dividends on Class A common stock ($0.20 per share)	—	—		—	—		—			—			(2,814		)	—			—			(2,814		)
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	—	—		—	—		—			—			65			—			—			65
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings	81,903	1		—	—		(309		)	—			—			—			—			(308		)
Distributions	—	—		—	—		—			—			—			—			(10,331		)	(10,331		)
Contributions	—	—		—	—		—			—			—			2			—			2
Issuance of non-controlling interest at fair value	—	—		—	—		—			—			—			56			—			56
Balance at June 30, 2018	5,562,971	$	56	100	$	—	$	5,155		$	—		$	(15,637	)	$	(1,644	)	$	(84,403	)	$	(96,473	)

See accompanying notes to condensed consolidated financial statements

F- 4

Medley Management Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	For the Six Months Ended June 30,
	2019			2018
Cash flows from operating activities
Net loss	$	(3,016	)	$	(12,100	)
Adjustments to reconcile net loss to net cash used in and provided by operating activities:
Stock-based compensation	3,222			2,644
Amortization of debt issuance costs	407			370
Accretion of debt discount	667			327
Provision for deferred taxes	346			1,221
Depreciation and amortization	352			434
Net change in unrealized depreciation on investments	2,762			14,014
Income from equity method investments	(521		)	(571		)
Reclassification of cumulative dividends paid on forfeited restricted stock units to compensation and benefits expense	299			65
Non-cash lease costs	1,215			—
Other non-cash amounts	—			56
Changes in operating assets and liabilities:
Management fees receivable	1,048			4,389
Distributions of income received from equity method investments	585			288
Purchase of investments	(866		)	(244		)
Sale of investments	792			290
Other assets	(1,646		)	194
Operating lease liabilities	(1,361		)	—
Accounts payable, accrued expenses and other liabilities	(5,654		)	(3,521		)
Net cash (used in) provided by operating activities	(1,369		)	7,856
Cash flows from investing activities
Purchases of fixed assets	(28		)	—
Distributions received from investment held at cost less impairment	101			—
Capital contributions to equity method investments	(3		)	(1,504		)
Net cash provided by (used in) investing activities	70			(1,504		)
Cash flows from financing activities
Payments to former minority interest holder	(2,625		)	—
Capital contributions from non-controlling interests	—			2
Distributions to non-controlling interests and redeemable non-controlling interests	(2,531		)	(14,697		)
Dividends paid	(238		)	(2,814		)
Payments of tax withholdings related to net share settlement of restricted stock units	(315		)	(308		)
Net cash used in financing activities	(5,709		)	(17,817		)
Net decrease in cash and cash equivalents	(7,008		)	(11,465		)
Cash and cash equivalents, beginning of period	17,219			36,327
Cash and cash equivalents, end of period	$	10,211		$	24,862

See accompanying notes to condensed consolidated financial statements

F- 5

Medley Management Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	For the Six Months Ended June 30,
	2019		2018
Supplemental disclosure of non-cash investing and financing activities
Recognition of right-of-use assets under operating leases upon adoption of new leasing standard	$	8,233	$	—
Recognition of operating lease liabilities offset against right-of-use assets under operating leases upon adoption of new leasing standard	10,229		—
Accretion of operating lease liabilities recorded against right-of-use assets	400		—
Net deferred tax impact on cumulative effect of accounting change due to the adoption of the new revenue recognition standard	—		(125		)
Reclassification of the income tax impact on cumulative effect of accounting change due to the adoption of accounting standards update 2016-01	—		649
Reclassification of the income tax impact of the Tax Cuts and Jobs Act on items within accumulated other comprehensive loss to retained earnings due to the early adoption of accounting standards update 2018-02	—		207
Issuance of non-controlling interest at fair value	—		56

See accompanying notes to condensed consolidated financial statements

F- 6

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Medley Management Inc. is an alternative asset management firm offering yield solutions to retail and institutional investors. The Company's national direct origination franchise provides capital to the middle market in the United States of America. Medley Management Inc., through its consolidated subsidiary, Medley LLC, provides investment management services to permanent capital vehicles, long-dated private funds and separately managed accounts and serves as the general partner to the private funds, which are generally organized as pass-through entities. Medley LLC is headquartered in New York City.

The Company’s business is currently comprised of only one reportable segment, the investment management segment, and substantially all of the Company operations are conducted through this segment. The investment management segment provides investment management services to permanent capital vehicles, long-dated private funds and separately managed accounts. The Company conducts its investment management business in the U.S., where substantially all its revenues are generated.

Initial Public Offering of Medley Management Inc.

Medley Management Inc. (“MDLY”) was incorporated on June 13, 2014 and commenced operations on September 29, 2014 upon the completion of its initial public offering (“IPO”) of its Class A common stock. Medley Management Inc. raised $100.4 million, net of underwriting discount, through the issuance of 6,000,000 shares of Class A common stock at an offering price to the public of $18.00 per share. Medley Management Inc. used the offering proceeds to purchase 6,000,000 newly issued LLC Units (defined below) from Medley LLC. Prior to the IPO, Medley Management Inc. had not engaged in any business or other activities except in connection with its formation and IPO.

In connection with the IPO, Medley Management Inc. issued 100 shares of Class B common stock to Medley Group LLC (“Medley Group”), an entity wholly owned by the pre-IPO members of Medley LLC. For as long as the pre-IPO members and then-current Medley personnel hold at least 10% of the aggregate number of shares of Class A common stock and LLC Units (defined below) (excluding those LLC Units held by Medley Management Inc.) then outstanding, the Class B common stock entitles Medley Group to a number of votes that is equal to 10 times the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to 10 times the number of membership units held by such holder. The Class B common stock does not participate in dividends and does not have any liquidation rights.

Medley LLC Reorganization

In connection with the IPO, Medley LLC amended and restated its limited liability agreement to modify its capital structure by reclassifying the 23,333,333 interests held by the pre-IPO members into a single new class of units (“LLC Units”). The pre-IPO members also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, subject to the terms of an exchange agreement, to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. In addition, pursuant to the amended and restated limited liability agreement, Medley Management Inc. became the sole managing member of Medley LLC.

The pre-IPO owners were, subject to limited exceptions, prohibited from transferring any LLC Units held by them or any shares of Class A common stock received upon exchange of such LLC Units, until September 29, 2017, which was the third anniversary of the date of the closing of the IPO, without the Company’s consent. Thereafter and prior to the fourth and fifth anniversaries of the closing of the IPO, such holders may not transfer more than 33 1/3% and 66 2/3%, respectively, of the number of LLC Units held by them, together with the number of any shares of Class A common stock received by them upon exchange therefore, without the Company’s consent.

Agreement and Plan of Merger

On August 9, 2018 MDLY entered into a definitive Agreement and Plan of Merger with Sierra Income Corporation (“Sierra”), pursuant to which MDLY would have merged with and into Sierra Management Inc., a Delaware corporation and a wholly owned subsidiary of Sierra (“Merger Sub”), and MDLY’s existing asset management business would have continued to operate as a wholly owned subsidiary of Sierra. MDLY's Class A stockholders would have received 0.3836 shares of Sierra’s common stock, $3.44 per share of cash consideration and $0.65 per share in special cash dividends for each share of Class A common stock held by them. Medley LLC unitholders would have converted their LLC Units into shares of Class A common stock and would have received 0.3836 shares of Sierra’s common stock, $3.44 per share of cash consideration and $0.35 per share in a special cash dividend for each share of Class A common stock held by them.

F- 7

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Simultaneously, pursuant to the Agreement and Plan of Merger by and between Medley Capital Corporation, a Delaware corporation (“MCC”) and Sierra, a Maryland corporation, MCC would merge with and into Sierra, with Sierra as the surviving entity. MCC shareholders would receive 0.805 shares of the Sierra’s common stock for each share of MCC common stock they hold.

On February 11, 2019, a putative stockholder class action related to the MCC Merger was commenced in the Court of Chancery of the State of Delaware by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd (collectively, "FrontFour"). The action, as consolidated, is captioned in re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM (the "Class Action"). The complaint alleged that MCC’s directors (Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, and Arthur S. Ainsberg) breached their fiduciary duties to MCC stockholders in connection with the MCC Merger, and that MDLY, Sierra, MCC Advisors LLC, Medley Group LLC, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. On March 11, 2019, following a two-day trial, the Court issued a Memorandum Opinion (the "Decision") denying FrontFour’s requests to (i) permanently enjoin the MCC Merger and (ii) require MCC to conduct a shopping process for MCC on terms proposed by FrontFour in its complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the MCC Merger, but rejected FrontFour’s claim that Sierra aided and abetted those breaches of fiduciary duties. The Court ordered defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC stockholders on the MCC Merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information.

On April 15, 2019, certain parties in the Class Action reached agreement on the principal terms of a settlement, which were contained in a term sheet, dated April 15, 2019 (the "Settlement Term Sheet"), among Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MCC, MCC Advisors LLC, Medley LLC, and Medley Group LLC (the "Medley Parties"), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand.

In connection with the Settlement Term Sheet and in exchange and consideration for the release of MDLY by the Plaintiffs and the Class (each as defined in the Settlement Term Sheet), MDLY entered into an acknowledgment and agreement (the "Acknowledgment") pursuant to which Medley agreed to certain actions and undertakings that are described in greater detail in the Settlement Term Sheet including, among other matters: (i) agreeing to participate and cooperate in the discussions and efforts to amend certain provisions of the Merger Agreements, (ii) agreeing to consent to amendments to the MCC Merger Agreement relating to the creation of go shop process to solicit superior transactions to the MCC Merger, if and when presented to MDLY by Sierra and MCC and (iii) agreeing to amendments to the MDLY Merger Agreement, and, if and when presented to MDLY by Sierra and MCC, agreeing to consent to amendments to the MCC Merger Agreement, to extend the outside date in the Merger Agreements to October 31, 2019 and to modify the merger consideration payment mechanics contained therein to provide for the creation of a settlement fund, consisting of $17 million in cash and $30 million of Sierra stock, which amount defendants in the Class Action (other than MDLY) will cause to be contributed to the fund, and distributed to eligible members of the Class, after certain deductions, following the closing of the MCC Merger and in accordance with the terms of the Settlement Stipulation (as defined in the Settlement Term Sheet). Pursuant to, and in accordance with the terms and conditions of, the Acknowledgment, MDLY has also undertaken to work in good faith to agree to supplemental disclosures relating to the Mergers consistent with the decision in connection with the Class Action, as well as to use reasonable efforts to obtain exemptive relief from the SEC to allow for the consummation of the Mergers.

On July 29, 2019, MDLY entered into an Amended and Restated Agreement Plan of Merger with Sierra, pursuant to which MDLY will merge with and into Merger Sub, and MDLY’s existing asset management business will continue to operate as a wholly owned subsidiary of Sierra. MDLY's Class A stockholders will receive 0.2668 shares of Sierra’s common stock and $2.96 per share of cash consideration. The pre-IPO members will convert their LLC Units into shares of Class A common stock and will receive 0.2072 shares of Sierra’s common stock and $2.66 per share of cash consideration. In addition, the Class B common stock issued and outstanding prior to the effective date of the merger will be canceled and cease to exist with no consideration being delivered for such shares. The merger is subject to approval by Sierra and MDLY stockholders, regulatory approval, other customary closing conditions and third party consents.

Simultaneously, pursuant to the Amended and Restated Plan of Merger by and between MCC and Sierra, MCC will merge with and into Sierra, with Sierra as the surviving entity. MCC shareholders will receive 0.66 to 0.68 shares of Sierra’s common stock for each share of MCC common stock they hold; the actual exchange ratio will be determined prior to closing and will be subject to adjustment for certain potential costs associated with the transactions. In addition, upon closing, the eligible class members will participate pro rata in the aforementioned settlement fund consisting of $17 million of cash and $30 million of Sierra common stock. The MDLY and Sierra merger is not contingent upon the consummation of the MCC merger.

F- 8

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Transaction expenses related to the pending merger are included in general, administrative and other expenses and primarily consist of professional fees. Such expenses amounted to $1.1 million and $0.9 million for the three months ended June 30, 2019 and 2018, respectively, and $1.4 million and $1.8 million for the six months ended June 30, 2019 and 2018, respectively.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of Medley Management Inc., Medley LLC and its consolidated subsidiaries (collectively, “Medley” or the “Company”). Additionally, the accompanying condensed consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with U.S. GAAP may be omitted. In the opinion of management, the unaudited condensed consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. Therefore, this Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The current period's results of operations will not necessarily be indicative of results that ultimately may be achieved for any future interim period or the full year ending December 31, 2019.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

In accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, the Company consolidates those entities where it has a direct and indirect controlling financial interest based on either a variable interest model or voting interest model. As such, the Company consolidates entities that the Company concludes are variable interest entities (“VIEs”), for which the Company is deemed to be the primary beneficiary and entities in which it holds a majority voting interest or has majority ownership and control over the operational, financial and investing decisions of that entity.

For legal entities evaluated for consolidation, the Company must determine whether the interests that it holds and fees paid to it qualify as a variable interest in an entity. This includes an evaluation of the management fee and performance fee paid to the Company when acting as a decision maker or service provider to the entity being evaluated. If fees received by the Company are customary and commensurate with the level of services provided, and the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, the interest that the Company holds would not be considered a variable interest. The Company factors in all economic interests including proportionate interests through related parties, to determine if fees are considered a variable interest.

An entity in which the Company holds a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk have the right to direct the activities of the entity that most significantly impact the legal entity’s economic performance, or (c) the voting rights of some investors are disproportionate to their obligation to absorb losses or rights to receive returns from a legal entity. For limited partnerships and other similar entities, non-controlling investors must have substantive rights to either dissolve the fund or remove the general partner (“kick-out rights”) in order to not qualify as a VIE.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE. The Company is generally deemed to have a controlling financial interest if it has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion continuously. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These assessments require judgment. Each entity is assessed for consolidation on a case-by-case basis. 

For those entities evaluated under the voting interest model, the Company consolidates the entity if it has a controlling financial interest. The Company has a controlling financial interest in a voting interest entity (“VOE”) if it owns a majority voting interest in the entity.

F- 9

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Consolidated Variable Interest Entities

Medley Management Inc. is the sole managing member of Medley LLC and, as such, it operates and controls all of the business and affairs of Medley LLC and, through Medley LLC, conducts its business. Under ASC 810, Medley LLC meets the definition of a VIE because the equity of Medley LLC is not sufficient to permit business activities without additional subordinated financial support. Medley Management Inc. has the obligation to absorb expected losses that could be significant to Medley LLC and holds 100% of the voting power, therefore Medley Management Inc. is considered to be the primary beneficiary of Medley LLC.

As a result, Medley Management Inc. consolidates the financial results of Medley LLC and its subsidiaries and records a non-controlling interest for the economic interest in Medley LLC held by the non-managing members. As of June 30, 2019, Medley Management Inc.’s and the non-managing members’ economic interests in Medley LLC were 18.4% and 81.6%, respectively, and as of December 31, 2018, were 18.9% and 81.1%, respectively. Net (loss) income attributable to the non-controlling interests in Medley LLC on the consolidated statements of operations represents the portion of earnings or losses attributable to the economic interest in Medley LLC held by its non-managing members. Non-controlling interests in Medley LLC on the consolidated balance sheets represents the portion of net assets of Medley LLC attributable to the non-managing members based on total LLC Units and participating restricted LLC Units of Medley LLC owned by such non-managing members.

As of June 30, 2019 and December 31, 2018, Medley LLC had three majority owned subsidiaries, Medley Seed Funding I LLC, Medley Seed Funding II LLC and STRF Advisors LLC, which are consolidated VIEs. Each of these entities was organized as a limited liability company and was legally formed to either manage a designated fund or to strategically invest capital as well as isolate business risk. As of June 30, 2019, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $18.3 million and less than $0.1 million, respectively. As of December 31, 2018, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $22.2 million and less than $0.1 million, respectively. Except to the extent of the assets of these VIEs that are consolidated, the holders of the consolidated VIEs’ liabilities generally do not have recourse to the Company.

Seed Investments

The Company accounts for seed investments through the application of the voting interest model under ASC 810-10-25-1 through 25-14 and consolidates a seed investment when the investment advisor holds a controlling interest, which is, in general, 50% or more of the equity in such investment. For seed investments in which the Company does not hold a controlling interest, the Company accounts for such seed investment under the equity method of accounting, at its ownership percentage of such seed investment’s net asset value.

The Company seed funded $2.1 million to Sierra Total Return Fund ("STRF"), which commenced investment operations in June 2017. As of and since inception through June 30, 2019, the Company owned 100% of the equity of STRF and, as such, consolidates STRF in its condensed consolidated financial statements.

The condensed balance sheet of STRF as of June 30, 2019 and December 31, 2018 is presented in the table below.

	As of
	June 30, 2019		December 31, 2018
Assets	(in thousands)
Cash and cash equivalents	$	310	$	274
Investments, at fair value	2,090		1,952
Other assets	295		248
Total assets	$	2,695	$	2,474
Liabilities and Equity
Accrued expenses and other liabilities	$	469	$	330
Equity	2,226		2,144
Total liabilities and equity	$	2,695	$	2,474

As of June 30, 2019, the Company's condensed consolidated balance sheet reflects the elimination of $0.1 million of other assets, $0.1 million of accrued expenses and other liabilities and $2.2 million of equity as a result of the consolidation of STRF. As of December 31, 2018, the Company's condensed consolidated balance sheet reflects the elimination of $0.2 million of other assets, $0.1 million of accrued expenses and other liabilities and $2.1 million of equity as a result of the consolidation of STRF.

F- 10

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

During the three and six months ended June 30, 2019 and 2018, this fund did not generate any significant income or losses from operations.

Non-Consolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated because the Company is not deemed the primary beneficiary. The Company's interest in these entities is in the form of insignificant equity interests and fee arrangements. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities.

As of June 30, 2019, the Company recorded investments, at fair value, attributed to these non-consolidated VIEs of $3.7 million, receivables of $1.7 million included as a component of other assets and a clawback obligation of $7.2 million included as a component of accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. As of December 31, 2018, the Company recorded investments, at fair value, attributed to non-consolidated VIEs of $4.2 million, receivables of $1.8 million included as a component of other assets and a clawback obligation of $7.2 million included as a component of accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. As of June 30, 2019, the Company’s maximum exposure to losses from these entities is $5.4 million.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management’s estimates are based on historical experience and other factors, including expectations of future events that management believes to be reasonable under the circumstances. These assumptions and estimates also require management to exercise judgment in the process of applying the Company’s accounting policies. Significant estimates and assumptions by management affect the carrying value of investments, performance compensation payable and certain accrued liabilities. Actual results could differ from these estimates, and such differences could be material.  

Non-Controlling Interests in Consolidated Subsidiaries

Non-controlling interests in consolidated subsidiaries represent the component of equity in such consolidated entities held by third-parties and certain employees. These interests are adjusted for contributions to and distributions from Medley entities and are allocated income or loss from Medley entities based on their ownership percentages. 

Redeemable Non-Controlling Interests

Redeemable non-controlling interests represents interests of certain third parties that are not mandatorily redeemable but redeemable for cash or other assets at a fixed or determinable price or a fixed or determinable date, at the option of the holder or upon the occurrence of an event that is not solely within the control of the Company. These interests are classified in the mezzanine section on the Company's condensed consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents include liquid investments in money market funds and demand deposits. The Company had cash balances with financial institutions in excess of Federal Deposit Insurance Corporation insured limits as of June 30, 2019 and December 31, 2018. The Company monitors the credit standing of these financial institutions and has not experienced, and has no expectations of experiencing, any losses with respect to such balances.

Investments

Investments include equity method investments that are not consolidated but over which the Company exerts significant influence. The Company measures the carrying value of its privately-held equity method investments by recording its share of the earnings or losses of its investee in the periods for which they are reported by the investee in the investee's financial statements rather than in the period in which an investee declares a dividend or distribution. For the Company's public non-traded equity method investment, it measures the carrying value of such investment at Net Asset Value ("NAV") per share. Unrealized appreciation (depreciation) resulting from changes in fair value of the equity method investments is reflected as a component of investment income in the condensed consolidated statements of operations along with the income and expense allocations from such investments.

The carrying amounts of equity method investments are reflected in Investments, at fair value in the consolidated balance sheets. As the underlying entities that the Company manages and invests in are, for U.S. GAAP purposes, primarily investment companies which reflect their investments at estimated fair value, the carrying value of the Company’s equity method investments in such entities approximates fair value. The Company evaluates its equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

F- 11

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

For presentation in its consolidated statements of cash flows, the Company treats distributions received from certain equity method investments using the cumulative earnings approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.

Investments also include publicly traded common stock. The Company measures the fair value of its publicly traded common stock at the quoted market price on the primary market or exchange on which the underlying shares trade. Any realized gains (losses) from the sale of investments and unrealized appreciation (depreciation) resulting from changes in fair value are recorded in other income (expense), net.

Investments of Consolidated Fund

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company's consolidated fund has categorized its investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 5. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. The consolidated fund weighs the use of third-party broker quotations, if any, in determining fair value based on management's understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the consolidated fund’s board of trustees based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.

 Revenues

Effective January 1, 2018, the Company recognizes revenue in accordance with ASC 606, Revenues from Contracts with Customers. The Company recognizes revenue under the core principle of depicting the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for such goods or services. To achieve this, the Company applies a five step approach: (1) identify the contract(s) with a customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when, or as, each performance obligation is satisfied.

Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Such fees represent a capital allocation to the general partner or investment manager and are accounted for under ASC 323, Investments - Equity Method and Joint Ventures. As such, these types of performance fees are not in the scope of ASC 606.

As a result of the adoption of this new revenue guidance, the Company recorded a cumulative effect decrease to equity of $3.6 million, net of benefit from income taxes of $0.1 million, as of January 1, 2018, which relates to (1) certain performance fee revenue that would not have met the “probable that significant reversal will not occur” criteria of $3.0 million and (2) the reversal of reimbursable fund formation costs which were deferred on the Company’s consolidated balance sheet of $0.7 million.

Management Fees

Medley provides investment management services to both public and private investment vehicles. Management fees include base management fees, other management fees, and Part I incentive fees, as described below.

Base management fees are calculated based on either (i) the average or ending gross assets balance for the relevant period, (ii) limited partners’ capital commitments to the funds, (iii) invested capital, (iv) NAV or (v) lower of cost or market value of a fund’s portfolio investments. Depending upon the contracted terms of the investment management agreement, management fees are paid either quarterly in advance or quarterly in arrears, and are recognized as earned over the period the services are provided. 

Certain management agreements provide for Medley to receive other management fee revenue derived from up front origination fees paid by the funds' and/or separately managed accounts' underlying portfolio companies. These fees are recognized when the Company becomes entitled to such fees.

Certain management agreements also provide for Medley to receive Part I incentive fee revenue derived from net investment income (excluding gains and losses) above a hurdle rate. As it relates to MCC, these fees are subject to netting against realized and unrealized losses. Part I incentive fees are paid quarterly and are recognized as earned in the period the services are provided.

F- 12

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Performance Fees

Performance fees are contractual fees which do not represent a capital allocation of income to the general partner or investment manager that are earned based on the performance of certain funds, typically, the Company’s separately managed accounts. Performance fees are earned based on the fund performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement.

Other Revenues and Fees

Medley provides administrative services to certain affiliated funds and is reimbursed for direct and allocated expenses incurred in providing such administrative services, as set forth in the respective underlying agreements. These fees are recognized as revenue in the period administrative services are rendered. Medley also acts as the administrative agent on certain deals for which Medley may earn loan administration fees and transaction fees. Medley may also earn consulting fees for providing non-advisory services related to its managed funds. These fees are recognized as revenue over the period to which the fees directly relate.

Investment Income (loss) - Carried Interest

Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents and are accounted for under the equity method of accounting. Accordingly, these performance fees are reflected as carried interest within investment income on the Company's consolidated statements of operations and balances due for such fees are included as a part of equity method investments within Investments, at fair value on the Company's consolidated balance sheets.

The Company records carried interest based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on the Company's condensed consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

Carried interest received in prior periods may be required to be returned by the Company in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. For the three and six months endedJune 30, 2019, the Company received a carried interest distribution of$0.3 millionfrom one of its managed funds with no clawback liability established. Prior to the distribution received during the three months endedJune 30, 2019, the Company had not received any carried interest distributions, except for tax distributions related to the Company’s allocation of net income, which included an allocation of carried interest. Pursuant to the organizational documents of each respective fund, a portion of these tax distributions may be subject to clawback. As of June 30, 2019 and December 31, 2018, the Company had accrued $7.2 million for clawback obligations that would need to be paid if the funds were liquidated at fair value as of the end of the reporting period. The Company’s actual obligation, however, would not become payable or realized until the end of a fund’s life.

During the three and six months ended June 30, 2019 and 2018, the Company's reversal of previously recognized carried interest was less than $0.1 million.

Investment Income (loss) - Other

Other investment income is comprised of unrealized appreciation (depreciation) resulting from changes in fair value of the Company's equity method investments in addition to the income and expense allocations from such investments.

Stock-based Compensation

Stock-based compensation expense relating to equity based awards are measured at fair value as of the grant date, reduced for actual forfeitures in the period they occur, and expensed over the requisite service period on a straight-line basis as a component of compensation and benefits on the Company's consolidated statements of operations.

F- 13

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires the recognition of tax benefits or expenses for temporary differences between the financial reporting and tax basis of assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company’s policy is to recognize interest and penalties on uncertain tax positions and other tax matters as a component of its provision for income taxes. For interim periods, the Company accounts for income taxes based on its estimate of the effective tax rate for the year. Discrete items and changes in its estimate of the annual effective tax rate are recorded in the period in which they occur.

Medley Management Inc. is subject to U.S. federal, state and local corporate income taxes on its allocable portion of the income of Medley LLC at prevailing corporate tax rates. Medley LLC and its subsidiaries are not subject to federal, state and local corporate income taxes since all income, gains and losses are passed through to its members. However, a portion of taxable income from Medley LLC and its subsidiaries are subject to New York City’s unincorporated business tax, which is included in the Company’s provision for income taxes.

The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established.

Reclassification of Prior Period Presentation

Performance fee compensation reported in the prior period has been reclassified to compensation and benefits to conform to the current period presentation in the condensed consolidated statements of operations. This reclassification had no effect on the reported results of operations.

Class A Earnings per Share

The Company computes and presents earnings per share using the two-class method. Under the two-class method, the Company allocates earnings between common stock and participating securities. The two-class method includes an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and undistributed earnings for the period. For purposes of calculating earnings per share, the Company reduces its reported net earnings by the amount allocated to participating securities to arrive at the earnings allocated to Class A common stockholders. Earnings are then divided by the weighted average number of Class A common stock outstanding to arrive at basic earnings per share. Diluted earnings per share reflects the potential dilution beyond shares for basic earnings per share that could occur if securities or other contracts to issue common stock were exercised, converted into common stock, or resulted in the issuance of common stock that would have shared in our earnings. Participating securities consist of the Company's unvested restricted stock units that contain non-forfeitable rights to dividend equivalent payments, whether paid or unpaid, in the number of shares outstanding in its basic and diluted calculations.

Recently Issued Accounting Pronouncements Adopted as of January 1, 2019

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase the transparency and comparability among organizations as it relates to lease assets and lease liabilities, by requiring lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months, with exceptions. Effective January 1, 2019, the Company adopted this guidance using a modified retrospective approach, which was required for all leases that exist at or commence after the date of the initial application with an option to use certain practical expedients. The Company has elected to use these practical expedients, which allow the Company to treat lease and non-lease components of its leases as a single component, have the ability to use hindsight in determining the lease term and assessing impairment of right-of-use assets, not to reassess lease classification or whether an arrangement is or contains a lease and not to reassess its initial accounting for direct lease costs.

The adoption of the new lease standard at January 1, 2019 resulted in the recognition of right-of-use assets and lease liabilities of $8.2 million and $10.2 million, respectively, consisting primarily of operating leases related to the rental of office space. The adoption of this guidance did not have a significant impact on the Company's consolidated statements of operations or cash flows. Additionally, this adoption did not impact any covenants associated with the Company's financial obligations.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements. This ASU is effective for fiscal years

F- 14

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. The adoption of this ASU is not expected to have a significant impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. The adoption of this ASU is not expected to have a significant impact on the Company's consolidated financial statements.    

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This ASU aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. It address when costs should be capitalized rather than expensed, the term to use when amortizing capitalized costs, and how to evaluate the unamortized portion of these capitalized implementation costs for impairment. This ASU also includes guidance on how to present implementation costs in the financial statements and creates additional disclosure requirements. The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. This ASU is effective for fiscal years beginning after December 31, 2019, including interim reporting within those fiscal years. Early adoption is permitted and can be applied either retrospectively or prospectively. The Company is currently evaluating the transition methods and the impact the adoption of this standard may have on its consolidated financial statements.

The Company does not believe any other recently issued, but not yet effective, revisions to authoritative guidance will have a material effect on its consolidated balance sheets, results of operations or cash flows.

3. REVENUES FROM CONTRACTS WITH CUSTOMERS

The majority of the Company's revenues are derived from investment management and advisory contracts that are accounted for in accordance with ASC 606.

Performance Obligations

Performance obligations are the unit of account under the revenue recognition standard and represent the distinct goods or services that are promised to the customer. The majority of the Company's contracts have a single performance obligation to provide asset management, advisory and other related services to permanent capital vehicles, long-dated private funds and separately managed accounts. The Company also has a separate performance obligation to act as an agent for certain third party lenders and provide loan administration services to certain borrowers. These loan administration services also represent a single performance obligation.

The Company primarily provides investment management services to a fund by managing the fund’s investments and maximizing returns on those investments. The Company’s asset management, advisory and other related services are transferred over time to the customer on a day-to-day basis. The contracts with each fund create a distinct performance obligation for each quarter the Company provides the promised services to the customer, from which the customer can benefit from each individual quarter of service. Furthermore, each quarter of the promised services is considered separately identifiable because there is no integration of the promised services between quarters, each quarter does not modify services provided prior to that quarter, and the services provided are not interdependent or interrelated. Most services provided to these funds are provided continuously over the contract period, so the services in the contract generally represent a single performance obligation comprising a series of distinct service periods. A contract’s transaction price is allocated to the series of distinct services that constitute a single performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The management fees earned by the Company are largely dependent on fluctuations in the market and, thus, the determination of such fees is highly susceptible to factors outside the Company's influence. Management fees typically have a large number and broad range of possible consideration amounts and historical experience is generally not indicative of future performance of the market. Hence, the Company is applying the exemption provided under the new revenue recognition guidance as the Company is unable to estimate the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied and the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.

F- 15

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Reimbursement of certain expenses incurred on behalf of the Company's funds are reported on a gross basis on the statements of operations if the Company is determined to be acting as the principal in those transactions.

Significant Judgments

The Company's contracts with customers generally include a single performance obligation to provide asset management, advisory and other related services on a quarterly basis. Revenues are recognized as such performance obligation is satisfied and the constraint on the management fees is lifted on a quarterly basis, hence, the Company does not need to exercise significant judgments in regards to management fees. Consideration for management fees is received on a quarterly basis as the performance obligations are satisfied.

With respect to performance fees based on the economic performance of its SMAs, significant judgment is required when determining recognition of revenues. Such judgments include:

• whether the fund is near final liquidation

• whether the fair value of the remaining assets in the fund is significantly in excess of the threshold at which the Company would earn an incentive fee

• the probability of significant fluctuations in the fair value of the remaining assets

• the SMA’s remaining investments are under contract for sale with contractual purchase prices that would result in no clawback and it is highly likely that the contracts will be consummated

As such, the Company will consider the above factors at each reporting period to determine whether there is an amount of the SMA performance fees which should be recognized as revenue because it is probable that there will not be a significant future revenue reversal, hence, the “constraint” on the performance fees has been lifted.

The Company accounts for performance fees which represent capital allocations to the general partner or investment manager pursuant to accounting rules relating to investments accounted for under the equity method of accounting. As such, these types of performance fees are not within the scope of the new revenue recognition standard and the above significant judgments and constraints do not apply to them. Refer to Note 2 “Summary of Significant Accounting Policies” and Note 4 "Investments" for additional information.

Revenue by Category

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and six months ended June 30, 2019:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
For the three months ended June 30, 2019:	(in thousands)
Management fees	$	7,021	$	1,710	$	1,477	$	—	$	10,208
Other revenues and fees	1,472		—		—		1,197		2,669
Total revenues from contracts with customers	$	8,493	$	1,710	$	1,477	$	1,197	$	12,877
For the six months ended June 30, 2019:
Management fees	$	14,550	$	3,570	$	3,001	$	—	$	21,121
Other revenues and fees	3,252		—		—		1,858		5,110
Total revenues from contracts with customers	$	17,802	$	3,570	$	3,001	$	1,858	$	26,231

F- 16

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and six months ended June 30, 2018:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
For the three months ended June 30, 2018:	(in thousands)
Management fees	$	8,374	$	1,983	$	1,608	$	—	$	11,965
Other revenues and fees	1,920		—		—		1,118		3,038
Total revenues from contracts with customers	$	10,294	$	1,983	$	1,608	$	1,118	$	15,003
For the six months ended June 30, 2018:
Management fees	$	16,767	$	4,043	$	3,240	$	—	$	24,050
Other revenues and fees	3,765		—		—		1,602		5,367
Total revenues from contracts with customers	$	20,532	$	4,043	$	3,240	$	1,602	$	29,417

The Other revenues and fees balances above primarily consist of: (i) revenues earned by Medley while serving as loan administrative agent on certain deals, including loan administration fees and transaction fees, (ii) reimbursable origination and deal expenses, (iii) reimbursable entity formation and organizational expenses and (iv) consulting fees for providing non-advisory services related to one of our managed funds.

The Company's asset management, advisory and other related services are transferred over time and the Company recognizes these revenues over time as well.

Contract Balances

For certain customers, the Company has a performance obligation to provide loan administration services. The timing of revenue recognition may differ from the timing of invoicing to such customers or receiving consideration. For the majority of these services cash deposits are received prior to the performance obligation being met. The performance obligation of acting as a loan administrator is satisfied over time, therefore, the Company defers any payments received upfront as deferred revenue and recognizes revenue on a pro-rata basis over time as the loan administrative services are performed.

These contract liabilities are reported as deferred revenue within accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheets and amounted to $0.2 million and $0.3 million as of June 30, 2019 and December 31, 2018, respectively. During the three months ended June 30, 2019 and 2018, the Company recognized revenue from amounts included in deferred revenue of $0.2 million for each of those periods, and received cash deposits of $0.1 million and $0.2 million, respectively. During the six months ended June 30, 2019 and 2018, the Company recognized revenue from amounts included in deferred revenue of $0.3 million for each of those periods, and received cash deposits of $0.2 million and $0.3 million, respectively.

The Company did not have any contract assets as of June 30, 2019 or December 31, 2018.

Assets Recognized for the Costs to Obtain or Fulfill a Contract

As part of providing investment management services to a fund, the Company might incur certain placement fees to third parties for obtaining new investors for the fund. Any placement fees incurred to third party placement agents for placing investors into a fund are variable as it is based on a percentage of future fees and cannot be reasonably estimated. The Company determined that placement fees which are paid in cash over time as fees are earned, do not relate to a new contract at the time the payment is made. These costs do not represent a cost to obtain a new contract but rather a cost to fulfill an existing contract. The Company does not recognize any assets for the incremental costs of obtaining or fulfilling a contract with a customer and expenses placement fees as incurred.

F- 17

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

4. INVESTMENTS

Investments consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Equity method investments, at fair value	$	13,018	$	13,422
Investment in shares of MCC, at fair value	18,151		20,633
Investment held at cost less impairment	316		418
Investments of consolidated fund	2,090		1,952
Total investments, at fair value	$	33,575	$	36,425

Equity Method Investments

Medley measures the carrying value of its public non-traded equity method investment in Sierra Income Corporation (“SIC” or "Sierra"), a related party, at NAV per share. Unrealized appreciation (depreciation) resulting from changes in NAV per share is reflected as a component of investment loss, net in the condensed consolidated statements of operations. The carrying value of the Company’s privately-held equity method investments is determined based on the amounts invested by the Company plus the equity in earnings or losses of the investee allocated based on the respective underlying agreements, less distributions received.

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. There were no impairment losses recorded during the three and six months ended June 30, 2019 and 2018.

The Company's equity method investment in shares of Sierra were $7.1 million and $7.4 million as of June 30, 2019 and December 31, 2018, respectively. The remaining balance as of June 30, 2019 and December 31, 2018 relates primarily to the Company’s investments in Medley Opportunity Fund II, LP ("MOF II"), Medley Opportunity Fund III LP (“MOF III”), Medley Opportunity Fund Offshore III LP (“MOF III Offshore”) and Aspect-Medley Investment Platform B LP ("Aspect B").

For performance fees earned which represent a capital allocation to the general partner or investment manager, the Company accounts for them under the equity method of accounting. As of June 30, 2019 and December 31, 2018, the balance due to the Company for such performance fees was $0.9 million and $0.4 million, respectively. Revenues associated with these performance fees are classified as carried interest within investment income on the Company's condensed consolidated statements of operations.

The entities in which the Company's investments are accounted for under the equity method are considered to be related parties.

Investments in shares of MCC, at fair value

As of June 30, 2019 and December 31, 2018, the Company held 7,756,938 shares of MCC which are carried at fair value based upon the quoted market price on the exchange on which the shares trade. During the three months ended June 30, 2019 and 2018, the Company recognized unrealized losses of $6.0 million and $4.0 million, respectively, which are included as a component of other income (expense), net on the Company’s condensed consolidated statements of operations. During the six months ended June 30, 2019 and 2018, the Company recognized unrealized losses of $2.5 million and $13.6 million, respectively, which are included as a component of other income expenses, net on the Company’s condensed consolidated statements of operations.

Investment Held at Cost Less Impairment

The Company measures its investment in CK Pearl at cost less impairment, adjusted for observable price changes for an identical or similar investment of the same issuer as well as any distributions received during the period. The carrying amount of this investment was $0.3 million and $0.4 million as of June 30, 2019 and December 31, 2018, respectively. The Company performs a quantitative and qualitative assessment at each reporting date to determine whether the investment is impaired and an impairment loss equal to the difference between the carrying value and fair value is recorded within other income (expenses), net on the Company's consolidated statement of operations if an impairment has been determined. There were no impairment losses recorded during the three and six months ended June 30, 2019 and 2018.

F- 18

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Investments of consolidated fund

Medley measures the carrying value of investments held by its consolidated fund at fair value. As of June 30, 2019, investments of consolidated fund consisted of $0.4 million of equity investments and $1.6 million of senior secured loans. As of December 31, 2018, investments of consolidated fund consisted of $0.4 million of equity investments and $1.6 million of senior secured loans. Refer to Note 5 "Fair Value Measurements" for additional information.

5. FAIR VALUE MEASUREMENTS

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy:

• Level I – Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level II – Valuations based on inputs other than quoted prices in active markets included in Level I, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

• Level III – Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets and liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level III information, assuming no additional corroborating evidence.

The following tables summarize the fair value hierarchy of the Company's financial assets measured at fair value:

	As of June 30, 2019
	Level I		Level II		Level III		Total
Assets	(in thousands)
Investments of consolidated fund	$	368	$	—	$	1,722	$	2,090
Investment in shares of MCC	18,151		—		—		18,151
Total Assets	$	18,519	$	—	$	1,722	$	20,241

	As of December 31, 2018
	Level I		Level II		Level III		Total
Assets	(in thousands)
Investments of consolidated fund	$	258	$	—	$	1,694	$	1,952
Investment in shares of MCC	20,633		—		—		20,633
Total Assets	$	20,891	$	—	$	1,694	$	22,585

F- 19

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Included in investments of consolidated fund as of June 30, 2019 are Level I assets of $0.4 million in equity investments and Level III assets of $1.7 million, which consists of senior secured loans and equity investments. Included in investments of consolidated fund as of December 31, 2018 are Level I assets of $0.3 million in equity investments and Level III assets of $1.7 million, which consists of senior secured loans and preferred equity investments. The significant unobservable inputs used in the fair value measurement of Level III assets of the consolidated fund's investments in senior secured loans include market yields. Significant increases or decreases in market yields in isolation would result in a significantly higher or lower fair value measurement. There were no significant unrealized gains or losses related to the investments of consolidated fund for each of the three and six months ended June 30, 2019 and 2018.

The following is a summary of changes in fair value of the Company's financial assets that have been categorized within Level III of the fair value hierarchy:

	Level III Financial Assets as of June 30, 2019
	Balance at December 31, 2018		Purchases	Transfers In or (Out) of Level III	Unrealized Appreciation/(Depreciation)	Sale of Level III Assets		Balance at June 30, 2019
	(in thousands)
Investments of consolidated fund	$	1,694	505	—	6	(483	)	$	1,722

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting all levels of the fair value hierarchy are reported as transfers in or out of Level I, II or III category as of the beginning of the quarter during which the reclassifications occur. There were no transfers between levels in the fair value hierarchy during the three and six months ended June 30, 2019.

When determining the fair value of publicly traded equity securities, the Company uses the quoted closing market price as of the valuation date on the primary market or exchange on which they trade. Our equity method investments for which fair value is measured at NAV per share, or its equivalent, using the practical expedient, are not categorized in the fair value hierarchy.

The Company's investments of consolidated fund are treated as investments at fair value and any realized and unrealized gains and losses from those investments are recorded through the condensed consolidated statement of operations. The Company's treatment is consistent with that of STRF, which is considered an investment company under ASC 946, Financial Services - Investment Companies, for standalone reporting purposes.

6. LEASES

On January 1, 2019, the company adopted ASC 842, Leases, under the modified retrospective method where any transition adjustments are recorded through a cumulative adjustment to retained earnings in the period of adoption. This new accounting standard requires a dual approach for lessee accounting whereby a lessee accounts for lease arrangements as either operating leases

or finance leases. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company has elected the transition relief package of practical expedients permitted within ASC 842. Accordingly, the Company has not reassessed the classification of its existing leases as of the transition date, whether existing contracts at the transition date contain a lease, or whether unamortized initial direct costs before the transition adjustments would have met the definition of initial direct costs at lease commencement. The Company also applied practical expedients to not separate lease and non-lease components for all new leases as well as leases commencing before the effective date if certain criteria are met, and does not record leases on its consolidated balance sheet with expected terms of twelve months or less. Upon adoption of ASC 842, the Company recognized $8.2 million of right-of-use assets under operating leases and operating lease liabilities of $10.2 million.

Under ASC 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and lease liabilities. Lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the expected lease terms. The Company’s expected lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, or specific characteristics unique to the particular lease that would make it reasonably certain that the Company would exercise such option. The Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company and thus not included in its right-of-use assets and operating lease liabilities. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the lease liability by using revised inputs as of the reassessment date, and adjust the underlying right-of-use asset.

Substantially all of the Company's operating leases are comprised of its office space in New York City and San Francisco which expire at various times through September 2023. The Company does not have any contracts that would be classified as a finance lease nor any operating leases that contain variable payments.

The components of lease cost and other information for the three and six months ended June 30, 2019 are as follows (dollars in thousands):

	For the Three Months Ended June 30, 2019			For the Six Months Ended June 30, 2019
Lease cost
Operating lease costs	$	633		$	1,258
Variable lease costs	—			—
Sublease income	(115		)	(230		)
Total lease cost	$	518		$	1,028

Supplemental balance sheet information related to leases as of June 30, 2019 was as follows:

Weighted-average remaining lease term (in years)	4.0
Weighted-average discount rate	8.2	%

F- 20

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Future payments for operating leases as of June 30, 2019 are as follows (in thousands):

Remaining 2019	$	1,362
2020	2,846
2021	2,483
2022	2,441
2023	1,823
Total future lease payments	10,955
Less imputed interest	(1,688		)
Operating lease liabilities, as reported	$	9,267

For the three and six months ending June 30, 2018, rent expense amounted to $0.6 million and $1.2 million, respectively. There is no material difference between the amount of lease expense recognized under the new lease accounting standard versus the superseded lease accounting standard.

7. OTHER ASSETS

Other assets consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Fixed assets, net of accumulated depreciation and amortization of $3,798 and $3,446, respectively	$	2,817	$	3,140
Security deposits	1,975		1,975
Administrative fees receivable (Note 13)	1,521		1,645
Deferred tax assets (Note 15)	3,400		3,739
Due from affiliates (Note 13)	1,555		1,421
Prepaid expenses and taxes	2,706		1,113
Other assets	1,185		1,265
Total other assets	$	15,159	$	14,298

8. SENIOR UNSECURED DEBT

The carrying value of the Company’s senior unsecured debt consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,765 and $2,946, respectively	$	50,830	$	50,649
2024 Notes, net of unamortized premium and debt issuance costs of $1,831 and $2,031 respectively	67,169		66,969
Total senior unsecured debt	$	117,999	$	117,618

F- 21

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

2026 Notes 

On August 9, 2016 and October 18, 2016, the Company issued debt consisting of $53.6 million in aggregate principal amount of senior unsecured notes due 2026 at a stated coupon rate of 6.875% (the "2026 Notes"). The net proceeds from these offerings were used to pay down a portion of the Company's outstanding indebtedness under its Term Loan Facility. Interest is payable quarterly. The 2026 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after August 15, 2019 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2026 notes were recorded net of discount and direct issuance costs of $3.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2026 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLX.” The fair value of the 2026 Notes based on their underlying quoted market price was $35.2 million as of June 30, 2019.

Interest expense on the 2026 Notes, including accretion of note discount and amortization of debt issuance costs, was $1.0 million for each of the three months ended June 30, 2019 and 2018, and $2.0 million for each of the six months ended June 30, 2019 and 2018.

2024 Notes

On January 18, 2017 and February 22, 2017, the Company issued $69.0 million in aggregate principal amount of senior unsecured notes due 2024 at a stated coupon rate of 7.25% (the "2024 Notes"). The net proceeds from these offerings were used to pay down the remaining portion of the Company's outstanding indebtedness under its Term Loan Facility with the remaining to be used for general corporate purposes. Interest is payable quarterly and interest payments commenced on April 30, 2017. The 2024 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after January 30, 2020 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2024 notes were recorded net of premium and direct issuance costs of $2.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2024 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLQ.” The fair value of the 2024 Notes based on their underlying quoted market price was $46.0 million as of June 30, 2019.

Interest expense on the 2024 Notes, including amortization of debt premium and debt issuance costs, was $1.4 million for each of the three months ended June 30, 2019 and 2018, and $2.7 million for each of the six months ended June 30, 2019 and 2018, respectively.

9. LOANS PAYABLE

Loans payable consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Non-recourse promissory notes, net of unamortized discount of $108 at December 31, 2018	$	10,000	$	9,892
Total loans payable	$	10,000	$	9,892

F- 22

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Non-Recourse Promissory Notes 

In April 2012, the Company borrowed $10.0 million under two non-recourse promissory notes. Proceeds from the borrowings were used to purchase 1,108,033 shares of common stock of SIC, which were pledged as collateral for the obligations. Interest on the notes is paid monthly and is equal to the dividends received by the Company related to the pledged shares. The Company may prepay the notes in whole or in part at any time without penalty and the lenders may call the notes if certain conditions are met. The Company extended the maturity date from March 31, 2019 to June 30, 2019. The proceeds from the notes were recorded net of issuance costs of $3.8 million and were being accreted, using the effective interest method, over the original term of the non-recourse promissory notes. Total interest expense under these notes, including accretion of the notes discount, was $0.2 million and $0.3 million for the three months ending June 30, 2019 and 2018, respectively, and $0.5 million and $0.7 million for the six months ending June 30, 2019 and 2018, respectively. On June 28, 2019, the Company entered into an amendment which extended the June 30, 2019 maturity date to December 31, 2019. In consideration for this amendment, the interest rate on these notes were increased by 1.0% per annum. The fair value of the outstanding balance of the notes was $10.0 million as of each of June 30, 2019 and December 31, 2018, respectively.

On January 31, 2019, the Company entered into a termination agreement with the lenders which will become effective upon the closing of the Company's pending merger with Sierra. In accordance with the provisions of the termination agreement, the Company will be required to pay the lenders $6.5 million on or prior to the merger closing date, reimburse the lenders for their out of pocket legal fees and enter into a new $6.5 million promissory note ("New Promissory Note"). The New Promissory Note will bear interest at LIBOR plus 7.0% and maturity will be six months after the merger closing date. Such consideration would be for the full satisfaction of the two aforementioned non-recourse promissory notes and related agreements, including the Company's revenue share payable, as further described in Note 12.

Contractual Maturities of Loans Payable

As further described above, upon closing of the Company's pending merger with Sierra, the Company's two non-recourse promissory and revenue sharing arrangement would be settled for payment of $6.5 million on or prior to the merger closing date and delivery of the New Promissory Note. If the pending merger does not close, $10.0 million of future principal payments will be due, relating to loans payable, on December 31, 2019.

CNB Credit Agreement

On August 19, 2014, the Company entered into a $15.0 million senior secured revolving credit facility with City National Bank (as amended, the “Revolving Credit Facility”). The Company intended to use any proceeds from borrowings under the Revolving Credit Facility for general corporate purposes, including funding of its working capital needs. Borrowings under the Revolving Credit Facility bore interest, at the option of the Company, either (i) at an Alternate Base Rate, as defined, plus an applicable margin not to exceed 0.25% or (ii) at an Adjusted LIBOR plus an applicable margin not to exceed 2.5%.

The Revolving Credit Facility also contained financial covenants, customary negative covenants and other customary events of default, including defaults based on events of bankruptcy and insolvency, dissolution, nonpayment of principal, interest or fees when due, breach of specified covenants, change in control and material inaccuracy of representations and warranties.

Effective May 13, 2019, the Company terminated the Revolving Credit Facility. There were no early termination penalties incurred by the Company. For the three months ended June 30, 2019, there was no amortization of deferred issuance costs associated with the Revolving Credit Facility. Amortization of deferred issuance costs were less than $0.1 million for the three months ended June 30, 2018. For the six months ended June 30, 2019 and 2018, amortization of deferred issuance costs associated with the Revolving Credit Facility were $0.1 million and less than $0.1 million, respectively. The Company had not incurred any borrowings under the Revolving Credit Facility since its inception.

10. DUE TO FORMER MINORITY INTEREST HOLDER

This balance consists of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Due to former minority interest holder, net of unamortized discount of $2,074 and $2,598, respectively	$	9,301	$	11,402
Total due to former minority interest holder	$	9,301	$	11,402

F- 23

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

In January 2016, the Company executed an amendment to SIC Advisors' operating agreement which provided the Company with the right to redeem membership units owned by the minority interest holder, Strategic Capital Advisory Services, LLC. The Company’s redemption right was triggered by the termination of the dealer manager agreement between Sierra and SC Distributors LLC ("DMA Termination"), an affiliate of the minority interest holder. As a result of this redemption feature, the Company reclassified the non-controlling interest in SIC Advisors from the equity section of its consolidated balance sheet to redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet based on its fair value as of the amendment date. On July 31, 2018, a DMA Termination event occurred and, as a result, the Company reclassified the redeemable non-controlling interest in SIC Advisors from redeemable non-controlling in the mezzanine section of its consolidated balance sheet to due to former minority interest holder, a component of total liabilities on the Company's consolidated balance sheet, based on its fair value as of that date.

In December, 2018, Medley LLC entered into a Letter Agreement with Strategic Capital Advisory Services, LLC, whereby consideration of $14.0 million was agreed upon for the satisfaction in full of all amounts owed by Medley under the LLC Agreement. The amount due will be paid in sixteen equal installments through August 5, 2022. The Company evaluated this agreement under ASC 470-50, Debt - Modifications and Extinguishment, to determine if modification or extinguishment treatment was necessary. After performing this analysis, the Company determined modification treatment was appropriate and a new effective interest rate was established on the modification date.

As of June 30, 2019 future payments due to the former minority interest holder are as follows (in thousands):

Remaining in 2019	$	1,750
2020	3,500
2021	3,500
2022	2,625
Total future payments	$	11,375

The amount due will be paid in quarterly installments over a four year period, beginning 2019. For the three and six months ended June 30, 2019, the amortization of the discount was $0.3 million and $0.5 million, respectively, and is included as a component of interest expense on the Company's condensed consolidated statements of operations.

F- 24

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

11. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Accounts payable, accrued expenses and other liabilities consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	3,444	$	7,438
Due to affiliates (Note 13)	7,199		7,635
Revenue share payable (Note 12)	2,627		2,976
Accrued interest	1,294		1,294
Professional fees	2,493		2,802
Deferred rent	—		2,035
Deferred tax liabilities (Note 15)	67		60
Accounts payable and other accrued expenses	1,912		2,499
Total accounts payable, accrued expenses and other liabilities	$	19,036	$	26,739

12. COMMITMENTS AND CONTINGENCIES 

Operating Leases

Refer to Note 6 to these condensed consolidated financial statements.

Consolidation of Business Activities

During the first quarter of 2018, the Company initiated the consolidation of its business activities to its New York office. The Company believes this will enhance operations by consolidating origination, underwriting and asset management operations and personnel in a single location. During the three and six months ended June 30, 2018, the Company recorded $0.3 million and $2.2 million in severance costs, respectively. In addition, the company incurred a $0.1 million loss from subleasing its San Francisco office during the three months ended June 30, 2018.

Capital Commitments to Funds

As of June 30, 2019 and December 31, 2018, the Company had aggregate unfunded commitments of $0.3 million to certain long-dated private funds.

Other Commitments

In April 2012, the Company entered into an obligation to pay to a third party a fixed percentage of management and incentive fees received by the Company from Sierra. The agreement was entered into contemporaneously with the $10.0 million non-recourse promissory notes that were issued to the same parties (Note 9). The two transactions were deemed to be related freestanding contracts and the $10.0 million of loan proceeds were allocated to the contracts using their relative fair values. At inception, the Company recognized an obligation of $4.4 million representing the present value of the future cash flows expected to be paid under this agreement. As of June 30, 2019 and December 31, 2018, this obligation amounted to $2.6 million and $3.0 million, respectively, and is recorded as revenue share payable, a component of accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. The change in the estimated cash flows for this obligation is recorded in other expenses, net on the condensed consolidated statements of operations.

On January 31, 2019, the Company entered into a termination agreement with the lenders which would become effective upon the closing of the Company's pending merger with Sierra. In accordance with the provisions of the termination agreement, the Company would pay the lenders $6.5 million on or prior to the merger closing date, reimburse the lenders for their out of pocket legal fees and enter into a six month $6.5 million promissory note. The promissory note would bear interest at seven percentage points over the LIBOR Rate, as defined in the termination agreement. Such consideration would be for the full satisfaction of the two non-recourse promissory notes disclosed in Note 9 as well as the Company's obligation above.

Legal Proceedings

From time to time, the Company is involved in various legal proceedings, lawsuits and claims incidental to the conduct of its business. Its business is also subject to extensive regulation, which may result in regulatory proceedings against it. Except as described below, the Company is not currently party to any material legal proceedings.

F- 25

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

One of the Company's subsidiaries, MCC Advisors LLC, was named as a defendant in a lawsuit on May 29, 2015, by Moshe Barkat and Modern VideoFilm Holdings, LLC (“MVF Holdings”) against MCC, MOF II, MCC Advisors LLC, Deloitte Transactions and Business Analytics LLP A/K/A Deloitte ERG (“Deloitte”), Scott Avila (“Avila”), Charles Sweet, and Modern VideoFilm, Inc. (“MVF”). The lawsuit is pending in the California Superior Court, Los Angeles County, Central District, as Case No. BC 583437. The lawsuit was filed after MCC, as agent for the lender group, exercised remedies following a series of defaults by MVF and MVF Holdings on a secured loan with an outstanding balance at the time in excess of $65 million. The lawsuit sought damages in excess of $100 million. Deloitte and Avila have settled the claims against them in exchange for payment of $1.5 million. On June 6, 2016, the court granted the Medley defendants’ demurrers on several counts and dismissed Mr. Barkat’s claims with prejudice except with respect to his claim for intentional interference with contract. On March 18, 2018, the court granted the Medley defendants’ motion for summary adjudication with respect to Mr. Barkat’s sole remaining claim against the Medley Defendants for intentional interference. Now that the trial court has ruled in favor of the Medley defendants on all counts, the only remaining claims in the Barkat litigation are MCC and MOF II’s affirmative counterclaims against Mr. Barkat and MVF Holdings, which MCC and MOF II are diligently prosecuting.

On August 29, 2016, MVF Holdings filed another lawsuit in the California Superior Court, Los Angeles County, Central District, as Case No. BC 631888 (the “Derivative Action”), naming MCC Advisors LLC and certain of Medley’s employees as defendants, among others. The plaintiff in the Derivative Action, asserts claims against the defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unfair competition, breach of the implied covenant of good faith and fair dealing, interference with prospective economic advantage, fraud, and declaratory relief. MCC Advisors LLC and the other defendants believe the causes of action asserted in the Derivative Action are without merit and all defendants intend to continue to assert a vigorous defense. All proceedings in the Derivative Action have been stayed as a result of the chapter 11 bankruptcy proceedings of MVF, which were commenced on May 16, 2018. On August 29, 2016, however, despite the automatic stay of the MVF Bankruptcy, the Plaintiff filed an amended complaint seeking to restyle the derivative action into a direct action to circumvent the MVF bankruptcy’s automatic stay. To date, the California Superior Court has not proceeded with the amended complaint.

Medley LLC, Medley Capital Corporation, Medley Opportunity Fund II LP, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube were named as defendants, along with other various parties, in a putative class action lawsuit captioned as Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio v. American Web Loan, Inc., AWL, Inc., Mark Curry, MacFarlane Group, Inc., Sol Partners, Medley Opportunity Fund, II, LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube, DHI Computing Service, Inc., Middlemarch Partners, and John Does 1-100, filed on December 15, 2017, amended on March 9, 2018, and amended a second time on February 15, 2019, in the United States District Court for the Eastern District of Virginia, Newport News Division, as Case No. 4:17-cv-145 (hereinafter, “Class Action 1”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned George Hengle and Lula Williams v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed February 13, 2018, in the United States District Court, Eastern District of Virginia, Richmond Division, as Case No. 3:18-cv-100 (“Class Action 2”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned John Glatt, Sonji Grandy, Heather Ball, Dashawn Hunter, and Michael Corona v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed August 9, 2018 in the United States District Court, Eastern District of Virginia, Newport News Division, as Case No. 4:18-cv-101 (“Class Action 3”) (together with Class Action 1 and Class Action 2, the “Virginia Class Actions”). Medley Opportunity Fund II LP was also named as a defendant, along with various other parties, in a putative class action lawsuit captioned Christina Williams and Michael Stermel v. Red Stone, Inc. (as successor in interest to MacFarlane Group, Inc.), Medley Opportunity Fund II LP, Mark Curry, Brian McGowan, Vincent Ney, and John Doe entities and individuals, filed June 29, 2018 and amended July 26, 2018, in the United States District Court for the Eastern District of Pennsylvania, as Case No. 2:18-cv-2747 (the “Pennsylvania Class Action”) (together with the Virginia Class Actions, the “Class Action Complaints”). The plaintiffs in the Class Action Complaints filed their putative class actions alleging claims under the Racketeer Influenced and Corrupt Organizations Act, and various other claims arising out of the alleged payday lending activities of American Web Loan. The claims against Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (in Class Action 1, as amended); Medley Opportunity Fund II LP and Medley Capital Corporation (in Class Action 2 and Class Action 3); and Medley Opportunity Fund II LP (in the Pennsylvania Class Action), allege that those defendants in each respective action exercised control over, or improperly derived income from, and/or obtained an improper interest in, American Web Loan’s payday lending activities as a result of a loan to American Web Loan. The loan was made by Medley Opportunity Fund II LP in 2011. American Web Loan repaid the loan from Medley Opportunity Fund II LP in full in February of 2015, more than 1 year and 10 months prior to any of the loans allegedly made by American Web Loan to the alleged class plaintiff representatives in Class Action 1. In Class Action 2, the alleged class plaintiff representatives have not alleged when they received any loans from American Web Loan. In Class Action 3, the alleged class plaintiff representatives claim to have received loans from American

F- 26

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Web Loan at various times from February 2015 through April 2018. In the Pennsylvania Class Action, the alleged class plaintiff representatives claim to have received loans from American Web Loan in 2017. By orders dated August 7, 2018 and September 17, 2018, the Court presiding over the Virginia Class Actions consolidated those cases for all purposes. On October 12, 2018, Plaintiffs in Class Action 3 filed a notice of voluntary dismissal of all claims, and on October 29, 2018, Plaintiffs in Class Action 2 filed a notice of voluntary dismissal of all claims. Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube never made any loans or provided financing to, or had any other relationship with, American Web Loan. Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube are seeking indemnification from American Web Loan, various affiliates, and other parties with respect to the claims in the Class Action Complaints. Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube believe the alleged claims in the Class Action Complaints are without merit and they intend to defend these lawsuits vigorously.

On January 25, 2019, two purported class actions were commenced in the Supreme Court of the State of New York, County of New York, by alleged stockholders of Medley Capital Corporation, captioned, respectively, Helene Lax v. Brook Taube, et al., Index No. 650503/2019, and Richard Dicristino, et al. v. Brook Taube, et al., Index No. 650510/2019 (together with the Lax Action, the “New York Actions”). Named as defendants in each complaint are Brook Taube, Seth Taube, Jeffrey Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, John E. Mack, Mark Lerdal, Richard T. Allorto, Jr., Medley Capital Corporation, Medley Management Inc., Sierra Income Corporation, and Sierra Management, Inc. The complaints in each of the New York Actions allege that the individuals named as defendants breached their fiduciary duties in connection with the proposed merger of MCC with and into Sierra, and that the other defendants aided and abetted those alleged breaches of fiduciary duties. Compensatory damages in unspecified amounts are sought. On February 27, 2019, the Court entered a stipulated scheduling order requiring that defendants respond to the complaints 45 days following the later of (a) the stockholder vote on the proposed merger and (b) plaintiffs’ filing of a consolidated, amended complaint. A preliminary conference is scheduled to take place on September 24, 2019. The defendants believe the claims asserted in the New York Actions are without merit and they intend to defend these lawsuits vigorously. At this time, we are unable to determine whether an unfavorable outcome from these matters is probable or remote or to estimate the amount or range of potential loss, if any.

On February 11, 2019, a purported stockholder class action was commenced in the Court of Chancery of the State of Delaware by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd. (together, “FrontFour”), captioned FrontFour Capital Group LLC, et al. v. Brook Taube, et al., Case No. 2019-0100 (the “FrontFour Action”), against defendants Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, Sierra, MCC, MCC Advisors LLC (“MCC Advisors”), Medley Group, and Medley LLC. The complaint, as amended on February 12, 2019, alleged that the individuals named as defendants breached their fiduciary duties to MCC stockholders in connection with the proposed merger of MCC with Sierra (the “MCC Merger”), and that MDLY, Sierra, MCC Advisors, Medley Group, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. The complaint sought to enjoin the vote of MCC stockholders on the proposed merger and enjoin enforcement of certain provisions of the Agreement and Plan of Merger, dated as of August 9, 2018, by and between MCC and Sierra (the “MCC Merger Agreement”). The Court held a trial on the plaintiffs’ claims on March 6-7, 2019 and issued a Memorandum Opinion (the “Decision”) on March 11, 2019. The Court denied the plaintiffs’ requests to (i) permanently enjoin the proposed merger and (ii) require MCC to conduct a “shopping process” for MCC on terms proposed by the plaintiffs in their complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the proposed merger, but rejected the plaintiffs’ claim that Sierra aided and abetted those breaches of fiduciary duties. The Court ordered the defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC stockholders on the proposed merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information. On March 20, 2019, another purported stockholder class action was commenced by Stephen Altman against Brook Taube, Seth Taube, Jeff Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, Mark Lerdal, and John E. Mack in the Court of Chancery of the State of Delaware, captioned Altman v. Taube, Case No. 2019-0219 (the “Altman Action”). The complaint alleged that the defendants breached their fiduciary duties to stockholders of MCC in connection with the vote of MCC stockholders on the proposed mergers. On April 8, 2019, the Court granted a stipulation consolidating the FrontFour Action and the Altman Action, designating the amended complaint in the FrontFour Action as the operative complaint, and designating the plaintiffs in the FrontFour Action and their counsel the lead plaintiffs and lead plaintiffs’ counsel, respectively.

On April 15, 2019, certain parties reached agreement on the principal terms of a settlement of the FrontFour Action, which were contained in a term sheet, dated April 15, 2019 (the “Settlement Term Sheet”). On July 29, 2019 MDLY entered into a Stipulation of Settlement (and, as amended on August 8, 2019, the "Stipulation") by and among MCC, Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, MCC Advisors, Medley LLC and Medley Group LLC (the “Medley Parties”), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand, in connection with the FrontFour Action.

F- 27

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

The Stipulation provides for the settlement of all claims brought against the Medley Parties in the FrontFour Action. Under the Stipulation, MCC agreed to seek the agreement and/or consent of Sierra to effect certain amendments to (i) the MCC Merger Agreement and (ii) the MDLY Merger Agreement (together with the MCC Merger Agreement, the “Merger Agreements”), which have been reflected in the revised Merger Agreements annexed to the Stipulation. The Stipulation also provides for, if the MCC Merger is consummated, the creation of a settlement fund, consisting of $17 million in cash and $30 million of Sierra stock, with the number of shares of Sierra stock to be calculated using the pro forma net asset value reported in the future proxy supplement describing the amendments to the MCC Merger Agreement, which will be distributed to eligible members of the Settlement Class (as defined in the Stipulation). Under the Stipulation, MDLY also consented to certain amendments to the Merger Agreements that have been reflected in the revised Merger Agreements annexed to the Stipulation. In addition, in connection with the Stipulation, on July 29, 2019, MCC entered into a Governance Agreement with FrontFour Capital Group LLC, FrontFour Master Fund, Ltd., FrontFour Capital Corp., FrontFour Opportunity Fund, David A. Lorber, Stephen E. Loukas and Zachary R. George, pursuant to which, among other matters, FrontFour is subject to customary standstill restrictions and required to vote in favor of the MCC Merger at a meeting of stockholders to approve the Amended MCC Merger Agreement.

The Stipulation also provides for mutual releases between and among FrontFour and the Settlement Class, on the one hand, and the Medley Parties, on the other hand, of all claims that were or could have been asserted in the FrontFour Action. The Medley Parties will also release all claims arising out of or relating to the prosecution and settlement of the FrontFour Action and all claims that were or could have been asserted (other than claims against the Highland Parties, as defined in the Stipulation) in the litigation pending in the United States District Court for the Southern District of New York captioned Medley Capital Corporation v. FrontFour Capital Group LLC, et al., No. 1:19-cv-02055-LTS (S.D.N.Y.) (the “Federal Action”), and FrontFour and the Settlement Class will release all claims arising out of or relating to the prosecution and settlement of the Federal Action.

The Stipulation further provides that MCC and FrontFour shall work together in good faith to agree to supplemental disclosures relating to the transactions contemplated by the Merger Agreements consistent with the Decision. The Stipulation is subject to the approval of the Court. The Court is expected to schedule a hearing on October 24, 2019 to consider the Stipulation.

MARILYN S. ADLER, v. MEDLEY CAPITAL LLC et. al. (Supreme Court of New York, March 2019). Marilyn Adler, a former employee who served as a Managing Director of Medley Capital LLC, filed suit in the New York Supreme Court, Commercial Part, on March 1, 2019 against Medley Capital LLC, MCC Advisors, Medley SBIC GP, LLC, Medley Capital Corporation, Medley Management Inc., as well as Brook Taube, and Seth Taube, individually. Ms. Adler alleges that she is due in excess of $6.5 million in compensation based upon her role with Medley’s SBIC Fund. Her claims are for breach of contract, unjust enrichment, conversion, tortious interference, as well as a claim for an accounting of funds maintained by the defendants. The Company believes the claims are without merit, intends to vigorously defend them, and has asserted counterclaims against Ms. Adler for breach of contract and breach of fiduciary duties. In response to the Company’s motion to dismiss the breach of contract claim, Ms. Adler has conceded there was no written contract. The parties are in the initial stages of discovery.

While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s consolidated financial position or overall trends in consolidated results of operations, litigation is subject to inherent uncertainties. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis. The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established.

Employment Agreements

In connection with the Company's pending merger with Sierra, certain pre-IPO owners entered into employment agreements which would become effective upon the successful completion of the merger. Each employment agreement sets forth a base salary, which is subject to change at the discretion of the Board or compensation committee of the post-merged entity. The initial term of the employment agreements range from 24 to 30 months. Upon effectiveness of the employment agreements, the combined initial base salaries of the pre-IPO members would be $2.5 million. Under the employment agreements, each pre-IPO owner is eligible to receive each year a short-term incentive paid in cash and a long-term incentive in the form of an equity award, each paid after the end of the year. Each employment agreement provides that the post merged entity's Board or compensation committee will establish a target annual bonus for each year of no less than a specified percentage of each pre-IPO owner's base salary and will establish performance and other objectives for the year for such annual bonus, in consultation with management. During their first year of employment, the combined target annual bonuses could amount up to $10.9 million of which $4.1 million would consist of cash and $6.8 million in the form of restricted stock units which would vest over a three year period.

The employment agreements also set forth bonuses for 2019 which the Board or the compensation committee of the post-merger company may increase in recognition of performance in excess of performance objectives. The aggregate 2019 bonuses to certain pre-IPO owners amount to $10.9 million of which $4.1 million would be payable in cash and $6.8 million in the form

F- 28

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

of restricted stock units which would vest over a three year period. As of June 30, 2019, the Company did not accrue for any bonuses to these pre-IPO members as the 2019 bonus amounts per the employment agreements are not effective until the closing of the merger.

The long-term equity incentive will be made in the form of an equity award, vesting in three equal annual installments. The cash and equity award portions of the annual bonuses paid under the employment agreements will be subject to recoupment by the Combined Company to the extent required by applicable law (including without limitation Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Act) and/or the rules and regulations of the NYSE.

13. RELATED PARTY TRANSACTIONS

Substantially all of Medley’s revenue is earned through agreements with its non-consolidated funds for which it collects management and performance fees for providing asset management, advisory and other related services.

Administration Agreements

In January 2011 and April 2012, Medley entered into administration agreements with MCC (the “MCC Admin Agreement”) and Sierra (the “SIC Admin Agreement”), respectively, whereby, as part of its performance obligation to provide asset management, advisory and other related services, Medley agreed to provide administrative services necessary for the operations of MCC and Sierra. MCC and Sierra agreed to pay Medley for the costs and expenses incurred in providing such administrative services, including an allocable portion of Medley’s overhead expenses and an allocable portion of the cost of MCC and Sierra's officers and their respective staff.

Additionally, Medley has entered into administration agreements with other entities that it manages (the “Funds Admin Agreements”), whereby Medley agreed to provide administrative services necessary for the operations of these entities. These entities agreed to reimburse Medley for the costs and expenses incurred in providing such administrative services, including an allocable portion of Medley’s overhead expenses and an allocable portion of the cost of these other vehicles' officers and their respective staffs.

Medley records these administrative fees as revenue in the period when the performance obligation of providing such administrative services is satisfied and such revenue is included as a component of other revenues and fees on the condensed consolidated statements of operations. Amounts due from these agreements are included as a component of other assets on the Company's condensed consolidated balance sheets.

Total revenues recorded under these agreements for the three and six months ended June 30, 2019 and 2018 are reflected in the table below:

	For the Three Months Ended June 30,				For the For the Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)
MCC Admin Agreement	$	734	$	917	$	1,615	$	1,818
SIC Admin Agreement	515		746		1,178		1,445
Funds Admin Agreements	223		257		459		502
Total administrative fees from related parties	$	1,472	$	1,920	$	3,252	$	3,765

Amounts due from related parties under these agreements are reflected in the table below:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Amounts due from MCC under the MCC Admin Agreement	$	762	$	804
Amounts due from SIC under the SIC Admin Agreement	536		619
Amounts due from entities under the Funds Admin Agreements	223		222
Total administrative fees receivable	$	1,521	$	1,645

F- 29

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Management fee Waiver

During the first quarter of 2018, the Company voluntarily waived $0.4 million in management fees for MCC. There were no management fee waivers during the three and six months ended June 30, 2019.

Investments

Refer to Note 4 "Investments" for information related to the Company's investments in related parties.

Exchange Agreement

Prior to the completion of the Company's IPO, Medley LLC's limited liability agreement was restated among other things, to modify its capital structure by reclassifying the interests held by its then existing owners (i.e. the members of Medley prior to the IPO) into the LLC Units. Medley’s existing owners also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right (subject to the terms of the exchange agreement as described therein), to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis at fair value, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications.

Tax Receivable Agreement

Medley Management Inc. entered into a tax receivable agreement with the holders of LLC Units that provides for the payment by Medley Management Inc. to exchanging holders of LLC Units of 85% of the benefits, if any, that Medley Management Inc. is deemed to realize as a result of increases in tax basis of tangible and intangible assets of Medley LLC from the future exchange of LLC Units for shares of Class A common stock, as well as certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. 

The term of the tax receivable agreement will continue until all such tax benefits under the agreement have been utilized or have expired, unless Medley Management Inc. exercises its right to terminate the tax receivable agreement for an amount based on an agreed value of payments remaining to be made under the agreement. There have been no transactions under this agreement through June 30, 2019.

In connection with the Amended and Restated Agreement Plan and of Merger between MDLY and Sierra, the parties to the aforementioned tax receivable agreement will enter into the Tax Receivable Termination Agreement, pursuant to which the existing tax receivable agreement between MDLY and the holders of LLC Units (other than MDLY) will be terminated, effective as of the MDLY Merger Effective Time, as defined in the Amended and Restated Agreement and Plan of Merger.

14. EARNINGS PER CLASS A SHARE

The table below presents basic and diluted net loss per share of Class A common stock using the two-class method for the three and six months ending June 30, 2019 and 2018:

	For the Three Months Ended June 30,						For the For the Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands, except share and per share amounts)
Basic and diluted net loss per share:
Numerator
Net loss attributable to Medley Management Inc.	$	(183	)	$	(128	)	$	(255	)	$	(1,356	)
Less: Allocation of earnings to participating securities	16			(320		)	(6		)	(544		)
Net loss available to Class A common stockholders	$	(167	)	$	(448	)	$	(261	)	$	(1,900	)
Denominator
Weighted average shares of Class A common stock outstanding	5,847,883			5,543,802			5,801,531			5,513,719
Net loss per share of Class A common stock	$	(0.03	)	$	(0.08	)	$	(0.04	)	$	(0.34	)

F- 30

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

The allocation to participating securities above generally represents dividends paid or payable to holders of unvested restricted stock units which reduces net income available to common stockholders, adjusted for the impact of forfeitures in the period they are incurred.

The weighted average shares of Class A common stock is the same for both basic and diluted earnings per share as the diluted amount excludes the assumed conversion of 26,316,642 and 24,639,302 LLC Units and restricted LLC Units as of June 30, 2019 and 2018, respectively, to shares of Class A common stock, the impact of which would be antidilutive.

The following table reflects the per share dividend amounts that the Company declared on its common stock during the six months ended June 30, 2019 and 2018.

Declaration Dates	Record Date	Payment Dates	Per Share
During the six months ended June 30, 2019:
March 27, 2019	April 15, 2019	May 3, 2019	$	0.03
During the six months ended June 30, 2018:
May 10, 2018	May 24, 2018	June 1, 2018	$	0.20
February 7, 2018	February 22, 2018	March 7, 2018	$	0.20

15. INCOME TAXES

Deferred income taxes reflect the net effect of temporary differences between the tax basis of an asset or liability and its reported amount on the Company’s consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years. As of June 30, 2019 and December 31, 2018, the Company's deferred tax assets were $3.4 million and $3.7 million, respectively, which consists primarily of temporary differences relating to certain accrued expenses, stock-based compensation, unrealized losses and a tax benefit relating to tax goodwill. The Company's deferred tax asset balance as of June 30, 2019 and December 31, 2018 is presented net of a valuation allowance of $1.0 million. This valuation allowance was established during the year ended December 31, 2018 and relates to the portion of the Company's deferred tax assets associated with cumulative unrealized losses. Of the $1.0 million, $0.7 million was recorded during the six months ended June 30, 2018. The Company considers it more likely than not that it would not be able to generate enough capital gains in the near future to realize the deferred tax asset associated with such capital losses. Deferred tax liabilities were $0.1 million as of June 30, 2019 and December 31, 2018.

The quarterly provision for income taxes is determined based on the Company’s estimated full year effective tax rate adjusted by the amount of tax attributable to infrequent or unusual items that are recognized on a discrete basis in the income tax provision in the period in which they occur. The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as limited liability companies, which are not subject to federal or state income tax. Accordingly, a portion of the Company’s earnings attributable to non-controlling interests are not subject to corporate level taxes. However, a portion of the Company's subsidiaries' income is subject to New York City’s unincorporated business tax. For the three and six months ended June 30, 2019 and 2018, the Company was only subject to federal, state and city corporate income taxes on its pre-tax income attributable to Medley Management Inc.

The Company’s effective tax rate was 1.0% and (8.6)% for the three months ended June 30, 2019 and 2018, respectively and 3.0% and (3.3)% for the six months ended June 30, 2019 and 2018, respectively. The variance in the effective tax rate was primarily attributed to losses allocated to one of our non-controlling interests of $6.0 million and $3.1 million for the three months ended June 30, 2019 and 2018, respectively, and $2.0 million and $8.4 million for the six months ended June 30, 2019 and 2018, respectively, which are not subject to income taxes and the recording of a $0.7 million valuation allowance during the six months ended June 30, 2018.

Interest expense and penalties related to income tax matters are recognized as a component of the provision for income taxes and were not significant during the three and six months ended June 30, 2019 and 2018. As of and during the three and six months ended June 30, 2019 and 2018, there were no uncertain tax positions taken that were not more likely than not to be sustained.

16. COMPENSATION EXPENSE

Compensation generally includes salaries, bonuses, equity and profit sharing awards. Bonuses, equity and profit sharing awards are accrued over the service period to which they relate. Guaranteed payments made to our senior professionals who are members of Medley LLC are recognized as compensation expense. The guaranteed payments to the Company’s Co-Chief Executive Officers are performance based and are periodically set subject to maximums based on the Company’s total assets under management. Such maximums aggregated to $1.3 million during each of the three months ended June 30, 2019 and 2018, and $2.5 million for each of the six months ended June 30, 2019 and 2018. During the three and six months ended June 30, 2019 and 2018, neither of the Company’s Co-Chief Executive Officers received any guaranteed payments.

F- 31

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

Retirement Plan

The Company sponsors a defined-contribution 401(k) retirement plan that covers all employees. Employees are eligible to participate in the plan immediately, and participants are 100% vested from the date of eligibility. The Company makes contributions to the plan of 3% of an employee’s eligible wages, up to a maximum limit as determined by the Internal Revenue Service. The Company also pays all administrative fees related to the plan. During the three and six months ended June 30, 2019, the Company's accrued contributions to the plan were $0.1 million and $0.3 million, respectively. During the three and six months ended June 30, 2018, the Company's accrued contributions to the plan were $0.1 million and $0.4 million, respectively. As of June 30, 2019 and December 31, 2018 the Company's outstanding liability to the plan was $0.4 million and $0.5 million, respectively.

Stock-Based Compensation

In connection with the IPO, the Company adopted the Medley Management Inc. 2014 Omnibus Incentive Plan (as amended, the "Plan"). The purpose of the Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) of the Company can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of Medley Management Inc.’s Class A common stock or Medley LLC’s unit interests, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company’s stockholders. The Plan provides for the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), restricted LLC Units of Medley LLC, stock bonuses, other stock-based awards and cash awards. Shares of Class A common stock issued by the Company in settlement of awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the market or by private purchase or a combination of the foregoing. On May 29, 2019, at the Company's annual meeting of stockholders, the Company’s stockholders approved an amendment to the Plan to increase the number of the awards available for issuance thereunder by 4,500,000 to 9,000,000. As of June 30, 2019, there were 2.7 million awards available to be granted under the Plan, as amended. Excluded from the available amount as of June 30, 2019 are Board approved employee awards of 399,400 RSUs and an award of restricted LLC Units with an aggregate grant date fair value of $1,000,000. The grant of these awards is conditioned on the closing of the Company's pending merger with Sierra.

The fair value of RSUs granted under the Plan is determined to be the fair value of the underlying shares on the date of grant. The fair value of restricted LLC Units of Medley LLC is based on the public share price of MDLY at date of grant, adjusted for different distribution rights. The aggregate fair value of these awards is charged to compensation expense on a straight-line basis over the vesting period, which is generally up to five years, with the exception of certain restricted LLC Units that will only vest upon certain conditions such as death, disability, termination without cause or change of control. For these awards, compensation expense is recognized when such condition is met.

For the three and six months ended June 30, 2019 stock-based compensation was $1.4 million and $3.2 million, respectively. Stock-based compensation was $1.6 million and $2.6 million for the three and six months ended June 30, 2018, respectively.

A summary of RSU and restricted LLC Unit activity for the six months ended June 30, 2019 is as follows:

	Number of RSUs		Weighted Average Grant Date Fair Value		Number of Restricted LLC Units	Weighted Average Grant Date Fair Value
Balance at December 31, 2018	1,822,814		$	7.74	1,305,969	$	6.86
Granted	1,082,898		3.26		1,610,671	2.53
Forfeited	(231,712	)	6.89		—	—
Vested	(321,099	)	6.72		—	—
Balance at June 30, 2019	2,352,901		$	5.90	2,916,640	$	4.47

The aggregate grant date fair value of RSUs vested during the six months ended June 30, 2019 was $2.2 million. The vesting of 321,099 RSUs resulted in the issuance of 169,813 Class A common shares to employees and independent directors and 66,668 LLC Units to the pre-IPO members. The employee RSUs were net-share settled such that the Company withheld awards with the aggregate fair value equivalent to the employees' minimum statutory tax obligations in accordance with the terms of the Plan. Total employee tax obligations amounted to $0.3 million and payments to the appropriate taxing authorities are reflected as a financing activity on the Company's condensed consolidated statements of cash flows.

F- 32

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

During the six months ended June 30, 2019 and 2018 there was $0.9 million and $0.6 million, respectively, of previously recognized compensation reversed relating to forfeited RSUs. In addition, during the six months ended June 30, 2019, the Company reclassified cumulative dividends of $0.3 million from retained earnings to other compensation expense as a result of such forfeitures. Cumulative dividends reclassified from retained earnings for the three months ended June 30, 2018 was $0.1 million. Unamortized compensation cost related to unvested RSUs and restricted LLC units as of June 30, 2019 was $16.9 million and is expected to be recognized over a weighted average period of 2.7 years. Such amount excludes unamortized compensation of $1.3 million relating to certain restricted LLC Units which only vest upon death, disability, termination without cause or change of control.

17. REDEEMABLE NON-CONTROLLING INTERESTS

Changes in redeemable non-controlling interests during the six months ended June 30, 2019 and 2018 are reflected in the table below:

	For the Six Months Ended June 30,
	2019			2018
	(in thousands)
Beginning balance	$	23,186		$	53,741
Net loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(2,033		)	(6,980		)
Distributions	(1,576		)	(4,366		)
Ending balance	$	19,577		$	42,395

In January 2016, the Company executed an amendment to SIC Advisors' operating agreement which provided the Company with the right to redeem membership units owned by the minority interest holder. The Company’s redemption right is triggered by the termination of the dealer manager agreement between Sierra and SC Distributors LLC ("DMA Termination"), an affiliate of the minority interest holder. As a result of this redemption feature, the Company reclassified the non-controlling interest in SIC Advisors from the equity section to redeemable non-controlling interests in the mezzanine section of the consolidated balance sheet based on its fair value as of the amendment date. The fair value of the non-controlling interest was determined to be $12.2 million on the date of the amendment and was adjusted through a charge to non-controlling interests in Medley LLC.

On July 31, 2018, a DMA Termination event occurred and the membership units held by the minority interest holder were redeemed by Medley. In connection with the DMA Termination, the Company reclassified SIC Advisors' minority interest balance from redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet to due to former minority interest holder (Note 10), a component of total liabilities, at its then fair value. The fair value of the non-controlling interest was determined to be $12.3 million on the DMA Termination date and was adjusted through a $1.0 million charge to non-controlling interests in Medley LLC.

During the three and six months ended June, 2018, profits allocated to this non-controlling interest were $0.8 million and $1.7 million, respectively, and distributions paid were $0.9 million and $2.3 million, respectively. There were no profits or distributions allocated to this non-controlling interest subsequent the Company's redemption of the membership units held by the former minority interest holder.

On June 3, 2016, the Company entered into a Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC (the ‘‘Investors’’) to invest up to $50.0 million in new and existing Medley managed funds (the ‘‘Joint Venture’’). The Company agreed to contribute up to $10.0 million and an interest in STRF Advisors LLC, the investment advisor to Sierra Total Return Fund, in exchange for common equity interests in the Joint Venture. On June 6, 2017, the Company entered into an amendment to its Master Investment Agreement with the Investors, which provided for, among other things, an increase in the Company’s capital contribution to up to $13.8 million and extended the term of the Joint Venture from seven to ten years. The Investors agreed to invest up to $40.0 million in exchange for preferred equity interests in the Joint Venture. Total contributions to the Joint Venture amounted to $53.8 million and were used to purchase $51.8 million of MCC shares on the open market and seed fund $2.0 million to STRF. On account of the preferred equity interests, the Investors will receive an 8% preferred distribution, 15% of the Joint Venture’s profits, and all of the profits from the contributed interest in STRF Advisors LLC. Medley has the option, subject to certain conditions, to cause the Joint Venture to redeem the Investors’ interest in exchange for repayment of the outstanding investment amount at the time of redemption, plus certain other considerations. The Investors have the right, after ten years, to redeem their interests in the Joint Venture. As such, the Investors’ interest in the Joint Venture is included as a component

F- 33

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

of redeemable non-controlling interests on the Company’s condensed consolidated balance sheets and amounted to $20.3 million and $23.9 million as of June 30, 2019 and December 31, 2018, respectively.

During the three and six months ended June 30, 2019, losses allocated to this non-controlling interest were $6.0 million and $2.0 million, respectively. During the three and six months ended June 30, 2018, losses allocated to this non-controlling interest were $3.2 million and $8.4 million, respectively. Distributions paid during the three and six months ended June 30, 2019 were $0.8 million and $1.6 million, respectively. Distributions paid during the three and six months ended June 30, 2018 were $1.1 million and $2.1 million, respectively.

In October 2016, the Company executed an operating agreement for STRF Advisors LLC which provided the Company with the right to redeem membership units owned by the minority interest holder. The Company’s redemption right is triggered by the termination of the dealer manager agreement between STRF and SC Distributors LLC, an affiliate of the minority interest holder. As a result of this redemption feature, the non-controlling interest in STRF Advisors LLC is classified as in redeemable non-controlling interests in the mezzanine section of the balance sheet. During the three and six months ended June 30, 2019, net losses allocated to this redeemable non-controlling interest were less than $0.1 million and $0.1 million, respectively. During the three and six months ended June 30, 2018, net losses allocated to this redeemable non-controlling interest were $0.1 million and $0.2 million, respectively. As of June 30, 2019 and December 31, 2018, the balance of the redeemable non-controlling interest in STRF Advisors LLC was $(0.7) million.

18. SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date of issuance of the condensed consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of and for the three and six months ended June 30, 2019, except as disclosed below.

On July 29, 2019, the Company entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among the Company, Sierra, and Merger Sub, pursuant to which the Company will, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub (the "MDLY Merger"), with Merger Sub as the surviving company in the MDLY Merger. In the MDLY Merger, each share of MDLY Class A common stock, issued and outstanding immediately prior to the effective time of the MDLY Merger (the "MDLY Merger Effective Time"), other than shares of MDLY Class A common stock held by the Company, Sierra or their respective wholly owned subsidiaries (the “Excluded MDLY Shares”) and the Dissenting Shares (as defined in the Amended MDLY Merger Agreement), held, immediately prior to the MDLY Merger Effective Time, by any person other than a Unitholder (as defined below), will be exchanged for (i) 0.2668 shares of Sierra’s common stock; plus (ii) cash in an amount equal to $2.96

F- 34

Medley Management Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

per share. In addition, in the MDLY Merger, each share of MDLY Class A common stock issued and outstanding immediately prior to the MDLY Merger Effective Time, other than the Excluded MDLY Shares and the Dissenting Shares, held, immediately prior to the MDLY Merger Effective Time, by holders of the issued and outstanding limited liability company interests of Medley LLC (the “Medley LLC Units” and, holders of the Medley LLC Units at any time on or after July 29, 2019, the “Unitholders”) will be exchanged for (i) 0.2072 shares of Sierra’s common stock; plus (ii) cash in an amount equal to $2.66 per share.

In addition, on July 29, 2019, MCC and Sierra announced the execution of the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between MCC and Sierra, pursuant to which MCC will, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into Sierra (the "MCC Merger"), with Sierra as the surviving company in the MCC Merger. In the MCC Merger, each share of MCC’s common stock (other than shares of MCC’s common stock held by MCC, Sierra or their respective wholly owned subsidiaries, will be exchanged for the right to receive (i) 0.68 shares of Sierra’s common stock if the attorneys’ fees of plaintiffs’ counsel and litigation expenses paid or incurred by plaintiffs’ counsel or advanced by plaintiffs in connection with the Class Action (such fees and expenses, the “Plaintiff Attorney Fees”) are less than or equal to $10,000,000, (ii) 0.66 shares of Sierra’s common stock if the Plaintiff Attorney Fees are equal to or greater than $15,000,000, and (iii) between 0.68 and 0.66 per share of Sierra’s common stock if the Plaintiff Attorney Fees are greater than $10,000,000 but less than $15,000,000, calculated on a descending basis, based on straight line interpolation between $10,000,000 and $15,000,000.

Pursuant to terms of the Amended MCC Merger Agreement, the consummation of the MCC Merger is conditioned upon the satisfaction or waiver of each of the conditions to closing under the Amended MDLY Merger Agreement and the consummation of the MDLY Merger. However, pursuant to the terms of the Amended MDLY Merger Agreement, the consummation of the MDLY Merger is not contingent upon the consummation of the MCC Merger. If both Mergers are successfully consummated, Sierra’s common stock would be listed on the NYSE, with such listing expected to be effective as of the closing date of the Mergers, and Sierra’s common stock will be listed on the Tel Aviv Stock Exchange, with such listing expected to be effective as of the closing date of the MCC Merger. If, however, only the MDLY Merger is consummated, Sierra’s common stock would be listed on the NYSE. If both Mergers are successfully consummated, the investment portfolios of MCC and Sierra would be combined, Merger Sub, as a successor to MDLY, would be a wholly owned subsidiary of the Combined Company, and the Combined Company would be internally managed by MCC Advisors LLC, its wholly controlled adviser subsidiary. If only the MDLY Merger is consummated, while the investment portfolios of MCC and Sierra would not be combined, the investment management function relating to the operation of the Company, as the surviving company, would still be internalized.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q and our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Overview

We are an alternative asset management firm offering yield solutions to retail and institutional investors. We focus on credit-related investment strategies, primarily originating senior secured loans to private middle market companies in the U.S. that have revenues between $50 million and $1 billion. We generally hold these loans to maturity. Our national direct origination franchise provides capital to the middle market in the U.S. Over the past 17 years, we have provided capital to over 400 companies across 35 industries in North America.

We manage three permanent capital vehicles, two of which are BDCs and one interval fund, as well as long-dated private funds and SMAs, focusing on senior secured credit.

• Permanent capital vehicles: MCC, SIC and STRF, have a total AUM of $1.7 billion as of June 30, 2019.

• Long-dated private funds and SMAs: MOF II, MOF III, MOF III Offshore, MCOF, Aspect, Aspect B, MCC JV, SIC JV and SMAs, have a total AUM of $2.7 billion as of June 30, 2019.

As of June 30, 2019, we had $4.4 billion of AUM, $1.7 billion in permanent capital vehicles and $2.7 billion in long-dated private funds and SMAs. Our AUM as of June 30, 2019 declined by 12% year-over-year which was driven primarily by: (i) the termination of MCC's revolver commitment with ING, (ii) MCC's repayment of debt, (iii) distributions and (iv) changes in fund values. Our compounded annual AUM growth rate from December 31, 2010 through June 30, 2019 was 19% and our compounded annual Fee Earning AUM growth rate was 12%, both of which have been driven in large part by the growth in our permanent capital vehicles. As of June 30, 2019, we had $2.5 billion of Fee Earning AUM which consisted of $1.5 billion in permanent capital vehicles and $0.9 billion in long-dated private funds and SMAs. Typically the investment periods of our institutional commitments range from 18 to 24 months and we expect our Fee Earning AUM to increase as capital commitments included in AUM are invested.

In general, our institutional investors do not have the right to withdraw capital commitments and, to date, we have not experienced any withdrawals of capital commitments. For a description of the risk factor associated with capital commitments, see “Risk Factors – Third-party investors in our private funds may not satisfy their contractual obligation to fund capital calls when requested, which could adversely affect a fund’s operations and performance” included in our Annual Report on Form 10-K.

Direct origination, careful structuring and active monitoring of the loan portfolios we manage are important success factors in our business, which can be adversely affected by difficult market and political conditions. Since our inception in 2006, we have adhered to a disciplined investment process that employs these principles with the goal of delivering strong risk-adjusted investment returns while protecting investor capital. We believe that our ability to directly originate, structure and lead deals enables us to achieve these goals. In addition, the loans we manage generally have a contractual maturity of between three and seven years and are typically floating rate, which we believe positions our business well for rising interest rates.

The significant majority of our revenue is derived from management fees, which include base management fees earned on all of our investment products as well as Part I incentive fees earned from our permanent capital vehicles and certain of our long-dated private funds. Our base management fees are generally calculated based upon fee earning assets and paid quarterly in cash. Our Part I incentive fees are typically calculated based upon net investment income, subject to a hurdle rate, and are also paid quarterly in cash.

We also may earn carried interest from our long-dated funds and contractual performance fees from our SMAs. Typically, these fees are 15.0% to 20.0% of the total return above a hurdle rate. Carried interest represent fees that are a capital allocation to the general partner or investment manager, are accrued quarterly and paid after the return of all invested capital and an amount sufficient to achieve the hurdle rate of return.

We also may receive incentive fees related to realized capital gains in our permanent capital vehicles and certain of our long-dated private funds that we refer to as Part II incentive fees. Part II incentive fees are payable annually and are calculated at the end of each applicable year by subtracting the sum of cumulative realized capital losses and unrealized capital depreciation from cumulative aggregate realized capital gains. If the amount calculated is positive, then the Part II incentive fee for such year is equal to 20% of such amount, less the aggregate amount of Part II incentive fees paid in all prior years. If such amount is negative, then no Part II incentive fee will be payable for such year. As our investment strategy is focused on generating yield from senior secured credit, historically we have not generated Part II incentive fees.

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For the three and six months ended June 30, 2019, 83% and 82%, respectively, of our revenues were generated from management fees and carried interest derived primarily from net interest income on senior secured loans.

Our primary expenses are compensation to our employees and general, administrative and other expenses. Compensation includes salaries, discretionary bonuses, stock-based compensation, performance based compensation and benefits paid and payable to our employees. General and administrative expenses include costs primarily related to professional services, office rent and related expenses, depreciation and amortization, travel and related expenses, information technology, communication and information services, placement fees and third-party marketing expenses and other general operating items.

Reorganization and Initial Public Offering

Medley Management Inc. (“MDLY”) was incorporated on June 13, 2014 and commenced operations on September 29, 2014 upon the completion of its IPO of its Class A common stock. We raised $100.4 million, net of underwriting discounts, through the issuance of 6,000,000 shares of Class A common stock at a public offering price of $18.00 per share. The offering proceeds were used to purchase 6,000,000 newly issued LLC Units from Medley LLC. Prior to the IPO, Medley Management Inc. had not engaged in any business or other activities except in connection with its formation and IPO.

In connection with the IPO, Medley Management Inc. issued 100 shares of Class B common stock to Medley Group LLC (“Medley Group”), an entity wholly owned by the pre-IPO members of Medley LLC. For so long as the pre-IPO members and then-current Medley personnel hold at least 10% of the aggregate number of shares of Class A common stock and LLC Units (excluding those LLC Units held by Medley Management Inc.) then outstanding, the Class B common stock entitles Medley Group to a number of votes that is equal to 10 times the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to 10 times the number of membership units held by such holder.

In connection with the IPO, Medley LLC amended and restated its limited liability agreement to modify its capital structure by reclassifying the 23,333,333 interests held by the pre-IPO members into a single new class of units. The pre-IPO members also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, subject to the terms of the exchange agreement, to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. In addition, pursuant to the amended and restated limited liability agreement, Medley Management Inc. became the sole managing member of Medley LLC.

Our Structure

Medley Management Inc. is a holding company and its sole material asset is a controlling equity interest in Medley LLC. Medley Management Inc. operates and controls all of the business and affairs and consolidates the financial results of Medley LLC and its subsidiaries. We and our pre-IPO owners have also entered into an exchange agreement under which they (or certain permitted transferees) have the right (subject to the terms of the exchange agreement), to exchange their LLC Units for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications.

Medley Group LLC, an entity wholly-owned by our pre-IPO owners, holds all 100 issued and outstanding shares of our Class B common stock. For so long as our pre-IPO owners and then-current Medley personnel hold at least 10% of the aggregate number of shares of Class A common stock and LLC Units (excluding those LLC Units held by Medley Management Inc.), which we refer to as the “Substantial Ownership Requirement,” the Class B common stock entitles Medley Group LLC, without regard to the number of shares of Class B common stock held by it, to a number of votes that is equal to 10 times the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to 10 times the number of LLC Units held by such holder. For purposes of calculating the Substantial Ownership Requirement, shares of Class A common stock deliverable to our pre-IPO owners and then-current Medley personnel pursuant to outstanding equity awards will be deemed then outstanding and shares of Class A common stock and LLC Units held by any estate, trust, partnership or limited liability company or other similar entity of which any pre-IPO owner or then-current Medley personnel, or any immediate family member thereof, is a trustee, partner, member or similar party will be considered held by such pre-IPO owner or other then-current Medley personnel. From and after the time that the Substantial Ownership Requirement is no longer satisfied, the Class B common stock will entitle Medley Group LLC, without regard to the number of shares of Class B common stock held by it, to a number of votes that is equal to the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to the number of LLC Units held by such holder. At the completion of our IPO, our pre-IPO owners were comprised of all of the non-managing members of Medley LLC. However, Medley LLC may in the future admit additional non-managing members that would not constitute pre-IPO owners. If at any time the ratio at which LLC

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Units are exchangeable for shares of our Class A common stock changes from one-for-one as set forth in the Exchange Agreement, the number of votes to which Class B common stockholders are entitled will be adjusted accordingly. Holders of shares of our Class B common stock will vote together with holders of our Class A common stock as a single class on all matters on which stockholders are entitled to vote generally, except as otherwise required by law.

Other than Medley Management Inc., holders of LLC Units, including our pre-IPO owners, are, subject to limited exceptions, prohibited from transferring any LLC Units held by them upon consummation of our IPO, or any shares of Class A common stock received upon exchange of such LLC Units, until the third anniversary of our IPO without our consent. Thereafter and prior to the fourth and fifth anniversaries of our IPO, such holders may not transfer more than 33 1/3% and 66 2/3%, respectively, of the number of LLC Units held by them upon consummation of our IPO, together with the number of any shares of Class A common stock received by them upon exchange therefor, without our consent. While this agreement could be amended or waived by us, our pre-IPO owners have advised us that they do not intend to seek any waivers of these restrictions.

The diagram below depicts our organizational structure (excluding those operating subsidiaries with no material operations or assets) as of August 5, 2019:

(1) The Class B common stock provides Medley Group LLC with a number of votes that is equal to 10 times the aggregate number of LLC Units held by all non-managing members of Medley LLC. From and after the time that the Substantial Ownership Requirement is no longer satisfied, the Class B common stock will provide Medley Group LLC with a number of votes that is equal to the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock.

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(2) If our pre-IPO owners exchanged all of their vested and unvested LLC Units for shares of Class A common stock, they would hold 81.8% of the outstanding shares of Class A common stock, entitling them to an equivalent percentage of economic interests and voting power in Medley Management Inc., Medley Group LLC would hold no voting power or economic interests in Medley Management Inc. and Medley Management Inc. would hold 100% of outstanding LLC Units and 100% of the voting power in Medley LLC.

(3) Medley LLC holds 96.5% of the Class B economic interests in Medley (Aspect) Management LLC.

(4) Medley LLC holds 100% of the outstanding Common Interest, and DB MED Investor I LLC holds 100% of the outstanding Preferred Interest in each of Medley Seed Funding I LLC and Medley Seed Funding II LLC.

(5) Medley Seed Funding III LLC holds 100% of the senior preferred interest, Strategic Capital Advisory Services, LLC holds 100% of the junior preferred interest, and Medley LLC holds 100% of the common interest in STRF Advisors LLC.

(6) Medley LLC holds 95.5% of the Class B economic interests in MCOF Management LLC.

(7) Medley LLC holds 100% of the outstanding Common Interest, and DB MED Investor II LLC holds 100% of the outstanding Preferred Interest in Medley Seed Funding III LLC.

(8) Medley GP Holdings LLC holds 95.5% of the Class B economic interests in MCOF GP LLC.

(9) Certain employees, former employees and former members of Medley LLC hold approximately 40.3% of the limited liability company interests in MOF II GP LLC, the entity that serves as general partner of MOF II, entitling the holders to share the carried interest earned from MOF II.

(10) Medley GP Holdings LLC holds 96.5% of the Class B economic interests in Medley (Aspect) GP LLC.

(11) Certain employees of Medley LLC hold approximately 70.1% of the limited liability company interests in Medley Caddo Investors LLC, entitling the holders to share the carried earned from Caddo Investors Holdings I LLC.

(12) Certain employees of Medley LLC hold approximately 69.9% of the limited liability company interests in Medley Real D Investors LLC, entitling the holders to share the carried earned from Medley Real D (Annuity) LLC.

(13) Certain employees of Medley LLC hold approximately 70.2% of the limited liability company interests in Medley Avantor Investors LLC, entitling the holders to share the carried earned from Medley Tactical Opportunities LLC.

(14) Certain employees of Medley LLC hold approximately 70.1% of the limited liability company interests in Medley Cloverleaf Investors LLC, entitling the holders to share the carried earned from Medley Chiller Holdings LLC.

Amended and Restated Agreement and Plan of Merger

On August 9, 2018, MDLY entered into a definitive Agreement and Plan of Merger (the "MDLY Merger Agreement") with Sierra Income Corporation ("Sierra"), pursuant to which MDLY would have, on the terms and subject to the conditions set forth in the MDLY Merger Agreement, merged with and into Sierra Management, Inc., a Delaware corporation and wholly owned subsidiary of Sierra ("Merger Sub"). In the MDLY Merger, Medley LLC unitholders would have converted their units into shares of MDLY Class A common stock and, each share of MDLY Class A common stock, issued and outstanding immediately prior to the MDLY Merger effective time, other than Dissenting Shares (as defined in the MDLY Merger Agreement) and shares of MDLY Class A common stock held by MDLY, Sierra or their respective wholly owned subsidiaries, would have been converted into the right to receive (i) 0.3836 shares of Sierra’s common stock, plus (ii) cash in an amount equal to $3.44 per share. In addition, MDLY’s stockholders would have had the right to receive certain dividends and/or other payments. Each share of Class B common stock issued and outstanding immediately prior to the effective date of the merger would have been canceled without consideration therefor.

Simultaneously, pursuant to the Agreement and Plan of Merger, dated as of August 9, 2018 (the "MCC Merger Agreement"), by and between Medley Capital Corporation, a Delaware corporation ("MCC"), and Sierra, a Maryland corporation (the "MCC Merger Agreement"), MCC would have, on the terms and subject to the conditions set forth in the MCC Merger Agreement merged with and into Sierra, with Sierra as the surviving entity in the merger (the MCC Merger together with the MDLY Merger, the "Mergers"). In the MCC Merger, each share of MCC’s common stock issued and outstanding immediately prior to the MCC merger effective time, other than the shares of MCC’s common stock held by MCC, Sierra or their respective wholly owned subsidiaries, would have been converted into the right to receive 0.8050 shares of the Sierra’s common stock.

On February 11, 2019, a putative stockholder class action related to the MCC Merger was commenced in the Court of Chancery of the State of Delaware by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd (collectively, FrontFour). The action, as consolidated, is captioned In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM (the "Class Action"). The complaint alleged that MCC’s directors (Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, and Arthur S. Ainsberg) breached their fiduciary duties to MCC stockholders in connection with the MCC Merger, and that MDLY, Sierra, MCC Advisors LLC, Medley Group LLC, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. On March 11, 2019, following a two-day trial, the Court issued a Memorandum Opinion (the "Decision") denying FrontFour’s requests to (i) permanently enjoin the MCC Merger and (ii) require MCC to conduct a shopping process for MCC on terms proposed by FrontFour in its complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the MCC Merger, but rejected FrontFour’s claim that Sierra aided and abetted those breaches of fiduciary duties. The Court ordered defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC stockholders on the MCC Merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information.

On April 15, 2019, certain parties in the Class Action reached agreement on the principal terms of a settlement, which were contained in a term sheet, dated April 15, 2019 (the Settlement Term Sheet), among Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MCC, MCC Advisors LLC, Medley LLC, and Medley Group LLC (the Medley Parties), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand.

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In connection with the Settlement Term Sheet and in exchange and consideration for the release of MDLY by the Plaintiffs and the Class (each as defined in the Settlement Term Sheet), MDLY entered into an acknowledgment and agreement (the "Acknowledgment") pursuant to which Medley agreed to certain actions and undertakings that are described in greater detail in the Settlement Term Sheet including, among other matters: (i) agreeing to participate and cooperate in the discussions and efforts to amend certain provisions of the Merger Agreements, (ii) agreeing to consent to amendments to the MCC Merger Agreement relating to the creation of go shop process to solicit superior transactions to the MCC Merger, if and when presented to MDLY by Sierra and MCC and (iii) agreeing to amendments to the MDLY Merger Agreement, and, if and when presented to MDLY by Sierra and MCC, agreeing to consent to amendments to the MCC Merger Agreement, to extend the outside date in the Merger Agreements to October 31, 2019 and to modify the merger consideration payment mechanics contained therein to provide for the creation of a settlement fund, consisting of $17 million in cash and $30 million of Sierra stock, which amount defendants in the Class Action (other than MDLY) will cause to be contributed to the fund, and distributed to eligible members of the Class, after certain deductions, following the closing of the MCC Merger and in accordance with the terms of the Settlement Stipulation (as defined in the Settlement Term Sheet).

Pursuant to, and in accordance with the terms and conditions of, the Acknowledgment, MDLY has also undertaken to work in good faith to agree to supplemental disclosures relating to the Mergers consistent with the decision in connection with the Class Action, as well as to use reasonable efforts to obtain exemptive relief from the SEC to allow for the consummation of the Mergers.

Transaction expenses related to the pending merger are included in general, administrative and other expenses and primarily consist of professional fees. Such expenses amounted to $1.1 million and $0.9 million for the three months ended June 30, 2019 and 2018, respectively and $1.4 million and $1.8 million for the six months ended June 30, 2019 and 2018, respectively.

Trends Affecting Our Business

Our results of operations, including the fair value of our AUM, are affected by a variety of factors, including conditions in the global financial markets as well as economic and political environments, particularly in the U.S.

During the three and six months ended June 30, 2019, the domestic economy slowed slightly compared to the comparative periods in the previous year and key financial market indicators remained relatively flat while LIBOR rates decreased. Across the lending spectrum, year over year loan issuances decreased slightly driven primarily by slowed merger and acquisition activity offset in part by increased refinancing activity. Our platform provides us the ability to lend across the capital structure and at varying interest rates providing our firm access to a larger borrower subset over time.

In addition to these macroeconomic trends and market factors, our future performance is dependent on our ability to attract new capital. We believe the following factors will influence our future performance:

• The extent to which investors favor directly originated private credit investments. Our ability to attract additional capital is dependent on investors’ views of directly originated private credit investments relative to traditional assets. We believe fundraising efforts will continue to be impacted by certain fundamental asset management trends that include: (i) the increasing importance of directly originated private credit investment strategies for institutional investors; (ii) increasing demand for directly originated private credit investments from retail investors; (iii) recognition by the consultant channel, which serves endowment and pension fund investors, that directly originated private credit is an important component of asset allocation; (iv) increasing demand from insurance companies seeking alternatives to investing in the liquid credit markets; and (v) de-leveraging of the global banking system, bank consolidation and increased bank regulatory requirements. 

• Our ability to generate strong, stable returns and retain investor capital throughout market cycles. The capital we are able to attract and retain drives the growth of our AUM, fee earning AUM and management fees. We believe we are well positioned to invest through market cycles given our AUM is in either permanent capital vehicles or long-dated private funds and SMAs.

• Our ability to source investments with attractive risk-adjusted returns. Our ability to grow our revenue is dependent on our continued ability to source attractive investments and deploy the capital that we have raised. We believe that the current economic environment provides attractive investment opportunities. Our ability to identify attractive investments and execute on those investments is dependent on a number of factors, including the general macroeconomic environment, valuation, size and the liquidity of these investment opportunities. A significant decrease in the quality or quantity of investment opportunities in the directly originated private credit market, a substantial increase in corporate default rates, an increase in competition from new entrants providing capital to the private debt market and a decrease in recovery rates of directly originated private credit could adversely affect our ability to source investments with attractive risk-adjusted returns.

• The attractiveness of our product offering to investors. We believe defined contribution plans, retail investors, public institutional investors, pension funds, endowments, sovereign wealth funds and insurance companies are increasing

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exposure to directly originated private credit investment products to seek differentiated returns and current yield. Our permanent capital vehicles and long-dated private funds and SMAs benefit from this demand by offering institutional and retail investors the ability to invest in our private credit investment strategy. We believe that the breadth, diversity and number of investment vehicles we offer allow us to maximize our reach with investors.

• The strength of our investment process, operating platform and client servicing capabilities. Following the most recent financial crisis, investors in alternative investments, including those managed by us, have heightened their focus on matters such as manager due diligence, reporting transparency and compliance infrastructure. Since inception, we have invested heavily in our investment monitoring systems, compliance and enterprise risk management systems to proactively address investor expectations and the evolving regulatory landscape. We believe these investments in operating infrastructure will continue to support our growth in AUM. 

Components of Our Results of Operations

Revenues

Management Fees. Management fees include both base management fees as well as Part I incentive fees.

• Base Management Fees. Base management fees are generally based on a defined percentage of (i) average or total gross assets, including assets acquired with leverage, (ii) total commitments, (iii) net invested capital, (iv) NAV or (v) lower of cost or market value of a fund’s portfolio investments. These fees are calculated quarterly and are paid in cash in advance or in arrears. Base management fees are recognized as revenue in the period advisory services are rendered, subject to our assessment of collectability.

In addition, we also receive non asset-based management fees that may include special fees such as origination fees, transaction fees and similar fees paid to us in connection with portfolio investments of our funds. These fees are specific to particular transactions and the contractual terms of the portfolio investments, and are recognized when earned.

• Part I Incentive Fees. We also include Part I incentive fees that we receive from our permanent capital vehicles and certain of our long-dated private funds in management fees. Part I incentive fees are paid quarterly, in cash, and are driven primarily by net interest income on senior secured loans. As it relates to MCC, these fees are subject to netting against realized and unrealized losses. We are primarily an asset manager of yield-oriented products and our incentive fees are primarily derived from spread income rather than trading or capital gains. In addition, we also carefully manage interest rate risk. We are generally positioned to benefit from a raising rate environment, which should benefit fees paid to us from our vehicles and funds.

• Part II Incentive Fees. For our permanent capital vehicles and certain of our long-dated private funds, Part II incentive fees generally represent 20.0% of each fund’s cumulative realized capital gains (net of realized capital losses and unrealized capital depreciation). We have not received these fees historically, and do not expect such fees to be material in the future given our focus on senior secured lending.

Performance Fees. Performance fees are contractual fees which do not represent a capital allocation to the general partner or investment manager that are earned based on the performance of certain funds, typically our separately managed accounts. Performance fees are earned based upon fund performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement. We recognize these contractual based performance fees as revenue when it is probable that a significant reversal of such fees will not occur in the future.

The timing and amount of performance fees generated by our funds is uncertain. If we were to have a realization event in a particular quarter or year, it may have a significant impact on our results for that particular quarter or year that may not be replicated in subsequent periods. Refer to “Risk Factors — Risks Related to Our Business and Industry” included in our Annual Report on Form 10-K.

Other Revenues and Fees. We provide administrative services to certain of our vehicles that are reported as other revenues and fees. Such fees are recognized as revenue in the period that administrative services are rendered. These fees are generally based on expense reimbursements for the portion of overhead and other expenses incurred by certain professionals directly attributable to each respective fund. We also act as the administrative agent on certain deals for which we may earn loan administration fees and transaction fees. We may also earn consulting fees for providing non-advisory services related to our managed funds. Additionally, this line item includes reimbursable origination and deal expenses as well as reimbursable entity formation and organizational expenses.

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Carried Interest. Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to us based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents and are accounted for under the equity method of accounting. Accordingly, these performance fees are reflected as carried interest within investment income on our consolidated statements of operations and balances due for such fees are included as a part of equity method investments within Investments, at fair value on our consolidated balance sheets.

We record carried interest based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on our consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

Carried interest received in prior periods may be required to be returned by us in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. Through June 30, 2019, we have not received any carried interest distributions, except for tax distributions related to our allocation of net income, which included an allocation of carried interest. Pursuant to the organizational documents of each respective fund, a portion of these tax distributions may be subject to clawback. As of June 30, 2019 and December 31, 2018, we have accrued $7.2 million for clawback obligations that would need to be paid if the funds were liquidated at fair value as of the end of the reporting period. Our actual obligation, however, would not become payable or realized until the end of a fund’s life.

Other Investment income. Other investment income is comprised of unrealized appreciation (depreciation) resulting from changes in fair value of our equity method investments in addition to the income/expense allocations from such investments.

In certain cases, the entities that receive management and incentive fees from our funds are owned by Medley LLC together with other persons. See “Critical Accounting Policies” and Note 2, “Summary of Significant Accounting Policies,” to our unaudited condensed consolidated financial statements included in this Form 10-Q for additional information regarding the manner in which management fees, performance fees, carried interest, investment income and other fees are recognized.

Expenses

Compensation and Benefits. Compensation and benefits consists primarily of salaries, discretionary bonuses and benefits paid and payable to our employees, performance fee compensation and stock-based compensation associated with the grants of equity-based awards to our employees. Compensation expense relating to equity based awards are measured at fair value as of the grant date, reduced for actual forfeitures when they occur, and expensed over the vesting period on a straight-line basis. Bonuses are accrued over the service period to which they relate.

Guaranteed payments made to our senior professionals who are members of Medley LLC are recognized as compensation expense. The guaranteed payments to our Co-Chief Executive Officers are performance based and periodically set subject to maximums based on our total assets under management. For each of the Co-Chief Executive Officers such maximums aggregated to $0.6 million for each of the three months ending June 30, 2019 and 2018 and $1.3 million for each of the six months ending June 30, 2019 and 2018. During the three and six months ending June 30, 2019 and 2018, neither of our Co-Chief Executive Officers received any guaranteed payments.

General, Administrative and Other Expenses. General and administrative expenses include costs primarily related to professional services, office rent, depreciation and amortization, general insurance, recruiting, travel and related expenses, information technology, communication and information services and other general operating items.

Other Income (Expense)

Dividend Income. Dividend income consists of dividends associated with our investments in SIC and MCC. Dividends are recognized on an accrual basis to the extent that such amounts are declared and expected to be collected.

Interest Expense. Interest expense consists primarily of interest expense relating to debt incurred by us.

Other Expenses, Net. Other expenses, net consists primarily of expenses associated with our revenue share payable and unrealized gains (losses) from our investment in MCC.

Provision for (Benefit from) Income Taxes. Medley Management Inc. is subject to U.S. federal, state and local corporate income taxes on its allocable portion of taxable income from Medley LLC at prevailing corporate tax rates. Medley LLC and its subsidiaries are not subject to U.S. federal, state and local corporate income taxes since all of its income or losses are passed through to its members. However, Medley LLC and its subsidiaries are subject to New York City’s unincorporated business tax

7

on its taxable income allocated to New York City. Our effective income tax rate is dependent on many factors, including the impact of nondeductible items, the need for or changes in the valuation allowance on deferred tax assets, and a rate benefit attributable to the fact that a portion of our earnings are not subject to corporate level taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. To the extent it is more likely than not that the deferred tax assets will not be recognized, a valuation allowance is provided to offset their benefit.

We recognize the benefit of an income tax position only if it is more likely than not that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% percent likelihood of being realized upon ultimate settlement. Interest expense and penalties related to income tax matters are recognized as a component of the provision for income taxes.

Net Income (Loss) Attributable to Redeemable Non-Controlling Interests and Non-Controlling Interests in Consolidated Subsidiaries. Net income (loss) attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries represents the ownership interests that third parties hold in certain consolidated subsidiaries.

Net Income (Loss) Attributable to Non-Controlling Interests in Medley LLC. Net income (loss) attributable to non-controlling interests in Medley LLC represents the ownership interests that non-managing members’ hold in Medley LLC.

Our private funds are closed-end funds, and accordingly do not permit investors to redeem their interests other than in limited circumstances that are beyond our control, such as instances in which retaining the limited partnership interest could cause the limited partner to violate a law, regulation or rule. In addition, SMAs for a single investor may allow such investor to terminate the investment management agreement at the discretion of the investor pursuant to the terms of the applicable documents. We manage assets for MCC and SIC, both of which are BDCs. The capital managed by MCC and SIC is permanently committed to these funds and cannot be redeemed by investors.

Managing Business Performance

Non-GAAP Financial Information

In addition to analyzing our results on a GAAP basis, management also makes operating decisions and assesses business performance based on the financial and operating metrics and data that are presented without the consolidation of any fund(s). Core Net Income, Core EBITDA, Core Net Income Per Share and Core Net Income Margin are non-GAAP financial measures that are used by management to assess the performance of our business. There are limitations associated with the use of non-GAAP financial measures as compared to the use of the most directly comparable U.S. GAAP financial measure and these measures supplement and should be considered in addition to and not in lieu of the results of operations discussed further under "Results of Operations,’’ which are prepared in accordance with U.S. GAAP. Furthermore, such measures may be inconsistent with measures presented by other companies. For a reconciliation of these measures to the most comparable measure in accordance with U.S. GAAP, see "Reconciliation of Certain Non-GAAP Performance Measures to Consolidated U.S. GAAP Financial Measures.’’

Core Net Income. Core Net Income is an income measure that is used by management to assess the performance of our business through the removal of non-core items, as well as non-recurring expenses associated with our IPO. It is calculated by adjusting net income (loss) attributable to Medley Management Inc. and net income (loss) attributable to non-controlling interests in Medley LLC to exclude reimbursable expenses associated with the launch of funds, amortization of stock-based compensation expense associated with grants of restricted stock units at the time of our IPO, expenses associated with strategic initiatives and other non-core items and the income tax impact of these adjustments.

Core Earnings Before Interest, Income Taxes, Depreciation and Amortization (Core EBITDA). Core EBITDA is an income measure also used by management to assess the performance of our business. Core EBITDA is calculated as Core Net Income before interest expense, income taxes, depreciation and amortization.

Pro-Forma Weighted Average Shares Outstanding. The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of up to 26,316,642 vested and unvested LLC Units for 26,316,642 shares of Class A common stock at the beginning of each period presented.

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Core Net Income Per Share. Core Net Income Per Share is Core Net Income adjusted for corporate income taxes assuming that all of our pre-tax earnings are subject to federal, state and local corporate income taxes, divided by Pro-Forma Weighted Average Shares Outstanding (as defined above). In determining corporate income taxes we used an annual effective corporate tax rate of 33.0% for 2019 and 2018. Please refer to the calculation of Core Net Income Per Share in “Reconciliation of Certain Non-GAAP Performance Measures to Consolidated U.S. GAAP Financial Measures.”

Core Net Income Margin. Core Net Income Margin equals Core Net Income Per Share divided by total revenue per share.

Key Performance Indicators

When we review our performance we focus on the indicators described below:

	For the Three Months Ended June 30,						For the For the Six Months Ended June 30,
	2019			2018			2019			2018
	(dollars in thousands, except AUM, and per share amounts)
Consolidated Financial Data:
Net (loss) income attributable to Medley Management Inc. and non-controlling interests in Medley LLC	$	(1,104	)	$	5		$	(1,537	)	$	(5,122	)
Net loss per Class A common stock	$	(0.03	)	$	(0.08	)	$	(0.04	)	$	(0.34	)
Net Income Margin (1)	(8.6		)%	—		%	(5.8		)%	(17.3		)%
Weighted average shares - Basic and Diluted	5,847,883			5,543,802			5,801,531			5,513,719
Non-GAAP Data:
Core Net Income	$	660		$	2,018		$	1,365		$	3,275
Core EBITDA	$	3,827		$	5,351		$	7,707		$	10,359
Core Net Income Per Share	$	0.02		$	0.05		$	0.03		$	0.10
Core Net Income Margin	4.1		%	10.7		%	4.0		%	10.2		%
Pro-Forma Weighted Average Shares Outstanding	33,365,615			31,790,112			32,745,161			31,215,945
Other Data (at period end, in millions):
AUM	$	4,422		$	5,036		$	4,422		$	5,036
Fee Earning AUM	$	2,472		$	2,960		$	2,472		$	2,960

⁽¹⁾  Net Income Margin equals Net income (loss) attributable to Medley Management Inc. and non-controlling interests in Medley LLC divided by total revenue.

AUM

AUM refers to the assets of our funds. We view AUM as a metric to measure our investment and fundraising performance as it reflects assets generally at fair value plus available uncalled capital. For our funds, our AUM equals the sum of the following:

• Gross asset values or NAV of such funds;

• the drawn and undrawn debt (at the fund-level, including amounts subject to restrictions); and

• uncalled committed capital (including commitments to funds that have yet to commence their investment periods).

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The table below provides the roll forward of AUM for the three months ending June 30, 2019.

										% of AUM
	Permanent Capital Vehicles			Long-dated Private Funds and SMAs			Total			Permanent Capital Vehicles		Long-dated Private Funds and SMAs
	(Dollars in millions)
Ending balance, March 31, 2019	$	1,907		$	2,761		$	4,668		41	%	59	%
Commitments (1)	1			4			5
Capital reduction (2)	(135		)	—			(135		)
Distributions (3)	(16		)	(51		)	(67		)
Change in fund value (4)	(49		)	—			(49		)
Ending balance, June 30, 2019	$	1,708		$	2,714		$	4,422		39	%	61	%

⁽¹⁾  With respect to permanent capital vehicles, represents decreases during the period for debt repayments offset, in part, by equity and debt offerings. With respect to long-dated private funds and SMAs, represents new commitments as well as any increases in available undrawn borrowings.

⁽²⁾  Represents the permanent reduction in equity or leverage during the period.

⁽³⁾  With respect to permanent capital vehicles, represents distributions of income. With respect to long-dated private funds and SMAs, represents return of capital, given our funds’ stage in their respective life cycle and the prioritization of capital distributions.

⁽⁴⁾  Includes interest income, realized and unrealized gains (losses), fees and/or expenses.

AUM decreased by $0.2 million to $4.4 billion as of June 30, 2019 compared to March 31, 2019. Our permanent capital vehicles decreased AUM by $199.0 million as of June 30, 2019 and our long-dated private funds and SMAs decreased AUM by $47.0 million as of June 30, 2019 in each case as compared with March 31, 2019.

The table below provides the roll forward of AUM for the six months ending June 30, 2019.

										% of AUM
	Permanent Capital Vehicles			Long-dated Private Funds and SMAs			Total			Permanent Capital Vehicles		Long-dated Private Funds and SMAs
	(Dollars in millions)
Ending balance, December 31, 2018	$	1,917		$	2,795		$	4,712		41	%	59	%
Commitments (1)	15			(3		)	12
Capital reduction (2)	(135		)	—			(135		)
Distributions (3)	(35		)	(69		)	(104		)
Change in fund value (4)	(54		)	(9		)	(63		)
Ending balance, June 30, 2019	$	1,708		$	2,714		$	4,422		39	%	61	%

⁽¹⁾  With respect to permanent capital vehicles, represents decreases during the period for debt repayments offset, in part, by equity and debt offerings. With respect to long-dated private funds and SMAs, represents new commitments as well as any increases in available undrawn borrowings.

⁽²⁾  Represents the permanent reduction in equity or leverage during the period.

⁽³⁾  With respect to permanent capital vehicles, represents distributions of income. With respect to long-dated private funds and SMAs, represents return of capital, given our funds’ stage in their respective life cycle and the prioritization of capital distributions.

⁽⁴⁾  Includes interest income, realized and unrealized gains (losses), fees and/or expenses.

AUM decreased by $0.3 million to $4.4 billion as of June 30, 2019 compared to December 31, 2018. Our permanent capital vehicles decreased AUM by $209.0 million as of June 30, 2019 and our long-dated private funds and SMAs decreased AUM by $81.0 million, in each case as compared with December 31, 2018.

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Fee Earning AUM

Fee earning AUM refers to assets under management on which we directly earn base management fees. We view fee earning AUM as a metric to measure changes in the assets from which we earn management fees. Our fee earning AUM is the sum of all the individual fee earning assets of our funds that contribute directly to our management fees and generally equals the sum of:

• for our permanent capital vehicles, the average or total gross asset value, including assets acquired with the proceeds of leverage (see “Fee earning AUM based on gross asset value” in the “Components of Fee Earning AUM” table below for the amount of this component of fee earning AUM as of each period);

• for certain long-dated private funds within their investment period, the amount of limited partner capital commitments (see “Fee earning AUM based on capital commitments” in the “Components of Fee Earning AUM” table below for the amount of this component of fee earning AUM as of each period); and

• for the aforementioned funds beyond their investment period and certain managed accounts within their investment period, the amount of limited partner invested capital or the NAV of the fund (see “Fee earning AUM based on invested capital or NAV” in the “Components of Fee Earning AUM” table below for the amount of this component of fee earning AUM as of each period).

Our calculations of fee earning AUM and AUM may differ from the calculations of other asset managers and, as a result, this measure may not be comparable to similar measures presented by others. In addition, our calculations of fee earning AUM and AUM may not be based on any definition of fee earning AUM or AUM that is set forth in the agreements governing the investment funds that we advise.

Components of Fee Earning AUM

	As of
	June 30, 2019		December 31, 2018
	(in millions)
Fee earning AUM based on gross asset value	$	1,527	$	1,743
Fee earning AUM based on invested capital, NAV or capital commitments	945		1,042
Total fee earning AUM	$	2,472	$	2,785

As of June 30, 2019, fee earning AUM based on gross asset value decreased by $216.0 million, compared to December 31, 2018. The decrease was primarily due to debt repayments representing capital reductions, distributions and changes in fund value.

As of June 30, 2019, fee earning AUM based on invested capital, NAV or capital commitments decreased by $97.0 million compared to December 31, 2018. The decrease was primarily due to the return of portfolio investment capital to the fund.

The table below presents the roll forward of fee earning AUM for the three months ended June 30, 2019.

										% of Fee Earning AUM
	Permanent Capital Vehicles			Long-dated Private Funds and SMAs			Total			Permanent Capital Vehicles		Long-dated Private Funds and SMAs
	(Dollars in millions)
Ending balance, March 31, 2019	$	1,713		$	998		$	2,711		63	%	37	%
Commitments (1)	13			29			42
Capital reduction (2)	(135		)	—			(135		)
Distributions (3)	(16		)	(67		)	(83		)
Change in fund value (4)	(48		)	(15		)	(63		)
Ending balance, June 30, 2019	$	1,527		$	945		$	2,472		62	%	38	%

⁽¹⁾  With respect to permanent capital vehicles, represents increases or temporary reductions during the period through equity and debt offerings, as well as any increases in capital commitments. With respect to long-dated private funds and SMAs, represents new commitments or gross inflows, respectively.

⁽²⁾  Represents the permanent reduction in equity or leverage during the period.

⁽³⁾  Represents distributions of income, return of capital and return of portfolio investment capital to the fund.

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⁽⁴⁾  Includes interest income, realized and unrealized gains (losses), fees and/or expenses.

Total fee earning AUM decreased by $239.0 million, or (9)%, to $2.5 billion as of June 30, 2019 compared to March 31, 2019, due primarily to debt repayments representing capital reductions, distributions and changes in fund value.

The table below presents the roll forward of fee earning AUM for the six months ended June 30, 2019.

										% of Fee Earning AUM
	Permanent Capital Vehicles			Long-dated Private Funds and SMAs			Total			Permanent Capital Vehicles		Long-dated Private Funds and SMAs
	(Dollars in millions)
Ending balance, December 31, 2018	$	1,743		$	1,042		$	2,785		63	%	37	%
Commitments (1)	8			82			90
Capital reduction(2)	(135		)	—			(135		)
Distributions (3)	(35		)	(131		)	(166		)
Change in fund value (4)	(54		)	(48		)	(102		)
Ending balance, June 30, 2019	$	1,527		$	945		$	2,472		62	%	38	%

⁽¹⁾  With respect to permanent capital vehicles, represents increases or temporary reductions during the period through equity and debt offerings, as well as any increases in capital commitments. With respect to long-dated private funds and SMAs, represents new commitments or gross inflows, respectively.

⁽²⁾  Represents the permanent reduction in equity or leverage during the period.

⁽³⁾  Represents distributions of income, return of capital and return of portfolio investment capital to the fund.

⁽⁴⁾  Includes interest income, realized and unrealized gains (losses), fees and/or expenses.

Total fee earning AUM decreased by $313.0 million, or (11)%, to $2.5 billion as of June 30, 2019 compared to December 31, 2018, due primarily to distributions, debt repayments representing capital reductions and changes in fund value.

Returns

The following section sets forth historical performance for our active funds.

Sierra Income Corporation (SIC)

We launched SIC, our first public non-traded permanent capital vehicle, in April 2012. SIC primarily focuses on direct lending to middle market borrowers in the United States. Since inception, we have provided capital for a total of 420 investments and have invested a total of $2.4 billion. As of June 30, 2019, the fee earning AUM was $991 million. The performance for SIC as of June 30, 2019 is summarized below: 

Annualized Net Total Return(1):	3.6	%
Annualized Realized Losses on Invested Capital:	1.5	%
Average Recovery(3):	61.8	%

Medley Capital Corporation (MCC)

We launched MCC, our first permanent capital vehicle in January 2011. MCC primarily focuses on direct lending to private middle market borrowers in the United States. Since inception, we have provided capital for a total of 243 investments and have invested a total of $2.2 billion. As of June 30, 2019 the fee earning AUM was $534 million. The performance for MCC as of June 30, 2019 is summarized below:

Annualized Net Total Return(2):	(0.9	)%
Annualized Realized Losses on Invested Capital:	2.9	%
Average Recovery(3):	36.8	%

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Medley Opportunity Fund II LP (MOF II)

MOF II is a long-dated private investment fund that we launched in December 2010. MOF II lends to middle market private borrowers, with a focus on providing senior secured loans. Since inception, we have provided capital for a total of 86 investments and have invested a total of $974 million. As of June 30, 2019, the fee earning AUM was $187 million. MOF II is currently fully invested and actively managing its assets. The performance for MOF II as of June 30, 2019, is summarized below:

Gross Portfolio Internal Rate of Return(4):	7.1	%
Net Investor Internal Rate of Return(5):	3.1	%
Annualized Realized Losses on Invested Capital:	2.9	%
Average Recovery(3):	39.9	%

Medley Opportunity Fund III LP (MOF III)

MOF III is a long-dated private investment fund that we launched in December 2014. MOF III lends to middle market private borrowers in the U.S., with a focus on providing senior secured loans. Since inception, we have provided capital for a total of 47 investments and have invested a total of $209 million. As of June 30, 2019, the fee earning AUM was $97 million. The performance for MOF III as of June 30, 2019 is summarized below: 

Gross Portfolio Internal Rate of Return(4):	10.1	%
Net Investor Internal Rate of Return(5):	6.0	%
Annualized Realized Losses on Invested Capital:	—	%
Average Recovery:	N/A

Separately Managed Accounts (SMAs)

In the case of our separately managed accounts, the investor, rather than us, may control the assets or investment vehicle that holds or has custody of the related investments. Certain subsidiaries of Medley LLC serve as the investment adviser for our SMAs. Since inception, we have provided capital for a total of 225 investments and have invested a total of $1.3 billion. As of June 30, 2019, the fee earning AUM in our SMAs was $546 million. The aggregate performance of our SMAs as of June 30, 2019, is summarized below:

Gross Portfolio Internal Rate of Return(4):	7.9	%
Net Investor Internal Rate of Return(6):	6.1	%
Annualized Realized Losses on Invested Capital:	0.9	%
Average Recovery(3):	34.5	%

Other Long-Dated Private Funds and Permanent Capital Vehicles

We launched Sierra Total Return Fund (“STRF”), a public non-traded permanent capital vehicle, in June 2017. The Fund seeks to provide a total return through a combination of current income and long-term capital appreciation by investing in a portfolio of debt securities and fixed-income related equity securities.

We launched Medley Opportunity Fund Offshore III LP (“MOF III Offshore”) in May 2017. MOF III Offshore invests in senior secured loans made to middle market private borrowers in the US.

We launched Aspect-Medley Investment Platform A LP (“Aspect”) in November 2016 and Aspect-Medley Investment Platform B LP (“Aspect-B”) in May 2018 to meet the current demand for equity capital solutions in the traditional corporate debt-backed collateralized loan obligation (“CLO”) market. Its investment objective is to generate current income, and also to generate capital appreciation through investing in CLO equity, as well as, equity and junior debt tranches trading in the secondary market.

We launched Medley Credit Opportunity Fund (“MCOF”) in July 2016 to meet the current demand for equity capital solutions in the traditional corporate debt-backed collateralized loan obligation (“CLO”) market. Its investment objective is to generate current income, and also to generate capital appreciation through investing in CLO equity, as well as, equity and junior debt tranches trading in the secondary market.

The performance of STRF, MOF III Offshore, Aspect, Aspect-B, and MCOF as of June 30, 2019 is not meaningful given the funds' limited capital invested to date.

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⁽¹⁾  Annualized Net Total Return for SIC represents the annualized return assuming an investment at SIC’s inception, reinvestments of all distributions at prices obtained under SIC’s dividend reinvestment plan and no sales charge.

⁽²⁾  Annual Net Total Return for MCC, including Medley SBIC, represents the annualized return assuming an investment at the initial public offering price, reinvestments of all dividends and distributions at prices obtained under MCC's dividend reinvestment plan and selling at NAV as of the measurement date.

⁽³⁾  Average Recovery includes only those realized investments in which we experience a loss of principal on a cumulative cash flow basis and is calculated by dividing the total actual cash inflows for each respective investment, including all interest, principal and fee note repayments, dividends and transactions fees, if applicable, by the total actual cash outflows for each respective investment.

⁽⁴⁾  For MOF II, MOF III, and SMAs, the Gross Internal Rate of Return represents the cumulative investment performance from inception of each respective fund through June 30, 2019. The Gross Internal Rate of Return includes both realized and unrealized investments and excludes the impact of base management fees, incentive fees and other fund related expenses. For realized investments, the investment returns were calculated based on the actual cash outflows and inflows for each respective investment and include all interest, principal and fee note repayments, dividends and transactions fees, if applicable. For unrealized investments, the investment returns were calculated based on the actual cash outflows and inflows for each respective investment and include all interest, principal and fee note repayments, dividends and transactions fees, if applicable. The investment return assumes that the remaining unrealized portion of the investment is realized at the investment’s most recent fair value, as calculated in accordance with GAAP. There can be no assurance that the investments will be realized at these fair values and actual results may differ significantly.

⁽⁵⁾  Net Internal Rate of Return for MOF II and MOF III was calculated net of all management fees and carried interest allocation since inception and was computed based on the actual dates of capital contributions and the ending aggregate partners’ capital at the end of the period.

⁽⁶⁾  Net Internal Rate of Return for our SMAs was calculated using the Gross Internal Rate of Return, as described in note 4, and includes the actual management fees, incentive fees and general fund related expenses.

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Results of Operations

The following table and discussion sets forth information regarding our condensed consolidated results of operations for the three and six months ended June 30, 2019 and 2018. The unaudited condensed consolidated financial statements of Medley have been prepared on substantially the same basis for all historical periods presented.

	For the Three Months Ended June 30,						For the For the Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands, except AUM data)
Revenues
Management fees (there were no Part I incentive fees recognized for each of the three and six months ended June 30, 2019 and 2018)	$	10,208		$	11,965		$	21,121		$	24,050
Other revenues and fees	2,669			3,038			5,110			5,367
Investment income:
Carried interest	441			432			793			597
Other investment loss, net	(436		)	(284		)	(373		)	(467		)
Total Revenues	12,882			15,151			26,651			29,547
Expenses
Compensation and benefits	6,958			7,307			14,979			15,638
General, administrative and other expenses	4,106			4,342			7,360			8,851
Total Expenses	11,064			11,649			22,339			24,489
Other Income (Expense)
Dividend income	188			960			760			2,389
Interest expense	(2,874		)	(2,715		)	(5,772		)	(5,396		)
Other expenses, net	(5,980		)	(4,011		)	(2,409		)	(13,766		)
Total Other Expenses, Net	(8,666		)	(5,766		)	(7,421		)	(16,773		)
Loss before income taxes	(6,848		)	(2,264		)	(3,109		)	(11,715		)
(Benefit from) provision for income taxes	(70		)	195			(93		)	385
Net Loss	(6,778		)	(2,459		)	(3,016		)	(12,100		)
Net loss attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries	(5,674		)	(2,464		)	(1,479		)	(6,978		)
Net (loss) income attributable to non-controlling interests in Medley LLC	(921		)	133			(1,282		)	(3,766		)
Net Loss Attributable to Medley Management Inc.	$	(183	)	$	(128	)	$	(255	)	$	(1,356	)
Other data (at period end, in millions):
AUM	$	4,422		$	5,036		$	4,422		$	5,036
Fee earning AUM	$	2,472		$	2,960		$	2,472		$	2,960

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Three Months Ended June 30, 2019 Compared to Three Months Ended June 30,2018

Revenues

Management Fees. Total management fees decreased by $1.8 million, or 15%, to $10.2 million during the three months ended June 30,2019 compared to the three months ended June 30,2018.

• Our management fees from permanent capital vehicles decreased by $1.4 million, or 16%, during the three months ended June 30,2019 compared to the same period in 2018. The decrease was due primarily to lower base management fees from both SIC and MCC as a result of a decrease in fee earning assets under management driven by a reduction in leverage and changes in fund values.

• Our management fees from long-dated private funds and SMAs decreased by $0.4 million, or 11%, during the three months ended June 30,2019, compared to the same period in 2018. The decrease was primarily due to lower base management fees from MOF II as a result of a decrease in fee earning assets under management driven by investment realizations and changes in fund value.

Other Revenues and Fees. Other revenues and fees decreased by $0.4 million to $2.7 million during the three months ended June 30,2019 compared to the same period in 2018. The decrease was due primarily to lower administration fees offset by an increase in consulting fees for providing non-advisory services related to one of our managed funds.

Investment Income. Investment income decreased by approximately $0.1 million during the three months ended June 30,2019 compared to the same period in 2018. The decrease was primarily attributed to unrealized losses from our equity method investments offset in part by an increase in carried interest.

Expenses

Compensation and Benefits. Compensation and benefits expenses decreased by $0.3 million to $7.0 million for the three months ended June 30,2019 compared to the same period in 2018. The decrease was primarily due to a decrease in salaries offset in part by an increase in severance expense.

General, Administrative and Other Expenses. General, administrative and other expenses decreased by $0.2 million to $4.1 million during the three months ended June 30,2019 compared to the same period in 2018. The decrease was due primarily to a $0.3 million decrease in expenses associated with our consolidated fund, STRF, offset in part by higher insurance expense.

Other Income (Expense)

Dividend Income. Dividend income decreased by $0.8 million to $0.2 million during the three months ended June 30,2019 compared to the same period in 2018. The decrease was due to a reduction in dividend income from our investment in shares of MCC.

Interest Expense. Interest expense increased by $0.2 million to $2.9 million during the three months ended June 30,2019 compared to the same period in 2018. The increase was primarily due to interest expense associated with our due to former minority interest holder liability.

Other Expense, net. Other expense, net increased by $2.0 million to $6.0 million during the three months ended June 30,2019 compared to the same period in 2018. The increase was due primarily to a $6.0 million unrealized loss on our investment in MCC during the three months ended June 30, 2019 as compared to a $4.0 million unrealized loss recorded during the same period in 2018. The $6.0 million unrealized loss during the three months ended June 30, 2019 and the $4.0 million unrealized loss during the same period in 2018 were allocated to non-controlling interests in consolidated subsidiaries which did not have any impact on the income attributed to Medley Management Inc. and non-controlling interests in Medley LLC.

Provision for Income Taxes

Our effective income tax rate was 1.0% and (8.6)% for the three months ended June 30, 2019 and 2018, respectively. Our tax rate is affected by recurring items, such as permanent differences and income allocated to certain redeemable non-controlling interests which is not subject to U.S. federal, state and local corporate income taxes. Our effective tax rate is also impacted by discrete items that may occur in any given period, but are not consistent from period to period. The variance in our effective tax rate was primarily attributed to losses allocated to our non-controlling interests of $5.7 million and $2.5 million for the three months ended June 30, 2019 and 2018, respectively, which were not subject to income taxes.

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Redeemable Non-Controlling Interests and Non-Controlling Interests in Consolidated Subsidiaries

Net loss attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries increased by $3.2 million to a loss of $5.7 million for the three months ended June 30,2019 compared to the same period in 2018. The decrease was primarily due to the allocation of unrealized losses on shares of MCC to DB MED Investor I LLC, a third party, based on its preferred ownership interests held in one of our consolidated subsidiaries.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30,2018

Revenues

Management Fees. Total management fees decreased by $2.9 million, or 12%, to $21.1 million during the six months ended June 30, 2019 compared to the six months ended June 30,2018.

• Our management fees from permanent capital vehicles decreased by $2.2 million, or 13%, during the six months ended June 30,2019 compared to the same period in 2018. The decrease was primarily due to lower base management fees from both SIC and MCC as a result of a decrease in fee earning assets under management driven by a reduction in leverage and changes in fund values.

• Our management fees from long-dated private funds and SMAs decreased by $0.7 million, or 10%, during the six months ended June 30,2019, compared to the same period in 2018.

Other Revenues and Fees. Other revenues and fees decreased by $0.3 million to $5.1 million during the six months ended June 30,2019 compared to the same period in 2018. The decrease was primarily due to lower administration fees offset by an increase in consulting fees for providing non-advisory services related to one of our private long-dated funds.

Investment Income. Investment income increased by approximately $0.3 million during the six months ended June 30,2019 compared to the same period in 2018. The increase was primarily due to an increase in carried interest earned.

Expenses

Compensation and Benefits. Compensation and benefits expenses decreased by $0.7 million to $15.0 million for the six months ended June 30,2019 compared to the same period in 2018. The decrease was primarily due to a decrease in severance expense and salaries offset in part by an increase in stock-based compensation expense.

General, Administrative and Other Expenses. General, administrative and other expenses decreased by $1.5 million to $7.4 million during the six months ended June 30, 2019 compared to the same period in 2018. The decrease was due primarily to a $0.6 million decrease in professional fees as well as a $0.9 million decrease in expenses associated with our consolidated fund, STRF.

Other Income (Expense)

Dividend Income. Dividend income decreased by $1.6 million to $0.8 million during the six months ended June 30,2019 compared to the same period in 2018. The decrease was due to a reduction in dividend income from our investment in shares of MCC.

Interest Expense. Interest expense increased by $0.4 million to $5.8 million during the six months ended June 30,2019 compared to the same period in 2018. The increase was primarily due to interest expense associated with our due to former minority interest holder liability.

Other Expense, net. Other expense, net decreased by $11.4 million to $2.4 million during the six months ended June 30,2019 compared to the same period in 2018. The decrease of expense was due primarily to a $2.5 million unrealized loss on our investment in MCC during the six months ended June 30, 2019 as compared to a $13.6 million unrealized loss recorded during the same period in 2018. The entire $2.5 million unrealized loss in the six months ended June 30, 2019 and $10.1 million of the $13.6 million unrealized loss during the same period in 2018 were allocated to non-controlling interests in consolidated subsidiaries which did not have any impact on the income attributed to Medley Management Inc. and non-controlling interests in Medley LLC.

Provision for Income Taxes

Our effective income tax rate was 3.0% and (3.3)% for the six months ended June 30,2019 and 2018, respectively. Our tax rate is affected by recurring items, such as permanent differences and income allocated to certain redeemable non-controlling interests which is not subject to U.S. federal, state and local corporate income taxes. Our effective tax rate is also impacted by discrete items that may occur in any given period, but are not consistent from period to period. The variance in our effective tax rate was primarily attributed to losses allocated to our non-controlling interests of $1.5 million and $7.0 million for the six months ended June 30, 2019 and 2018, respectively, which was not subject to income taxes and the recording of a $0.7 million valuation allowance during the six months ended June 30, 2018 relating to the portion of our deferred tax asset associated with cumulative

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unrealized losses on our investments. We consider it more likely than not that MDLY will not be able to generate enough capital gains in the near future to realize the deferred tax asset associated with such capital losses.

Redeemable Non-Controlling Interests and Non-Controlling Interests in Consolidated Subsidiaries

Net loss attributable to redeemable non-controlling interests and non-controlling interests in consolidated subsidiaries decreased by $5.5 million to $1.5 million for the six months ended June 30,2019 compared to the same period in 2018. The decrease was primarily due to the allocation of unrealized losses on shares of MCC to DB MED Investor I LLC, a third party, based on its preferred ownership interests held in one of our consolidated subsidiaries.

Reconciliation of Certain Non-GAAP Performance Measures to Consolidated U.S. GAAP Financial Measures

In addition to analyzing our results on a GAAP basis, management also makes operating decisions and assesses business performance based on the financial and operating metrics and data that are presented in the table below. Management believes that these measures provide analysts, investors and management with helpful information regarding our underlying operating performance and our business, as they remove the impact of items management believes are not reflective of underlying operating performance. These non-GAAP measures are also used by management for planning purposes, including the preparation of internal budgets; and for evaluating the effectiveness of operational strategies. Additionally, we believe these non-GAAP measures provide another tool for investors to use in comparing our results with other companies in our industry, many of whom use similar non-GAAP measures. There are limitations associated with the use of non-GAAP financial measures as compared to the use of the most directly comparable U.S. GAAP financial measure and these measures supplement and should be considered in addition to and not in lieu of the results of operations discussed below. Furthermore, such measures may be inconsistent with measures presented by other companies.

Net income (loss) attributable to Medley Management Inc. and non-controlling interests in Medley LLC is the U.S. GAAP financial measure most comparable to Core Net Income and Core EBITDA.

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The following table is a reconciliation of net income (loss) attributable to Medley Management Inc. and non-controlling interests in Medley LLC on a consolidated basis to Core Net Income and Core EBITDA.

	For the Three Months Ended June 30,						For the For the Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands, except share and per share amounts)
Net loss attributable to Medley Management Inc.	$	(183	)	$	(128	)	$	(255	)	$	(1,356	)
Net (loss) income attributable to non-controlling interests in Medley LLC	(921		)	133			(1,282		)	(3,766		)
Net (loss) income attributable to Medley Management Inc. and non-controlling interests in Medley LLC	$	(1,104	)	$	5		$	(1,537	)	$	(5,122	)
Reimbursable fund startup expenses	94			442			261			1,065
IPO date award stock-based compensation	231			433			273			574
Expenses associated with strategic initiatives	1,105			939			1,416			1,791
Other non-core items:
Unrealized losses on shares of MCC	—			—			—			3,543
Severance expense	522			338			1,262			2,224
Other (1)	—			69			—			69
Income tax expense on adjustments	(188		)	(208		)	(310		)	(869		)
Core Net Income	$	660		$	2,018		$	1,365		$	3,275
Interest expense	2,875			2,715			5,773			5,396
Income taxes	118			403			217			1,254
Depreciation and amortization	174			215			352			434
Core EBITDA	$	3,827		$	5,351		$	7,707		$	10,359
Core Net Income Per Share	$	0.02		$	0.05		$	0.03		$	0.10
Pro-Forma Weighted Average Shares Outstanding (2)	33,365,615			31,790,112			32,745,161			31,215,945

⁽¹⁾ For the three and six months ended June 30, 2018, other items consists of expenses related to non-core business development activities and other expenses.

⁽²⁾ The calculation of Pro-Forma Weighted Average Shares Outstanding assumes the conversion by the pre-IPO holders of up to 26,316,642 vested and unvested LLC Units for 26,316,642 shares of Class A common stock at the beginning of each period presented, as well as the vesting of the weighted average number of restricted stock units granted to employees and directors during each of the periods presented. Refer to the chart below for the weighted average shares used to calculate Core Net Income Per Share for each of the periods presented in the table above.

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The calculation of Core Net Income Per Share is presented in the table below:

	For the Three Months Ended June 30,					For the For the Six Months Ended June 30,
	2019		2018			2019			2018
	(in thousands, except share and per share amounts)
Numerator
Core Net Income	$	660	$	2,018		$	1,365		$	3,275
Add: Income taxes	118		403			217			1,254
Pre-Tax Core Net Income	$	778	$	2,421		$	1,582		$	4,529
Denominator
Class A common stock	5,847,883		5,543,802			5,801,531			5,513,719
Conversion of LLC Units and restricted LLC Units to Class A common stock	25,183,862		24,372,591			24,918,611			24,023,329
Restricted stock units	2,333,870		1,873,719			2,025,019			1,678,897
Pro-Forma Weighted Average Shares Outstanding	33,365,615		31,790,112			32,745,161			31,215,945
Pre-Tax Core Net Income Per Share	$	0.02	$	0.08		$	0.05		$	0.15
Less: corporate income taxes per share (1)	—		(0.03		)	(0.02		)	(0.05		)
Core Net Income Per Share	$	0.02	$	0.05		$	0.03		$	0.10

⁽¹⁾  Assumes that all of our pre-tax earnings are subject to federal, state and local corporate income taxes. In determining corporate income taxes, we used a combined effective corporate tax rate of 33.0%.

Net Income Margin is the U.S. GAAP financial measure most comparable to Core Net Income Margin. Net Income margin is equal to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC divided by total revenue. The following table is a reconciliation of Net Income Margin to Core Net Income Margin.

	For the Three Months Ended June 30,				For the For the Six Months Ended June 30,
	2019		2018		2019		2018
Net Income Margin	(8.6	)%	—	%	(5.8	)%	(17.3	)%
Reimbursable fund startup expenses (1)	0.7	%	2.9	%	1.0	%	3.6	%
IPO date award stock-based compensation (1)	1.8	%	2.9	%	1.0	%	1.9	%
Expenses associated with strategic initiatives (1)	8.6	%	6.2	%	5.3	%	6.1	%
Other non-core items: (1)
Unrealized losses on shares of MCC	—	%	—	%	—	%	12.0	%
Severance expense	4.1	%	2.2	%	4.7	%	7.5	%
Other	—	%	0.5	%	—	%	0.2	%
Provision for income taxes (1)	(0.5	)%	1.3	%	(0.3	)%	1.3	%
Corporate income taxes (2)	(2.0	)%	(5.3	)%	(2.0	)%	(5.1	)%
Core Net Income Margin	4.1	%	10.7	%	4.0	%	10.2	%

⁽¹⁾  Adjustments to Net income attributable to Medley Management Inc. and non-controlling interests in Medley LLC to calculate Core Net Income are presented as a percentage of total revenue.

⁽²⁾  Assumes that all our pre-tax earnings, including adjustments above, are subject to federal, state and local corporate income taxes. In determining corporate income taxes, we used a combined effective corporate tax rate of 33.0%.

Liquidity and Capital Resources

Our primary cash flow activities involve: (i) generating cash flow from operations, which largely includes management fees; (ii) making distributions to our members and redeemable non-controlling interests; (iii) paying dividends and (iv) borrowings, interest payments and repayments under our debt facilities. As of June 30, 2019, we had $10.2 million in cash and cash equivalents.

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Our material source of cash from our operations is management fees, which are collected quarterly. We primarily use cash flows from operations to pay compensation and benefits, general, administrative and other expenses, federal, state and local corporate income taxes, debt service costs and distributions to our owners. Our cash flows, together with the proceeds from equity and debt issuances, are also used to fund investments in limited partnerships, purchase publicly traded securities, and purchase fixed assets and other capital items. If cash flows from operations were insufficient to fund distributions, we expect that we would suspend paying such distributions.

Debt Instruments

Senior Unsecured Debt

On August 9, 2016, Medley LLC completed a registered public offering of $25.0 million of an aggregate principal amount of 6.875% senior notes due 2026 (the “2026 Notes”). On October 18, 2016, Medley LLC completed a registered public offering of an additional $28.6 million in aggregate principal amount of the 2026 Notes. The 2026 Notes mature on August 15, 2026.

On January 18, 2017, Medley LLC completed a registered public offering of $34.5 million in aggregate principal amount of 7.25% senior notes due 2024 (the “2024 Notes”). On February 22, 2017, Medley LLC completed a registered public offering of an additional $34.5 million in aggregate principal amount of 2024 Notes. The 2024 Notes mature on January 30, 2024.

As of June 30, 2019, the outstanding senior unsecured debt balance was $118.0 million, and is reflected net of unamortized discount, premium and debt issuance costs of $4.6 million.

See Note 8, "Senior Unsecured Debt", to our condensed consolidated financial statements included in this Form 10-Q for additional information on the 2026 and the 2024 Notes.

Revolving Credit Facility

On August 19, 2014, we entered into a $15.0 million senior secured revolving credit facility with City National Bank (as amended, the “Revolving Credit Facility”), as administrative agent and collateral agent thereunder, and the lenders from time to time party thereto. On September 22, 2017 we amended the Revolving Credit Facility to, among other things, extend the maturity date until March 31, 2020 and provide for an incremental facility in an amount up to $10.0 million upon the satisfaction of certain customary conditions.

Effective May 13, 2019 we terminated the Revolving Credit Facility. There were no early termination penalties incurred by us with the termination of the Revolving Credit Facility. We had not incurred any borrowings under the Revolving Credit Facility from its inception through the date of termination.

Non-Recourse Promissory Notes

In April 2012, we borrowed $5.0 million under a non-recourse promissory note with a foundation, and $5.0 million under a non-recourse promissory note with a trust. These notes are scheduled to mature in December 2019.

See Note 9 "Loans Payable" to our condensed consolidated financial statements included in this Form 10-Q for additional information regarding the promissory notes.

Cash Flows

The significant captions and amounts from our consolidated statements of cash flows are summarized below. Negative amounts represent a net outflow, or use of cash.

	For the Six Months Ended June 30,
	2019			2018
	(in thousands)
Statements of cash flows data
Net cash (used in) provided by operating activities	$	(1,369	)	$	7,856
Net cash provided by (used in) investing activities	70			(1,504		)
Net cash used in financing activities	(5,709		)	(17,817		)
Net decrease in cash and cash equivalents	$	(7,008	)	$	(11,465	)

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Operating Activities

Our net cash outflow from operating activities was $1.4 million during the six months ended June 30,2019. During the six months ended June 30,2019, net cash used in operating activities was attributed to a net loss of $3.0 million, non-cash adjustments of $8.7 million and a net decrease in operating assets and liabilities of $7.1 million driven primarily by bonus payments of $6.5 million.

Investing Activities

Our investing activities generally reflect cash used to acquire fixed assets, purchase investments, and make capital contributions to our equity method investments. Cash provided by our investing activities generally reflect return of capital distributions received from our investment held at cost less impairment. During the six months ended June 30, 2019, distributions from our investment held at cost less impairment were $0.1 million.

Financing Activities

Dividend payments during the six months ended June 30, 2019 were $0.2 million. Distributions to non-controlling interests and redeemable non-controlling interests were $2.5 million for the six months ended June 30,2019. Payments to a former minority interest holder in connection with our redemption of the former minority interest holder's membership units in one of our subsidiaries was $2.6 million during the six months ended June 30, 2019. In addition, payments of tax withholdings related to net share settlement of restricted stock units represented outflows of $0.3 million for the six months ended June 30, 2019.

Sources and Uses of Liquidity

Our sources of liquidity are (i) cash on hand, (ii) net working capital, (iii) cash flows from operations, (iv) realizations on our investments, (v) issuances of publicly-registered debt and (vi) other potential financings. We believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the foreseeable future. We expect that our primary liquidity needs will be comprised of cash to (i) provide capital to facilitate the growth of our existing investment management business, (ii) fund our commitments to funds that we advise, (iii) provide capital to facilitate our expansion into businesses that are complementary to our existing investment management business, (iv) pay operating expenses, including cash compensation to our employees and payments under the TRA, (v) fund capital expenditures, (vi) pay income taxes, and (vii) make distributions to our shareholders in accordance with our dividend policy.  

Our ability to fund cash dividends to our common shareholders is dependent on a myriad of factors, including among others: general economic and business conditions; our strategic plans and prospects; our business and investment opportunities; timing of capital calls by our funds in support of our commitments; our financial condition and operating results; working capital requirements and other anticipated cash needs; contractual restrictions and obligations; legal, tax and regulatory restrictions; restrictions on the payment of distributions by our subsidiaries to us; and other relevant factors.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with U.S. GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments. See Note 2, “Summary of Significant Accounting Policies,” to our unaudited condensed consolidated financial statements included in this Form 10-Q for a summary of our significant accounting policies.

Principles of Consolidation

In accordance with ASC 810, Consolidation, we consolidate those entities where we have a direct and indirect controlling financial interest based on either a variable interest model or voting interest model. As such, we consolidate entities that we conclude are VIEs, for which we are deemed to be the primary beneficiary and entities in which we hold a majority voting interest or have majority ownership and control over the operational, financial and investing decisions of that entity.

For legal entities evaluated for consolidation, we must determine whether the interests that it holds and fees paid to it qualify as a variable interest in an entity. This includes an evaluation of the management fees and performance fees paid to us when acting as a decision maker or service provider to the entity being evaluated. Fees received by us that are customary and commensurate with the level of services provided, and we don’t hold other economic interests in the entity that would absorb more than an

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insignificant amount of the expected losses or returns of the entity, would not be considered a variable interest. We factor in all economic interests including proportionate interests through related parties, to determine if fees are considered a variable interest.

An entity in which we hold a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of equity investment at risk have the right to direct the activities of the entity that most significantly impact the legal entity’s economic performance, or (c) the voting rights of some investors are disproportionate to their obligation to absorb losses or rights to receive returns from a legal entity. For limited partnerships and other similar entities, non-controlling investors must have substantive rights to either dissolve the fund or remove the general partner (“kick-out rights”) in order to qualify as a VIE.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE. We are generally deemed to have a controlling financial interest if we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. We determine whether we are the primary beneficiary of a VIE at the time we become initially involved with the VIE and we reconsider that conclusion continuously. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These assessments require judgments. Each entity is assessed for consolidation on a case-by-case basis. 

For those entities evaluated under the voting interest model, we consolidate the entity if we have a controlling financial interest. We have a controlling financial interest in a voting interest entity (“VOE”) if we own a majority voting interest in the entity.

Performance Fees

Performance fees are contractual fees which do not represent a capital allocation of income to the general partner or investment manager that are earned based on the performance of certain funds, typically, our separately managed accounts. Performance fees are earned based on the fund performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement. We account for performance fees in accordance with ASC 606, Revenue from Contracts with Customers, and we will only recognize performance fees when it is probable that a significant reversal of such fees will not occur in the future.

Carried Interest

Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest is allocated to us based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents.

Effective January 1, 2018, we account for carried interest under, ASC 323, Investments-Equity Method and Joint Ventures. Under this standard, we record carried interest in a consistent manner as we historically had which is based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on our condensed consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

Carried interest received in prior periods may be required to be returned by us in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. Our actual obligation, however, would not become payable or realized until the end of a fund’s life.

Income Taxes

We account for income taxes using the asset and liability approach, which requires the recognition of tax benefits or expenses for temporary differences between the financial reporting and tax basis of assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. We also recognize a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. Our policy is to recognize interest and penalties on uncertain tax positions and other tax matters as a component of income tax expense. For interim periods, we account for income taxes based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur.

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Medley Management Inc., is subject to U.S. federal, state and local corporate income taxes on its allocable portion of taxable income from Medley LLC at prevailing corporate tax rates, which are reflected in our unaudited condensed consolidated financial statements included in this Form 10-Q. Medley LLC and its subsidiaries are not subject to federal, state and local corporate income taxes since all income, gains and losses are passed through to its members. However, Medley LLC and its subsidiaries are subject to New York City’s unincorporated business tax, which is included in our provision for income taxes.

We analyze our tax filing positions in all of the U.S. federal, state and local tax jurisdictions where we are required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, we determine that uncertainties in tax positions exist, a liability is established.

Stock-based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation. Under the fair value recognition provision of this guidance, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period and reduced for actual forfeitures in the period they occur. Stock-based compensation is included as a component of compensation and benefits in our consolidated statements of operations.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements and their impact on us can be found in Note 2, “Summary of Significant Accounting Policies,” to our unaudited condensed consolidated financial statements included in this Form 10-Q.

Off-Balance Sheet Arrangements

In the normal course of business, we may engage in off-balance sheet arrangements, including transactions in guarantees, commitments, indemnifications and potential contingent repayment obligations.

See Note 12, “Commitments and Contingencies,” to our unaudited condensed consolidated financial statements included in this Form 10-Q for a discussion of our commitments and contingencies.

Contractual Obligations

The following table sets forth information relating to our contractual obligations as of June 30, 2019.

	Less than 1 year		1 - 3 years		4 - 5 years		More than 5 years		Total
	(in thousands)
Medley Obligations
Operating lease obligations (1)	$	2,751	$	5,162	$	3,042	$	—	$	10,955
Loans payable (2)	10,000		—		—		—		10,000
Senior unsecured debt (3)	—		—		69,000		53,595		122,595
Payable to former minority interest holder of SIC Advisors LLC (Note 10)	3,500		7,000		875		—		11,375
Revenue share payable	1,146		1,481		—		—		2,627
Capital commitments to funds (4)	256		—		—		—		256
Total	$	17,653	$	13,643	$	72,917	$	53,595	$	157,808

⁽¹⁾  We lease office space in New York and San Francisco under non-cancelable lease agreements. The amounts in this table represent the minimum lease payments required over the term of the lease, and include operating leases for office equipment.

⁽²⁾  We have included all loans described in Note 9, “Loans Payable,” to our unaudited condensed consolidated financial statements included in this Form 10-Q.

⁽³⁾  We have included all our obligations described in Note 8, “Senior Unsecured Debt,” to our unaudited condensed consolidated financial statements included in this Form 10-Q. In addition to the principal amounts above, the Company is required to make quarterly interest payments of $1.2 million related to our 2024 Notes and $0.9 million related to our 2026 Notes.

⁽⁴⁾  Represents equity commitments by us to certain long-dated private funds managed by us. These amounts are generally due on demand and are therefore presented in the less than one year category.

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Indemnifications

In the normal course of business, we enter into contracts that contain indemnities for our affiliates, persons acting on our behalf or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the maximum exposure under these arrangements, if any, cannot be determined and has neither been recorded in our consolidated financial statements. As of June 30, 2019, we have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.

Contingent Obligations

The partnership documents governing our funds generally include a clawback provision that, if triggered, may give rise to a contingent obligation that may require the general partner to return amounts to the fund for distribution to investors. Therefore, carried interest, generally, is subject to reversal in the event that the funds incur future losses. These losses are limited to the extent of the cumulative carried interest recognized in income to date, net of a portion of taxes paid. Due in part to our investment performance and the fact that our carried interest is generally determined on a liquidation basis, as of June 30, 2019, we accrued $7.2 million for clawback obligations that would need to be paid had the funds been liquidated as of that date. There can be no assurance that we will not incur additional clawback obligations in the future. If all of the existing investments were valued at $0, the amount of cumulative carried interest that has been recognized would be reversed. We believe that the possibility of all of the existing investments becoming worthless is remote. At June 30, 2019, had we assumed all existing investments were valued at $0, the net amount of carried interest subject to additional reversal would have been approximately $0.9 million.

Carried interest is also affected by changes in the fair values of the underlying investments in the funds that we advise. Valuations, on an unrealized basis, can be significantly affected by a variety of external factors including, but not limited to, bond yields and industry trading multiples. Under the governing agreements of certain of our funds, we may have to fund additional amounts on account of clawback obligations beyond what we received in performance fee compensation on account of distributions of performance fee payments made to current or former professionals from such funds if they do not fund their respective shares of such clawback obligations. We will generally retain the right to pursue any remedies that we have under such governing agreements against those carried interest recipients who fail to fund their obligations.

Additionally, at the end of the life of the funds, there could be a payment due to a fund by us if we have recognized more carried interest than was ultimately earned. The general partner obligation amount, if any, will depend on final realized values of investments at the end of the life of the fund.

Recent Developments

On July 29, 2019, the Company entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among the Company, Sierra, and Merger Sub, pursuant to which the Company will, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub (the"MDLY Merger"), with Merger Sub as the surviving company in the MDLY Merger. In the MDLY Merger, each share of MDLY Class A common stock, issued and outstanding immediately prior to the effective time of the MDLY Merger (the "MDLY Merger Effective Time"), other than shares of MDLY Class A common stock held by the Company, Sierra or their respective wholly owned subsidiaries (the “Excluded MDLY Shares”) and the Dissenting Shares (as defined in the Amended MDLY Merger Agreement), held, immediately prior to the MDLY Merger Effective Time, by any person other than a Unitholder (as defined below), will be exchanged for (i) 0.2668 shares of Sierra’s common stock; plus (ii) cash in an amount equal to $2.96 per share. In addition, in the MDLY Merger, each share of MDLY Class A common stock issued and outstanding immediately prior to the MDLY Merger Effective Time, other than the Excluded MDLY Shares and the Dissenting Shares, held, immediately prior to the MDLY Merger Effective Time, by holders of the issued and outstanding limited liability company interests of Medley LLC (the “Medley LLC Units” and, holders of the Medley LLC Units at any time on or after July 29, 2019, the “Unitholders”) will be exchanged for (i) 0.2072 shares of Sierra’s common stock; plus (ii) cash in an amount equal to $2.66 per share.

In addition, on July 29, 2019, MCC and Sierra announced the execution of the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by an between MCC and Sierra, pursuant to which MCC will, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into Sierra (the "MCC Merger"), with Sierra as the surviving company in the MCC Merger. In the MCC Merger, each share of MCC’s common stock (other than shares of MCC’s common stock held by MCC, Sierra or their respective wholly owned subsidiaries, will be exchanged for the right to receive (i) 0.68 shares of Sierra’s common stock if the attorneys’ fees of plaintiffs’ counsel and litigation expenses paid or incurred by plaintiffs’ counsel or advanced by plaintiffs in connection with the Class Action (such fees and expenses, the “Plaintiff Attorney Fees”) are less than or equal to $10,000,000, (ii) 0.66 shares of Sierra’s common stock if the Plaintiff Attorney Fees are equal to or greater than $15,000,000, and (iii) between 0.68 and 0.66 per share of Sierra’s common stock if the Plaintiff Attorney Fees are greater than $10,000,000 but less than $15,000,000, calculated on a descending basis, based on straight line interpolation between $10,000,000 and $15,000,000.

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Pursuant to terms of the Amended MCC Merger Agreement, the consummation of the MCC Merger is conditioned upon the satisfaction or waiver of each of the conditions to closing under the Amended MDLY Merger Agreement and the consummation of the MDLY Merger. However, pursuant to the terms of the Amended MDLY Merger Agreement, the consummation of the MDLY Merger is not contingent upon the consummation of the MCC Merger. If both Mergers are successfully consummated, Sierra’s common stock would be listed on the NYSE, with such listing expected to be effective as of the closing date of the Mergers, and Sierra’s common stock will be listed on the Tel Aviv Stock Exchange, with such listing expected to be effective as of the closing date of the MCC Merger. If, however, only the MDLY Merger is consummated, Sierra’s common stock would be listed on the NYSE. If both Mergers are successfully consummated, the investment portfolios of MCC and Sierra would be combined, Merger Sub, as a successor to MDLY, would be a wholly owned subsidiary of the Combined Company, and the Combined Company would be internally managed by MCC Advisors LLC, its wholly controlled adviser subsidiary. If only the MDLY Merger is consummated, while the investment portfolios of MCC and Sierra would not be combined, the investment management function relating to the operation of the Company, as the surviving company, would still be internalized.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary exposure to market risk is related to our role as general partner or investment advisor to our investment funds and the sensitivity to movements in the fair value of their investments, including the effect on management fees, performance fees and investment income.

The market price of investments may significantly fluctuate during the period of investment. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of an investment may decline due to general market conditions which are not specifically related to such investment, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry.

Effect on Management Fees

Management fees are generally based on a defined percentage of gross asset values, total committed capital, net invested capital and NAV of the investment funds managed by us as well as a percentage of net interest income over a performance hurdle. Management fees calculated based on fair value of assets or net investment income are affected by short-term changes in market values.

The overall impact of a short-term change in market value may be mitigated by fee definitions that are not based on market value including invested capital and committed capital, market value definitions that exclude the impact of realized and/or unrealized gains and losses, market value definitions based on beginning of the period values or a form of average market value including daily, monthly or quarterly averages, as well as monthly or quarterly payment terms.

As such, based on an incremental 10% short-term increase in fair value of the investments in our permanent capital vehicles, long-dated private funds and SMAs as of June 30, 2019, we calculated approximately a $0.6 million and $1.2 million increase in management fees for the three and six months ended June 30,2019, respectively. In the case of a 10% short-term decline in fair value of the investments in our permanent capital, long-dated funds and SMAs as of June 30, 2019, we calculated approximately a $0.7 million and $1.5 million decrease in management fees for the three and six months ended June 30,2019, respectively.

Effect on Performance Fees

Performance fees are based on certain specific hurdle rates as defined in the funds' applicable investment management or partnership agreements. Performance fees for any period are based upon the probability that there will not be a significant future revenue reversal of such fees in the future. We exercise significant judgments when determining if any performance fees should be recognized in a given period including the below.

• whether the fund is near final liquidation

• whether the fair value of the remaining assets in the fund is significantly in excess of the threshold at which the Company would earn an incentive fee

• the probability of significant fluctuations in the fair value of the remaining assets

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• the SMA’s remaining investments are under contract for sale with contractual purchase prices that would result in no clawback and it is highly likely that the contracts will be consummated

Short-term changes in the fair values of funds' investments usually do not impact accrued performance fees. The overall impact of a short-term change in market value may be mitigated by a number of factors including, but not limited to, the way in which carried interest performance fees are calculated, which is not ultimately dependent on short-term moves in fair market value, but rather realize cumulative performance of the investments through the end of the long-dated private funds, and SMAs lives.

We have not recognized any performance fees for the three and six months ended June 30, 2019 and 2018. As such, we would not be impacted by an incremental 10% short-term increase or decrease in fair value of the investments in our separately management accounts.

Effect on Part I and Part II Incentive Fees

Incentive fees are based on certain specific hurdle rates as defined in our permanent capital vehicles' applicable investment management agreements. The Part II incentive fees are based upon realized gains netted against cumulative realized and unrealized losses. The Part I incentive fees are not subject to clawbacks as our carried interest performance fees are.

Short-term changes in the fair values of the investments of our permanent capital vehicles may materially impact Part II incentive fees depending on the respective vehicle's performance relative to applicable hurdles to the extent there were realized gains that we would otherwise earn Part II incentive fees on.

As such, based on an incremental 10% short-term increase in fair value of the investments in our permanent capital vehicles as of June 30, 2019, we calculated no change in Part I and II incentive fees for the three and six months ended June 30,2019. In the case of a 10% short-term decline in fair value of the investments in our permanent capital vehicles as of June 30, 2019, we calculated no change in Part I and II incentive fees for the three and six months ended June 30,2019.

Effect on Carried Interest

Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents.

Short-term changes in the fair values of funds' investments may materially impact accrued carried interest depending on the respective funds' performance relative to applicable return levels. The overall impact of a short-term change in market value may be mitigated by a number of factors including, but not limited to, the way in which carried interest are calculated, which is not ultimately dependent on short-term moves in fair market value, but rather realized cumulative performance of the investments through the end of the long-dated private funds' lives. However, short-term moves can meaningfully impact our ability to accrue carried interest and receive cash payments in any given period.

As such, based on an incremental 10% short-term increase in fair value of the investments in our long-dated private funds as of June 30, 2019, we calculated approximately a $6.2 million increase in carried interest for the six months ended June 30, 2019. In the case of a 10% short-term decline in fair value of investments in our long-dated private funds as of June 30, 2019, we calculated approximately a $0.4 million decrease in carried interest for the six months ended June 30, 2019.

Interest Rate Risk

As of June 30, 2019, we had $137.3 million of debt outstanding, net of unamortized discount, premium, and issuance costs, presented as senior unsecured debt, loans payable and amount due to former minority interest holder in our audited financial statements included elsewhere in this Form 10-Q. Our debt bears interest at fixed rates, and therefore is not subject to interest rate fluctuation risk.

As credit-oriented investors, we are also subject to interest rate risk through the securities we hold in our funds. A 100 basis point increase in interest rates would be expected to negatively affect prices of securities that accrue interest income at fixed rates and therefore negatively impact net change in unrealized appreciation on the funds' investments. The actual impact is dependent on the average duration of such holdings. Conversely, securities that accrue interest at variable rates would be expected to benefit from a 100 basis points increase in interest rates because these securities would generate higher levels of current income and therefore positively impact interest and dividend income, subject to LIBOR. In the cases where our funds pay management fees based on NAV, we would expect management fees to experience a change in direction and magnitude corresponding to that experienced by the underlying portfolios.

Credit Risk

We are party to agreements providing for various financial services and transactions that contain an element of risk in the

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event that the counterparties are unable to meet the terms of such agreements. In such agreements, we depend on the respective counterparty to make payment or otherwise perform. We generally endeavor to minimize our risk of exposure by limiting to reputable financial institutions the counterparties with which we enter into financial transactions. In other circumstances, availability of financing from financial institutions may be uncertain due to market events, and we may not be able to access these financing markets.

Item 4.     Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our co-principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Our management, with the participation of our Co-Chief Executive Officers and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, and subject to the foregoing, our Co-Chief Executive Officers and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.

Item 1.     Legal Proceedings

From time to time, the Company is involved in various legal proceedings, lawsuits and claims incidental to the conduct of its business. Its business is also subject to extensive regulation, which may result in regulatory proceedings against it. Except as described below, the Company is not currently party to any material legal proceedings.

One of the Company's subsidiaries, MCC Advisors LLC, was named as a defendant in a lawsuit on May 29, 2015, by Moshe Barkat and Modern VideoFilm Holdings, LLC (“MVF Holdings”) against MCC, MOF II, MCC Advisors LLC, Deloitte Transactions and Business Analytics LLP A/K/A Deloitte ERG (“Deloitte”), Scott Avila (“Avila”), Charles Sweet, and Modern VideoFilm, Inc. (“MVF”). The lawsuit is pending in the California Superior Court, Los Angeles County, Central District, as Case No. BC 583437. The lawsuit was filed after MCC, as agent for the lender group, exercised remedies following a series of defaults by MVF and MVF Holdings on a secured loan with an outstanding balance at the time in excess of $65 million. The lawsuit sought damages in excess of $100 million. Deloitte and Avila have settled the claims against them in exchange for payment of $1.5 million. On June 6, 2016, the court granted the Medley defendants’ demurrers on several counts and dismissed Mr. Barkat’s claims with prejudice except with respect to his claim for intentional interference with contract. On March 18, 2018, the court granted the Medley defendants’ motion for summary adjudication with respect to Mr. Barkat’s sole remaining claim against the Medley Defendants for intentional interference. Now that the trial court has ruled in favor of the Medley defendants on all counts, the only remaining claims in the Barkat litigation are MCC and MOF II’s affirmative counterclaims against Mr. Barkat and MVF Holdings, which MCC and MOF II are diligently prosecuting.

On August 29, 2016, MVF Holdings filed another lawsuit in the California Superior Court, Los Angeles County, Central District, as Case No. BC 631888 (the “Derivative Action”), naming MCC Advisors LLC and certain of Medley’s employees as defendants, among others. The plaintiff in the Derivative Action, asserts claims against the defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unfair competition, breach of the implied covenant of good faith and fair dealing, interference with prospective economic advantage, fraud, and declaratory relief. MCC Advisors LLC and the other defendants believe the causes of action asserted in the Derivative Action are without merit and all defendants intend to continue to assert a vigorous defense. All proceedings in the Derivative Action have been stayed as a result of the chapter 11 bankruptcy proceedings of MVF, which were commenced on May 16, 2018. On August 29, 2016, however, despite the automatic stay of the MVF Bankruptcy, the Plaintiff filed an amended complaint seeking to restyle the derivative action into a direct action to circumvent the MVF bankruptcy’s automatic stay. To date, the California Superior Court has not proceeded with the amended complaint.

Medley LLC, Medley Capital Corporation, Medley Opportunity Fund II LP, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube were named as defendants, along with other various parties, in a putative class action lawsuit captioned as Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio v. American Web Loan, Inc., AWL, Inc., Mark Curry, MacFarlane Group, Inc., Sol Partners, Medley Opportunity Fund, II, LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube, DHI Computing Service, Inc., Middlemarch Partners, and John Does 1-100, filed on December 15, 2017, amended on March 9, 2018, and amended a second time on February 15, 2019, in the United States District Court for the Eastern District of Virginia, Newport News Division, as Case No. 4:17-cv-145 (hereinafter, “Class Action 1”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned George Hengle and Lula Williams v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed February 13, 2018, in the United States District Court, Eastern District of Virginia, Richmond Division, as Case No. 3:18-cv-100 (“Class Action 2”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned John Glatt, Sonji Grandy, Heather Ball, Dashawn Hunter, and Michael Corona v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed August 9, 2018 in the United States District Court, Eastern District of Virginia, Newport News Division, as Case No. 4:18-cv-101 (“Class Action 3”) (together with Class Action 1 and Class Action 2, the “Virginia Class Actions”). Medley Opportunity Fund II LP was also named as a defendant, along with various other parties, in a putative class action lawsuit captioned Christina Williams and Michael Stermel v. Red Stone, Inc. (as successor in interest to MacFarlane Group, Inc.), Medley Opportunity Fund II LP, Mark Curry, Brian McGowan, Vincent Ney, and John Doe entities and individuals, filed June 29, 2018 and amended July 26, 2018, in the United States District Court for the Eastern District of Pennsylvania, as Case No. 2:18-cv-2747 (the “Pennsylvania Class Action”) (together with the Virginia Class Actions, the “Class Action Complaints”). The plaintiffs in the Class Action Complaints filed their putative class actions alleging claims under the Racketeer Influenced and Corrupt Organizations Act, and various other claims arising out of the alleged payday lending activities of American Web Loan. The claims against Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (in Class Action 1, as amended); Medley Opportunity Fund II LP and Medley Capital Corporation (in Class Action

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2 and Class Action 3); and Medley Opportunity Fund II LP (in the Pennsylvania Class Action), allege that those defendants in each respective action exercised control over, or improperly derived income from, and/or obtained an improper interest in, American Web Loan’s payday lending activities as a result of a loan to American Web Loan. The loan was made by Medley Opportunity Fund II LP in 2011. American Web Loan repaid the loan from Medley Opportunity Fund II LP in full in February of 2015, more than 1 year and 10 months prior to any of the loans allegedly made by American Web Loan to the alleged class plaintiff representatives in Class Action 1. In Class Action 2, the alleged class plaintiff representatives have not alleged when they received any loans from American Web Loan. In Class Action 3, the alleged class plaintiff representatives claim to have received loans from American Web Loan at various times from February 2015 through April 2018. In the Pennsylvania Class Action, the alleged class plaintiff representatives claim to have received loans from American Web Loan in 2017. By orders dated August 7, 2018 and September 17, 2018, the Court presiding over the Virginia Class Actions consolidated those cases for all purposes. On October 12, 2018, Plaintiffs in Class Action 3 filed a notice of voluntary dismissal of all claims, and on October 29, 2018, Plaintiffs in Class Action 2 filed a notice of voluntary dismissal of all claims. Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube never made any loans or provided financing to, or had any other relationship with, American Web Loan. Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube are seeking indemnification from American Web Loan, various affiliates, and other parties with respect to the claims in the Class Action Complaints. Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube believe the alleged claims in the Class Action Complaints are without merit and they intend to defend these lawsuits vigorously.

On January 25, 2019, two purported class actions were commenced in the Supreme Court of the State of New York, County of New York, by alleged stockholders of Medley Capital Corporation, captioned, respectively, Helene Lax v. Brook Taube, et al., Index No. 650503/2019, and Richard Dicristino, et al. v. Brook Taube, et al., Index No. 650510/2019 (together with the Lax Action, the “New York Actions”). Named as defendants in each complaint are Brook Taube, Seth Taube, Jeffrey Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, John E. Mack, Mark Lerdal, Richard T. Allorto, Jr., Medley Capital Corporation, Medley Management Inc., Sierra Income Corporation, and Sierra Management, Inc. The complaints in each of the New York Actions allege that the individuals named as defendants breached their fiduciary duties in connection with the proposed merger of MCC with and into Sierra, and that the other defendants aided and abetted those alleged breaches of fiduciary duties. Compensatory damages in unspecified amounts are sought. On February 27, 2019, the Court entered a stipulated scheduling order requiring that defendants respond to the complaints 45 days following the later of (a) the stockholder vote on the proposed merger and (b) plaintiffs’ filing of a consolidated, amended complaint. A preliminary conference is scheduled to take place on September 24, 2019. The defendants believe the claims asserted in the New York Actions are without merit and they intend to defend these lawsuits vigorously. At this time, we are unable to determine whether an unfavorable outcome from these matters is probable or remote or to estimate the amount or range of potential loss, if any.

On February 11, 2019, a purported stockholder class action was commenced in the Court of Chancery of the State of Delaware by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd. (together, “FrontFour”), captioned FrontFour Capital Group LLC, et al. v. Brook Taube, et al., Case No. 2019-0100 (the “FrontFour Action”), against defendants Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, Sierra, MCC, MCC Advisors LLC (“MCC Advisors”), Medley Group, and Medley LLC. The complaint, as amended on February 12, 2019, alleged that the individuals named as defendants breached their fiduciary duties to MCC stockholders in connection with the proposed merger of MCC with Sierra (the “MCC Merger”), and that MDLY, Sierra, MCC Advisors, Medley Group, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. The complaint sought to enjoin the vote of MCC stockholders on the proposed merger and enjoin enforcement of certain provisions of the Agreement and Plan of Merger, dated as of August 9, 2018, by and between MCC and Sierra (the “MCC Merger Agreement”). The Court held a trial on the plaintiffs’ claims on March 6-7, 2019 and issued a Memorandum Opinion (the “Decision”) on March 11, 2019. The Court denied the plaintiffs’ requests to (i) permanently enjoin the proposed merger and (ii) require MCC to conduct a “shopping process” for MCC on terms proposed by the plaintiffs in their complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the proposed merger, but rejected the plaintiffs’ claim that Sierra aided and abetted those breaches of fiduciary duties. The Court ordered the defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC stockholders on the proposed merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information. On March 20, 2019, another purported stockholder class action was commenced by Stephen Altman against Brook Taube, Seth Taube, Jeff Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, Mark Lerdal, and John E. Mack in the Court of Chancery of the State of Delaware, captioned Altman v. Taube, Case No. 2019-0219 (the “Altman Action”). The complaint alleged that the defendants breached their fiduciary duties to stockholders of MCC in connection with the vote of MCC stockholders on the proposed mergers. On April 8, 2019, the Court granted a stipulation consolidating the FrontFour Action and the Altman Action, designating the amended complaint in the FrontFour Action as the operative complaint, and designating the plaintiffs in the FrontFour Action and their counsel the lead plaintiffs and lead plaintiffs’ counsel, respectively.

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On April 15, 2019, certain parties reached agreement on the principal terms of a settlement of the FrontFour Action, which were contained in a term sheet, dated April 15, 2019 (the “Settlement Term Sheet”). On July 29, 2019 MDLY entered into a Stipulation of Settlement (and, as amended on August 8, 2019, the "Stipulation") by and among MCC, Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, MCC Advisors, Medley LLC and Medley Group LLC (the “Medley Parties”), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand, in connection with the FrontFour Action.

The Stipulation provides for the settlement of all claims brought against the Medley Parties in the FrontFour Action. Under the Stipulation, MCC agreed to seek the agreement and/or consent of Sierra to effect certain amendments to (i) the MCC Merger Agreement and (ii) the MDLY Merger Agreement (together with the MCC Merger Agreement, the “Merger Agreements”), which have been reflected in the revised Merger Agreements annexed to the Stipulation. The Stipulation also provides for, if the MCC Merger is consummated, the creation of a settlement fund, consisting of $17 million in cash and $30 million of Sierra stock, with the number of shares of Sierra stock to be calculated using the pro forma net asset value reported in the future proxy supplement describing the amendments to the MCC Merger Agreement, which will be distributed to eligible members of the Settlement Class (as defined in the Stipulation). Under the Stipulation, MDLY also consented to certain amendments to the Merger Agreements that have been reflected in the revised Merger Agreements annexed to the Stipulation. In addition, in connection with the Stipulation, on July 29, 2019, MCC entered into a Governance Agreement with FrontFour Capital Group LLC, FrontFour Master Fund, Ltd., FrontFour Capital Corp., FrontFour Opportunity Fund, David A. Lorber, Stephen E. Loukas and Zachary R. George, pursuant to which, among other matters, FrontFour is subject to customary standstill restrictions and required to vote in favor of the MCC Merger at a meeting of stockholders to approve the Amended MCC Merger Agreement.

The Stipulation also provides for mutual releases between and among FrontFour and the Settlement Class, on the one hand, and the Medley Parties, on the other hand, of all claims that were or could have been asserted in the FrontFour Action. The Medley Parties will also release all claims arising out of or relating to the prosecution and settlement of the FrontFour Action and all claims that were or could have been asserted (other than claims against the Highland Parties, as defined in the Stipulation) in the litigation pending in the United States District Court for the Southern District of New York captioned Medley Capital Corporation v. FrontFour Capital Group LLC, et al., No. 1:19-cv-02055-LTS (S.D.N.Y.) (the “Federal Action”), and FrontFour and the Settlement Class will release all claims arising out of or relating to the prosecution and settlement of the Federal Action.

The Stipulation further provides that MCC and FrontFour shall work together in good faith to agree to supplemental disclosures relating to the transactions contemplated by the Merger Agreements consistent with the Decision. The Stipulation is subject to the approval of the Court. The Court is expected to schedule a hearing on October 24, 2019 to consider the Stipulation.

MARILYN S. ADLER, v. MEDLEY CAPITAL LLC et. al. (Supreme Court of New York, March 2019). Marilyn Adler, a former employee who served as a Managing Director of Medley Capital LLC, filed suit in the New York Supreme Court, Commercial Part, on March 1, 2019 against Medley Capital LLC, MCC Advisors, Medley SBIC GP, LLC, Medley Capital Corporation, Medley Management Inc., as well as Brook Taube, and Seth Taube, individually. Ms. Adler alleges that she is due in excess of $6.5 million in compensation based upon her role with Medley’s SBIC Fund. Her claims are for breach of contract, unjust enrichment, conversion, tortious interference, as well as a claim for an accounting of funds maintained by the defendants. The Company believes the claims are without merit, intends to vigorously defend them, and has asserted counterclaims against Ms. Adler for breach of contract and breach of fiduciary duties. In response to the company’s motion to dismiss the breach of contract claim, Ms. Adler has conceded there was no written contract. The parties are in the initial stages of discovery.

While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s consolidated financial position or overall trends in consolidated results of operations, litigation is subject to inherent uncertainties. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis. The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established.

Item 1A.  Risk Factors

In addition to other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our annual report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on April 1, 2019, which could materially affect our business, financial condition and/or operating results. Other than the items disclosed below, there have been no material changes during the six months ended June 30, 2019 to the risk factors discussed in “Item 1A. Risk Factors” of our

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annual report on Form 10-K. Additional risks or uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

Risks Relating to the Mergers

On August 9, 2018, the Company entered into the MDLY Merger Agreement, pursuant to which the Company would, on the terms and subject to the conditions set forth in the MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger, and the Company’s existing asset management business would continue to operate as a wholly owned subsidiary of the Combined Company. On July 29, 2019, the Company entered into the Amended MDLY Merger Agreement, pursuant to which the Company will, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub, with Merger Sub as the surviving company in the MDLY Merger. Set forth below are certain risks relating to the MDLY Merger. For more information, please refer to the Registration Statement on Form N-14 that includes a joint proxy statement of Sierra, MCC, and MDLY and, with respect to Sierra, constitutes a prospectus, which was first mailed or otherwise delivered to stockholders of Sierra, MCC, and MDLY on or about December 21, 2018 (the “Joint Proxy Statement/Prospectus”), the Form 8-K filed by the Company with the SEC on August 2, 2019, and the amendment to the Joint Proxy Statement/Prospectus that Sierra, MCC, and MDLY intends to file with the SEC and mail to their respective stockholders.

There can be no assurances when or if the Mergers will be completed.

Although the Company, Sierra, and MCC expect to complete the Mergers as early as the fourth quarter of 2019, there can be no assurances as to the exact timing of completion of the Mergers, that both Mergers will be completed, or that the Mergers will be completed at all. The completion of the Mergers is subject to numerous conditions, including, among others, the continued effectiveness of the Registration Statement on Form N-14; the approval of our common stock (including shares of our common stock to be issued in the Mergers) for listing on the NYSE; receipt of requisite approvals of each of Sierra’s stockholders, MCC’s stockholders, and the Company’s stockholders; receipt of required regulatory approvals, including from the SEC (including necessary exemptive relief to consummate the merger transactions), approval by the Court of Chancery of the State of Delaware of the Stipulation of Settlement in connection with the consolidated actions under caption of In re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM, any necessary approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, amended, and, if applicable, state securities regulators; confirmation by the SEC that Merger Sub, as the successor to the Company in the MDLY Merger, will be treated as a portfolio investment of Sierra following the consummation of the MDLY Merger and reflected in Sierra’s consolidated financial statements at fair value for accounting purposes (i.e., not consolidated into the financial statements of Sierra); the relevant parties having taken all actions reasonably required in order to keep existing indebtedness outstanding following the Mergers; receipt of necessary consents relating to joint ventures of Sierra and MCC; receipt of a specified level of consents from third-party advisory clients of the Company; with respect to the MCC Merger, satisfaction (or appropriate wavier) of the conditions to closing of the MDLY Merger; and other customary closing conditions.

The Company, Sierra, and MCC cannot assure their respective stockholders that the conditions required to complete the Mergers will be satisfied or waived on the anticipated schedule, or at all. If the Mergers are not completed, the resulting failure of the Mergers could have a material adverse impact on the Company’s, Sierra’s, and MCC’s financial condition, results of operations, assets or business. In addition, if the Mergers are not completed, the Company, Sierra, and MCC will have incurred substantial expenses for which no ultimate benefit will have been received. See “- If the MDLY Merger does not close, we will not benefit from the expenses incurred in its pursuit.” Moreover, if either the Amended MCC Merger Agreement or the Amended MDLY Merger Agreement is terminated under certain circumstances, the Company, Sierra, and MCC may be obligated to pay the other party to the applicable merger agreement a termination fee. See “- Under certain circumstances, we may be obligated to pay a termination fee upon termination of the Amended MDLY Merger Agreement.” Any decision that the Company’s stockholders, Sierra’s stockholders, and MCC’s stockholders make should be made with the understanding that the completion of the Mergers may not happen as scheduled, or at all.

If the Mergers are completed, certain additional risks regarding the Combined Company following the Mergers may be presented. In addition, because the MDLY Merger is no longer contingent upon the MCC Merger, if only the MDLY Merger is completed certain additional risks regarding Sierra as an internally managed business development company with the Company as a wholly owned portfolio company may be presented.

We have been named as a defendant in various securities class action and derivative lawsuits, and may be named in additional ones in the future, which could result in substantial costs and may delay or prevent the completion of the Mergers.

The Company is currently a defendant in the New York Actions and the Class Actions and may be a target of additional securities class action and derivative lawsuits. Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements in an effort to enjoin the merger or seek monetary relief from such companies.

32

Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. We cannot predict the outcome of these lawsuits, or others, if any, nor can we predict the amount of time and expense that will be required to resolve any such litigation. An unfavorable resolution of any such litigation surrounding the Mergers could delay or prevent their consummation. In addition, the costs defending the litigation, even if resolved in our favor, could be substantial and such litigation could distract us from pursuing the consummation of the Mergers and other potentially beneficial business opportunities.

If the MDLY Merger does not close, we will not benefit from the expenses incurred in connection therewith.

The MDLY Merger may not be completed. If the MDLY Merger is not completed, we will have incurred substantial expenses for which no ultimate benefit will have been received. We have incurred out-of-pocket expenses in connection with the MDLY Merger for investment banking, legal and accounting fees and financial printing and other costs and expenses, much of which will be incurred even if the MDLY Merger is not completed. In addition, depending upon the circumstances surrounding termination of the Amended MDLY Merger Agreement, as applicable, we may be obligated to pay a termination fee to the other party to the Amended MDLY Merger Agreement. See “- Under certain circumstances, the Company or Sierra may be obligated to pay a termination fee upon termination of the Amended MDLY Merger Agreement” below.

Failure to complete the MDLY Merger could negatively impact the business, financial results, and ability to pay dividends and distributions, if any of the level thereof, to our stockholders.

If the MDLY Merger is not completed, our ongoing business may be adversely affected.  We may experience negative reactions from the financial markets and our respective customers if the anticipated benefits of the MDLY Merger are not able to be realized. Such anticipated benefits include, among others, an expected increase in distributions to Sierra’s stockholders, a larger balance sheet and potential for greater scale, the fee earning potential of the asset management business, the market value of Sierra’s common stock following the completion of the Mergers upon listing on the NYSE and TASE, and the potential benefits of operational efficiencies, cost savings, and synergies.  If the Mergers are not consummated, we cannot assure our stockholders that the risks described above will not negatively impact the business, financial results, and ability to pay dividends and distributions, if any or at the level thereof, to our stockholders.

Termination of the Amended MDLY Merger Agreement or failure to otherwise complete the MDLY Merger could negatively impact us.

Termination of the Amended MDLY Merger Agreement or any failure to otherwise complete the MDLY Merger may result in various consequences, including:

• our business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the MDLY Merger, without realizing any of the anticipated benefits of completing the MDLY Merger;

• the market price of our Class A common stock may decline to the extent that the market price prior to termination reflects a market assumption that the MDLY Merger will be completed;

• in the case of the Company, it may not be able to find a party willing to pay an equivalent or more attractive price than the price we have agreed to pay in the MDLY Merger; and

• the payment of any termination fee, if required under the circumstances, could adversely affect our financial condition and liquidity.

Under certain circumstances, Sierra or the Company may be obligated to pay a termination fee upon termination of the Amended MDLY Merger Agreement.

The Amended MDLY Merger Agreement provides for the payment by Sierra or the Company to the other party a termination fee of $3,000,000 in cash if the Amended MDLY Merger Agreement is terminated by the Company or Sierra under certain circumstances.

The Amended MDLY Merger Agreement limits our ability to actively pursue, and ultimately accept, alternatives to the MDLY Merger and may discourage a superior proposal from third parties.

The Amended MDLY Merger Agreement contains provisions that limit the Company’s ability to actively solicit, discuss or negotiate competing third-party proposals for strategic transactions. Although these provisions, which are customary for transactions of this type, allow us to engage in negotiations regarding, and to ultimately accept, a “Superior Proposal” (as such

33

term is defined in the Amended MDLY Merger Agreement) in certain circumstances, subject to the payment of a termination fee, such provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing a “Superior Proposal” to us, or might result in a potential competing acquirer proposing to pay a lower price to acquire us than it might otherwise have proposed to pay.

Certain persons related to us have interests in the MDLY Merger that may differ from the interests of our stockholders.

Certain of our directors and executive officers have financial interests in the MDLY Merger that may be different from, or in addition to, the interests of our stockholders. The Company’s special committee and, acting on the recommendation of the Company’s special committee, our board of directors were aware of and considered these interests, among other matters, in evaluating the Amended MDLY Merger Agreement, including the MDLY Merger, and in recommending to our stockholders to approve the MDLY Merger.

We will be subject to business uncertainties and contractual restrictions while the Mergers are pending.

Uncertainty about the effect of the Mergers may have an adverse effect on us and, consequently, on Sierra as the surviving company in the Mergers, following completion of the Mergers, or Sierra as an internally managed BDC with the Company as a wholly owned portfolio company following the completion of only the MDLY Merger. These uncertainties could cause those that deal with us to seek to change their existing business relationships with us. In addition, the Amended MDLY Merger Agreement restricts us from taking actions that we might otherwise consider to be in our best interests. These restrictions may prevent us from pursuing certain business opportunities that may arise prior to the completion of the MDLY Merger.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.     Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not Applicable.

34

Item 5.     Other Information

Not Applicable.

35

Item 6.     Exhibits

Exhibit No.	Exhibit Description
2.1	Agreement and Plan of Merger, dated as of August 9, 2018, by and among Medley Management Inc., Sierra Income Corporation and Sierra Management, Inc. (incorporated by reference to Exhibit 2.1 to Medley Management Inc.'s Current Report on Form 8-K (File No. 001-36638) filed on August 15, 2018).
2.2	Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019, by and among Medley Management Inc., Sierra Income Corporation and Sierra Management, Inc. (incorporated by reference to Exhibit 2.1 to Medley Management Inc.’s Current Report on Form 8-K (File No. 001-36638) filed on August 2, 2019).
3.1	Amended and Restated Certificate of Incorporation of Medley Management Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36638) filed on September 29, 2014).
3.2	Amended and Restated By-Laws of Medley Management Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36638) filed on September 29, 2014).
4.1	Indenture, dated August 9, 2016, between Medley LLC and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of Medley LLC’s Current Report on Form 8-K filed on August 9, 2016).
4.2	First Supplemental Indenture, dated August 9, 2016, between Medley LLC and U.S. Bank National Association, as trustee, including the form of note attached as an exhibit thereto (incorporated by reference to Exhibit 4.2 of Medley LLC’s Current Report on Form 8-K filed on August 9, 2016).
4.3	Second Supplemental Indenture dated as of October 18, 2016, between Medley LLC and U.S. Bank National Association, as Trustee, with the form of note included therein (incorporated by reference to Exhibit 4.1 of Medley LLC’s Current Report on Form 8-K filed on October 19, 2016).
4.4	Third Supplemental Indenture, dated January 18, 2017, between Medley LLC and U.S. Bank National Association, as trustee, including the form of note attached as an exhibit thereto (incorporated by reference to Exhibit 4.1 of Medley LLC's Current Report on Form 8-K filed on January 20, 2017).
4.5	Fourth Supplemental Indenture, dated February 22, 2017, between Medley LLC and U.S. Bank National Association, as trustee, including the form of note attached as an exhibit thereto (incorporated by reference to Exhibit 4.1 of Medley LLC's Current Report on Form 8-K filed on February 22, 2017).
10.1	Amendment Number Four to Credit Agreement and Waiver, dated as of March 28, 2019, regarding the Credit Agreement, dated as of August 19, 2014, among Medley LLC, the lenders party thereto and City National Bank (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed on April 1, 2019).
10.2	Settlement Term Sheet, dated April 15, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 17, 2019).
10.3	Medley Management Inc. 2014 Omnibus Incentive Plan, as amended (incorporated by reference to Annexure A of the Registrant's Definitive Proxy Statement on Schedule 14A (File No. 001-36638) filed on April 30, 2019).
31.1*	Certification by Co-Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification by Co-Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.3*	Certification by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Co-Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.3**	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document

36

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

** Furnished herewith 

† Management contract or compensatory plan in which directors and/or executive officers are eligible to participate

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

37

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 thereunto duly authorized. 

	MEDLEY MANAGEMENT INC.
	(Registrant)
Date: August 14, 2019	By:	/s/ Richard T. Allorto, Jr.
		Richard T. Allorto, Jr.
		Chief Financial Officer
		(Principal Financial Officer and Authorized Signatory)

38

EX-31.1

CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER

I, Brook Taube, certify that:    

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 of Medley Management Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Brook Taube
	Brook Taube
	Co-Chief Executive Officer and Co-Chairman
	(Co-Principal Executive Officer)
	August 14, 2019

EX-31.2

CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER

I, Seth Taube, certify that:    

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 of Medley Management Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Seth Taube
	Seth Taube
	Co-Chief Executive Officer and Co-Chairman
	(Co-Principal Executive Officer)
	August 14, 2019

EX-31.3

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Richard T. Allorto, Jr., certify that:    

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 of Medley Management Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ Richard T. Allorto, Jr.
	Richard T. Allorto, Jr.
	Chief Financial Officer
	(Principal Financial Officer)
	August 14, 2019

EX-32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Medley Management Inc. (the “Company”) for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brook Taube, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Brook Taube
	Brook Taube
	Co-Chief Executive Officer and Co-Chairman
	(Co-Principal Executive Officer)

August 14, 2019

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Medley Management Inc. (the “Company”) for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Seth Taube, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Seth Taube
	Seth Taube
	Co-Chief Executive Officer and Co-Chairman
	(Co-Principal Executive Officer)

August 14, 2019

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

EX-32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY

ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Medley Management Inc. (the “Company”) for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard T. Allorto, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ Richard T. Allorto, Jr.
	Richard T. Allorto, Jr.
	Chief Financial Officer
	(Principal Financial Officer)

August 14, 2019

A signed original of this certification required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 13, 2019
Document Information [Line Items]
Entity Registrant Name	MEDLEY MANAGEMENT INC.
Entity Central Index Key	0001611110
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Small Business	true
Common Class A [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		5,892,371
Common Class B [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		100

XML

Condensed Consolidated Balance Sheets (unaudited) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Assets
Cash and cash equivalents	$ 10,211	$ 17,219
Investments, at fair value	33,575	36,425
Management fees receivable	9,226	10,274
Right-of-use assets under operating leases	7,418
Other assets	15,159	14,298
Total Assets	75,589	78,216
Liabilities, Redeemable Non-controlling Interests and Equity
Senior unsecured debt, net	117,999	117,618
Loans payable, net	10,000	9,892
Due to former minority interest holder, net	9,301	11,402
Operating lease liabilities	9,267
Accounts payable, accrued expenses and other liabilities	19,036	26,739
Total Liabilities	165,603	165,651
Commitments and Contingencies (Note 12)
Redeemable Non-controlling Interests	19,577	23,186
Equity
Additional paid in capital	10,434	7,529
Accumulated deficit	(19,812)	(19,618)
Total stockholders' deficit, Medley Management Inc.	(9,319)	(12,032)
Total deficit	(109,591)	(110,621)
Total Liabilities, Redeemable Non-controlling Interests and Equity	75,589	78,216
Common Class A [Member]
Equity
Common stock, value	59	57
Common Class B [Member]
Equity
Common stock, value	0	0
Consolidated Subsidiaries [Member]
Equity
Non-controlling interests	(416)	(747)
Medley LLC [Member]
Equity
Non-controlling interests	$ (99,856)	$ (97,842)

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Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Common Class A [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	3,000,000,000	3,000,000,000
Common stock, shares issued (in shares)	5,870,821	5,701,008
Common stock, shares outstanding (in shares)	5,870,821	5,701,008
Common Class B [Member]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	1,000,000	1,000,000
Common stock, shares issued (in shares)	100	100
Common stock, shares outstanding (in shares)	100	100

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Condensed Consolidated Statements of Operations (unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues
Total revenues from contracts with customers	$ 12,877	$ 15,003	$ 26,231	$ 29,417
Carried interest	441	432	793	597
Other investment loss, net	(436)	(284)	(373)	(467)
Total Revenues	12,882	15,151	26,651	29,547
Expenses
Compensation and benefits	6,958	7,307	14,979	15,638
General, administrative and other expenses	4,106	4,342	7,360	8,851
Total Expenses	11,064	11,649	22,339	24,489
Other Income (Expenses)
Dividend income	188	960	760	2,389
Interest expense	(2,874)	(2,715)	(5,772)	(5,396)
Other expenses, net	(5,980)	(4,011)	(2,409)	(13,766)
Total other expenses, net	(8,666)	(5,766)	(7,421)	(16,773)
Loss before income taxes	(6,848)	(2,264)	(3,109)	(11,715)
(Benefit from) provision for income taxes	(70)	195	(93)	385
Net Loss	(6,778)	(2,459)	(3,016)	(12,100)
Net Loss Attributable to Medley Management Inc.	$ (183)	$ (128)	$ (255)	$ (1,356)
Net Loss Per Share of Class A Common Stock:
Basic (in dollars per share)	$ (0.03)	$ (0.08)	$ (0.04)	$ (0.34)
Diluted (in dollars per share)	$ (0.03)	$ (0.08)	$ (0.04)	$ (0.34)
Weighted average number shares outstanding - Basic and Diluted (in shares)	5,847,883	5,543,802	5,801,531	5,513,719
Common Class A [Member]
Other Income (Expenses)
Dividends declared per share of Class A common stock (in dollars per share)	$ 0	$ 0.20	$ 0.03	$ 0.4
Consolidated Subsidiaries [Member]
Other Income (Expenses)
Net income (loss) attributable to non-controlling interests	$ (5,674)	$ (2,464)	$ (1,479)	$ (6,978)
Medley LLC [Member]
Other Income (Expenses)
Net income (loss) attributable to non-controlling interests	(921)	133	(1,282)	(3,766)
Management Fees [Member]
Revenues
Total revenues from contracts with customers	10,208	11,965	21,121	24,050
Other Revenues and Fees [Member]
Revenues
Total revenues from contracts with customers	$ 2,669	$ 3,038	$ 5,110	$ 5,367

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Condensed Consolidated Statements of Operations (unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement [Abstract]
Incentive fees	$ 0	$ 0	$ 0	$ 0

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Condensed Consolidated Statements of Changes in Equity (unaudited) - USD ($) $ in Thousands	Total	Common Class A [Member]	Common Stock [Member] Common Class A [Member]	Common Stock [Member] Common Class B [Member]	Additional Paid in Capital [Member]	Accumulated Other Comprehensive Loss [Member]	Accumulated Deficit [Member]	Non-controlling Interests [Member] Consolidated Subsidiaries [Member]	Non-controlling Interests [Member] Medley LLC [Member]
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative effect of accounting change | ASC 606 [Member]	$ (3,591)						$ (686)		$ (2,905)
Cumulative effect of accounting change | ASU 2016-01 and 2018-02 [Member]	0					$ 1,301	(1,301)
Balance at Dec. 31, 2017	(77,074)		$ 55	$ 0	$ 2,820	(1,301)	(9,545)	$ (1,702)	(67,401)
Balance (in shares) at Dec. 31, 2017			5,481,068	100
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Medley Management Inc.	(1,356)
Net (loss) income	(12,100)						(1,356)	0	(3,766)
Net (loss) income	(5,122)
Stock-based compensation	2,644				2,644
Dividend equivalent payments made to holders of restricted stock units	(2,814)						(2,814)
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	65						65
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings	(308)		$ 1		(309)
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings (in shares)			81,903
Distributions	(10,331)								(10,331)
Contributions	2							2
Issuance of non-controlling interest at fair value	56							56
Balance at Jun. 30, 2018	(96,473)		$ 56	$ 0	5,155	0	(15,637)	(1,644)	(84,403)
Balance (in shares) at Jun. 30, 2018			5,562,971.000	100.0
Balance at Mar. 31, 2018	(90,840)		$ 55	$ 0	3,805	0	(14,080)	(1,644)	(78,976)
Balance (in shares) at Mar. 31, 2018			5,495,343	100
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Medley Management Inc.	(128)
Net (loss) income	(2,459)						(128)	0	133
Net (loss) income	5
Stock-based compensation	1,598				1,598
Dividend equivalent payments made to holders of restricted stock units	(1,469)						(1,469)
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	40						40
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings	(247)		$ 1		(248)
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings (in shares)			67,628
Distributions	(5,560)								(5,560)
Balance at Jun. 30, 2018	(96,473)		$ 56	$ 0	5,155	$ 0	(15,637)	(1,644)	(84,403)
Balance (in shares) at Jun. 30, 2018			5,562,971.000	100.0
Balance at Dec. 31, 2018	(110,621)		$ 57	$ 0	7,529		(19,618)	(747)	(97,842)
Balance (in shares) at Dec. 31, 2018			5,701,008	100
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Medley Management Inc.	(255)						(255)
Net (loss) income	(3,016)							554	(1,282)
Net (loss) income	(983)
Stock-based compensation	3,222				3,222
Dividend equivalent payments made to holders of restricted stock units	(238)						(238)
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	299						299
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings	(315)		$ 2		(317)
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings (in shares)		169,813	169,813
Distributions	(955)							(223)	(732)
Balance at Jun. 30, 2019	(109,591)		$ 59	$ 0	10,434		(19,812)	(416)	(99,856)
Balance (in shares) at Jun. 30, 2019			5,870,821.000	100.0
Balance at Mar. 31, 2019	(109,382)		$ 58	$ 0	8,999		(19,734)	(502)	(98,203)
Balance (in shares) at Mar. 31, 2019			5,817,298.000	100.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss attributable to Medley Management Inc.	(183)						(183)
Net (loss) income	(6,778)							309	(921)
Net (loss) income	(795)
Stock-based compensation	1,436				1,436
Dividend equivalent payments made to holders of restricted stock units	(64)						(64)
Reclass of cumulative dividends on forfeited restricted stock units to compensation and benefits expense	169						169
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings	0		$ 1		(1)
Issuance of Class A common stock related to vesting of restricted stock units, net of tax withholdings (in shares)			53,523
Distributions	(955)							(223)	(732)
Balance at Jun. 30, 2019	$ (109,591)		$ 59	$ 0	$ 10,434		$ (19,812)	$ (416)	$ (99,856)
Balance (in shares) at Jun. 30, 2019			5,870,821.000	100.0

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Condensed Consolidated Statements of Changes in Equity (unaudited) (Parenthetical) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Common Class A [Member]
Dividends (in dollars per share)	$ 0.03	$ 0.20	$ 0.03	$ 0.20

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Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities
Net Income (Loss)	$ (6,778,000)	$ (3,016,000)	$ (12,100,000)
Adjustments to reconcile net loss to net cash used in and provided by operating activities:
Stock-based compensation	1,400,000	3,222,000	2,644,000
Amortization of debt issuance costs	0	407,000	370,000
Accretion of debt discount		667,000	327,000
Provision for deferred taxes		346,000	1,221,000
Depreciation and amortization		352,000	434,000
Net change in unrealized depreciation on investments		2,762,000	14,014,000
Income from equity method investments		(521,000)	(571,000)
Reclassification of cumulative dividends paid on forfeited restricted stock units to compensation and benefits expense	169,000	299,000	65,000
Non-cash lease costs		1,215,000
Other non-cash amounts		0	56,000
Changes in operating assets and liabilities:
Management fees receivable		1,048,000	4,389,000
Distributions of income received from equity method investments		585,000	288,000
Purchase of investments		(866,000)	(244,000)
Sale of investments		792,000	290,000
Other assets		(1,646,000)	194,000
Operating lease liabilities		(1,361,000)
Accounts payable, accrued expenses and other liabilities		(5,654,000)	(3,521,000)
Net cash (used in) provided by operating activities		(1,369,000)	7,856,000
Cash flows from investing activities
Purchases of fixed assets		(28,000)	0
Distributions received from investment held at cost less impairment		101,000	0
Capital contributions to equity method investments		(3,000)	(1,504,000)
Net cash provided by (used in) investing activities		70,000	(1,504,000)
Cash flows from financing activities
Payments to former minority interest holder		(2,625,000)	0
Capital contributions from non-controlling interests		0	2,000
Distributions to non-controlling interests and redeemable non-controlling interests		(2,531,000)	(14,697,000)
Dividends paid		(238,000)	(2,814,000)
Payments of tax withholdings related to net share settlement of restricted stock units		(315,000)	(308,000)
Net cash used in financing activities		(5,709,000)	(17,817,000)
Net decrease in cash and cash equivalents		(7,008,000)	(11,465,000)
Cash and cash equivalents, beginning of period		17,219,000	36,327,000
Cash and cash equivalents, end of period	10,211,000	10,211,000	24,862,000
Supplemental cash flow information
Right-of-use assets under operating leases	7,418,000	7,418,000
Operating lease liabilities	9,267,000	9,267,000
Accretion of operating lease liabilities recorded against right-of-use assets		400,000
Deferred tax asset impact on cumulative effect of accounting change due to the adoption of ASU	3,400,000	3,400,000
Issuance of non-controlling interest at fair value		0	56,000
ASU 2016-02 [Member]
Supplemental cash flow information
Right-of-use assets under operating leases	8,233,000	8,233,000
Operating lease liabilities	10,229,000	10,229,000
ASC 606 [Member]
Supplemental cash flow information
Deferred tax asset impact on cumulative effect of accounting change due to the adoption of ASU	0	0
ASU 2016-01 [Member]
Supplemental cash flow information
Deferred tax asset impact on cumulative effect of accounting change due to the adoption of ASU	$ 0	0
ASU 2018-02 [Member]
Supplemental cash flow information
Reclassification of the income tax impact of the Tax Cuts and Jobs Act on items within accumulated other comprehensive loss to retained earnings due to the early adoption of accounting standards update 2018-02		$ 0	$ 207,000

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ORGANIZATION AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Basis of Presentation

ORGANIZATION AND BASIS OF PRESENTATION

Medley Management Inc. is an alternative asset management firm offering yield solutions to retail and institutional investors. The Company's national direct origination franchise provides capital to the middle market in the United States of America. Medley Management Inc., through its consolidated subsidiary, Medley LLC, provides investment management services to permanent capital vehicles, long-dated private funds and separately managed accounts and serves as the general partner to the private funds, which are generally organized as pass-through entities. Medley LLC is headquartered in New York City.

The Company’s business is currently comprised of only one reportable segment, the investment management segment, and substantially all of the Company operations are conducted through this segment. The investment management segment provides investment management services to permanent capital vehicles, long-dated private funds and separately managed accounts. The Company conducts its investment management business in the U.S., where substantially all its revenues are generated.

Initial Public Offering of Medley Management Inc.

Medley Management Inc. (“MDLY”) was incorporated on June 13, 2014 and commenced operations on September 29, 2014 upon the completion of its initial public offering (“IPO”) of its Class A common stock. Medley Management Inc. raised $100.4 million, net of underwriting discount, through the issuance of 6,000,000 shares of Class A common stock at an offering price to the public of $18.00 per share. Medley Management Inc. used the offering proceeds to purchase 6,000,000 newly issued LLC Units (defined below) from Medley LLC. Prior to the IPO, Medley Management Inc. had not engaged in any business or other activities except in connection with its formation and IPO.

In connection with the IPO, Medley Management Inc. issued 100 shares of Class B common stock to Medley Group LLC (“Medley Group”), an entity wholly owned by the pre-IPO members of Medley LLC. For as long as the pre-IPO members and then-current Medley personnel hold at least 10% of the aggregate number of shares of Class A common stock and LLC Units (defined below) (excluding those LLC Units held by Medley Management Inc.) then outstanding, the Class B common stock entitles Medley Group to a number of votes that is equal to 10 times the aggregate number of LLC Units held by all non-managing members of Medley LLC that do not themselves hold shares of Class B common stock and entitle each other holder of Class B common stock, without regard to the number of shares of Class B common stock held by such other holder, to a number of votes that is equal to 10 times the number of membership units held by such holder. The Class B common stock does not participate in dividends and does not have any liquidation rights.

Medley LLC Reorganization

In connection with the IPO, Medley LLC amended and restated its limited liability agreement to modify its capital structure by reclassifying the 23,333,333 interests held by the pre-IPO members into a single new class of units (“LLC Units”). The pre-IPO members also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, subject to the terms of an exchange agreement, to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. In addition, pursuant to the amended and restated limited liability agreement, Medley Management Inc. became the sole managing member of Medley LLC.

The pre-IPO owners were, subject to limited exceptions, prohibited from transferring any LLC Units held by them or any shares of Class A common stock received upon exchange of such LLC Units, until September 29, 2017, which was the third anniversary of the date of the closing of the IPO, without the Company’s consent. Thereafter and prior to the fourth and fifth anniversaries of the closing of the IPO, such holders may not transfer more than 33 1/3% and 66 2/3%, respectively, of the number of LLC Units held by them, together with the number of any shares of Class A common stock received by them upon exchange therefore, without the Company’s consent.

Agreement and Plan of Merger

On August 9, 2018 MDLY entered into a definitive Agreement and Plan of Merger with Sierra Income Corporation (“Sierra”), pursuant to which MDLY would have merged with and into Sierra Management Inc., a Delaware corporation and a wholly owned subsidiary of Sierra (“Merger Sub”), and MDLY’s existing asset management business would have continued to operate as a wholly owned subsidiary of Sierra. MDLY's Class A stockholders would have received 0.3836 shares of Sierra’s common stock, $3.44 per share of cash consideration and $0.65 per share in special cash dividends for each share of Class A common stock held by them. Medley LLC unitholders would have converted their LLC Units into shares of Class A common stock and would have received 0.3836 shares of Sierra’s common stock, $3.44 per share of cash consideration and $0.35 per share in a special cash dividend for each share of Class A common stock held by them.

Simultaneously, pursuant to the Agreement and Plan of Merger by and between Medley Capital Corporation, a Delaware corporation (“MCC”) and Sierra, a Maryland corporation, MCC would merge with and into Sierra, with Sierra as the surviving entity. MCC shareholders would receive 0.805 shares of the Sierra’s common stock for each share of MCC common stock they hold.

On February 11, 2019, a putative stockholder class action related to the MCC Merger was commenced in the Court of Chancery of the State of Delaware by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd (collectively, "FrontFour"). The action, as consolidated, is captioned in re Medley Capital Corporation Stockholder Litigation, C.A. No. 2019-0100-KSJM (the "Class Action"). The complaint alleged that MCC’s directors (Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, and Arthur S. Ainsberg) breached their fiduciary duties to MCC stockholders in connection with the MCC Merger, and that MDLY, Sierra, MCC Advisors LLC, Medley Group LLC, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. On March 11, 2019, following a two-day trial, the Court issued a Memorandum Opinion (the "Decision") denying FrontFour’s requests to (i) permanently enjoin the MCC Merger and (ii) require MCC to conduct a shopping process for MCC on terms proposed by FrontFour in its complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the MCC Merger, but rejected FrontFour’s claim that Sierra aided and abetted those breaches of fiduciary duties. The Court ordered defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC stockholders on the MCC Merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information.

On April 15, 2019, certain parties in the Class Action reached agreement on the principal terms of a settlement, which were contained in a term sheet, dated April 15, 2019 (the "Settlement Term Sheet"), among Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MCC, MCC Advisors LLC, Medley LLC, and Medley Group LLC (the "Medley Parties"), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand.

In connection with the Settlement Term Sheet and in exchange and consideration for the release of MDLY by the Plaintiffs and the Class (each as defined in the Settlement Term Sheet), MDLY entered into an acknowledgment and agreement (the "Acknowledgment") pursuant to which Medley agreed to certain actions and undertakings that are described in greater detail in the Settlement Term Sheet including, among other matters: (i) agreeing to participate and cooperate in the discussions and efforts to amend certain provisions of the Merger Agreements, (ii) agreeing to consent to amendments to the MCC Merger Agreement relating to the creation of go shop process to solicit superior transactions to the MCC Merger, if and when presented to MDLY by Sierra and MCC and (iii) agreeing to amendments to the MDLY Merger Agreement, and, if and when presented to MDLY by Sierra and MCC, agreeing to consent to amendments to the MCC Merger Agreement, to extend the outside date in the Merger Agreements to October 31, 2019 and to modify the merger consideration payment mechanics contained therein to provide for the creation of a settlement fund, consisting of $17 million in cash and $30 million of Sierra stock, which amount defendants in the Class Action (other than MDLY) will cause to be contributed to the fund, and distributed to eligible members of the Class, after certain deductions, following the closing of the MCC Merger and in accordance with the terms of the Settlement Stipulation (as defined in the Settlement Term Sheet). Pursuant to, and in accordance with the terms and conditions of, the Acknowledgment, MDLY has also undertaken to work in good faith to agree to supplemental disclosures relating to the Mergers consistent with the decision in connection with the Class Action, as well as to use reasonable efforts to obtain exemptive relief from the SEC to allow for the consummation of the Mergers.

On July 29, 2019, MDLY entered into an Amended and Restated Agreement Plan of Merger with Sierra, pursuant to which MDLY will merge with and into Merger Sub, and MDLY’s existing asset management business will continue to operate as a wholly owned subsidiary of Sierra. MDLY's Class A stockholders will receive 0.2668 shares of Sierra’s common stock and $2.96 per share of cash consideration. The pre-IPO members will convert their LLC Units into shares of Class A common stock and will receive 0.2072 shares of Sierra’s common stock and $2.66 per share of cash consideration. In addition, the Class B common stock issued and outstanding prior to the effective date of the merger will be canceled and cease to exist with no consideration being delivered for such shares. The merger is subject to approval by Sierra and MDLY stockholders, regulatory approval, other customary closing conditions and third party consents.

Simultaneously, pursuant to the Amended and Restated Plan of Merger by and between MCC and Sierra, MCC will merge with and into Sierra, with Sierra as the surviving entity. MCC shareholders will receive 0.66 to 0.68 shares of Sierra’s common stock for each share of MCC common stock they hold; the actual exchange ratio will be determined prior to closing and will be subject to adjustment for certain potential costs associated with the transactions. In addition, upon closing, the eligible class members will participate pro rata in the aforementioned settlement fund consisting of $17 million of cash and $30 million of Sierra common stock. The MDLY and Sierra merger is not contingent upon the consummation of the MCC merger.

Transaction expenses related to the pending merger are included in general, administrative and other expenses and primarily consist of professional fees. Such expenses amounted to $1.1 million and $0.9 million for the three months ended June 30, 2019 and 2018, respectively, and $1.4 million and $1.8 million for the six months ended June 30, 2019 and 2018, respectively.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of Medley Management Inc., Medley LLC and its consolidated subsidiaries (collectively, “Medley” or the “Company”). Additionally, the accompanying condensed consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with U.S. GAAP may be omitted. In the opinion of management, the unaudited condensed consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. Therefore, this Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The current period's results of operations will not necessarily be indicative of results that ultimately may be achieved for any future interim period or the full year ending December 31, 2019.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

In accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, the Company consolidates those entities where it has a direct and indirect controlling financial interest based on either a variable interest model or voting interest model. As such, the Company consolidates entities that the Company concludes are variable interest entities (“VIEs”), for which the Company is deemed to be the primary beneficiary and entities in which it holds a majority voting interest or has majority ownership and control over the operational, financial and investing decisions of that entity.

For legal entities evaluated for consolidation, the Company must determine whether the interests that it holds and fees paid to it qualify as a variable interest in an entity. This includes an evaluation of the management fee and performance fee paid to the Company when acting as a decision maker or service provider to the entity being evaluated. If fees received by the Company are customary and commensurate with the level of services provided, and the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, the interest that the Company holds would not be considered a variable interest. The Company factors in all economic interests including proportionate interests through related parties, to determine if fees are considered a variable interest.

An entity in which the Company holds a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk have the right to direct the activities of the entity that most significantly impact the legal entity’s economic performance, or (c) the voting rights of some investors are disproportionate to their obligation to absorb losses or rights to receive returns from a legal entity. For limited partnerships and other similar entities, non-controlling investors must have substantive rights to either dissolve the fund or remove the general partner (“kick-out rights”) in order to not qualify as a VIE.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE. The Company is generally deemed to have a controlling financial interest if it has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion continuously. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These assessments require judgment. Each entity is assessed for consolidation on a case-by-case basis. 

For those entities evaluated under the voting interest model, the Company consolidates the entity if it has a controlling financial interest. The Company has a controlling financial interest in a voting interest entity (“VOE”) if it owns a majority voting interest in the entity.

Consolidated Variable Interest Entities

Medley Management Inc. is the sole managing member of Medley LLC and, as such, it operates and controls all of the business and affairs of Medley LLC and, through Medley LLC, conducts its business. Under ASC 810, Medley LLC meets the definition of a VIE because the equity of Medley LLC is not sufficient to permit business activities without additional subordinated financial support. Medley Management Inc. has the obligation to absorb expected losses that could be significant to Medley LLC and holds 100% of the voting power, therefore Medley Management Inc. is considered to be the primary beneficiary of Medley LLC.

As a result, Medley Management Inc. consolidates the financial results of Medley LLC and its subsidiaries and records a non-controlling interest for the economic interest in Medley LLC held by the non-managing members. As of June 30, 2019, Medley Management Inc.’s and the non-managing members’ economic interests in Medley LLC were 18.4% and 81.6%, respectively, and as of December 31, 2018, were 18.9% and 81.1%, respectively. Net (loss) income attributable to the non-controlling interests in Medley LLC on the consolidated statements of operations represents the portion of earnings or losses attributable to the economic interest in Medley LLC held by its non-managing members. Non-controlling interests in Medley LLC on the consolidated balance sheets represents the portion of net assets of Medley LLC attributable to the non-managing members based on total LLC Units and participating restricted LLC Units of Medley LLC owned by such non-managing members.

As of June 30, 2019 and December 31, 2018, Medley LLC had three majority owned subsidiaries, Medley Seed Funding I LLC, Medley Seed Funding II LLC and STRF Advisors LLC, which are consolidated VIEs. Each of these entities was organized as a limited liability company and was legally formed to either manage a designated fund or to strategically invest capital as well as isolate business risk. As of June 30, 2019, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $18.3 million and less than $0.1 million, respectively. As of December 31, 2018, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $22.2 million and less than $0.1 million, respectively. Except to the extent of the assets of these VIEs that are consolidated, the holders of the consolidated VIEs’ liabilities generally do not have recourse to the Company.

Seed Investments

The Company accounts for seed investments through the application of the voting interest model under ASC 810-10-25-1 through 25-14 and consolidates a seed investment when the investment advisor holds a controlling interest, which is, in general, 50% or more of the equity in such investment. For seed investments in which the Company does not hold a controlling interest, the Company accounts for such seed investment under the equity method of accounting, at its ownership percentage of such seed investment’s net asset value.

The Company seed funded $2.1 million to Sierra Total Return Fund ("STRF"), which commenced investment operations in June 2017. As of and since inception through June 30, 2019, the Company owned 100% of the equity of STRF and, as such, consolidates STRF in its condensed consolidated financial statements.

The condensed balance sheet of STRF as of June 30, 2019 and December 31, 2018 is presented in the table below.

	As of
	June 30, 2019		December 31, 2018
Assets	(in thousands)
Cash and cash equivalents	$	310	$	274
Investments, at fair value	2,090		1,952
Other assets	295		248
Total assets	$	2,695	$	2,474
Liabilities and Equity
Accrued expenses and other liabilities	$	469	$	330
Equity	2,226		2,144
Total liabilities and equity	$	2,695	$	2,474

As of June 30, 2019, the Company's condensed consolidated balance sheet reflects the elimination of $0.1 million of other assets, $0.1 million of accrued expenses and other liabilities and $2.2 million of equity as a result of the consolidation of STRF. As of December 31, 2018, the Company's condensed consolidated balance sheet reflects the elimination of $0.2 million of other assets, $0.1 million of accrued expenses and other liabilities and $2.1 million of equity as a result of the consolidation of STRF. During the three and six months ended June 30, 2019 and 2018, this fund did not generate any significant income or losses from operations.

Non-Consolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated because the Company is not deemed the primary beneficiary. The Company's interest in these entities is in the form of insignificant equity interests and fee arrangements. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities.

As of June 30, 2019, the Company recorded investments, at fair value, attributed to these non-consolidated VIEs of $3.7 million, receivables of $1.7 million included as a component of other assets and a clawback obligation of $7.2 million included as a component of accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. As of December 31, 2018, the Company recorded investments, at fair value, attributed to non-consolidated VIEs of $4.2 million, receivables of $1.8 million included as a component of other assets and a clawback obligation of $7.2 million included as a component of accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. As of June 30, 2019, the Company’s maximum exposure to losses from these entities is $5.4 million.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management’s estimates are based on historical experience and other factors, including expectations of future events that management believes to be reasonable under the circumstances. These assumptions and estimates also require management to exercise judgment in the process of applying the Company’s accounting policies. Significant estimates and assumptions by management affect the carrying value of investments, performance compensation payable and certain accrued liabilities. Actual results could differ from these estimates, and such differences could be material.  

Non-Controlling Interests in Consolidated Subsidiaries

Non-controlling interests in consolidated subsidiaries represent the component of equity in such consolidated entities held by third-parties and certain employees. These interests are adjusted for contributions to and distributions from Medley entities and are allocated income or loss from Medley entities based on their ownership percentages. 

Redeemable Non-Controlling Interests

Redeemable non-controlling interests represents interests of certain third parties that are not mandatorily redeemable but redeemable for cash or other assets at a fixed or determinable price or a fixed or determinable date, at the option of the holder or upon the occurrence of an event that is not solely within the control of the Company. These interests are classified in the mezzanine section on the Company's condensed consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents include liquid investments in money market funds and demand deposits. The Company had cash balances with financial institutions in excess of Federal Deposit Insurance Corporation insured limits as of June 30, 2019 and December 31, 2018. The Company monitors the credit standing of these financial institutions and has not experienced, and has no expectations of experiencing, any losses with respect to such balances.

Investments

Investments include equity method investments that are not consolidated but over which the Company exerts significant influence. The Company measures the carrying value of its privately-held equity method investments by recording its share of the earnings or losses of its investee in the periods for which they are reported by the investee in the investee's financial statements rather than in the period in which an investee declares a dividend or distribution. For the Company's public non-traded equity method investment, it measures the carrying value of such investment at Net Asset Value ("NAV") per share. Unrealized appreciation (depreciation) resulting from changes in fair value of the equity method investments is reflected as a component of investment income in the condensed consolidated statements of operations along with the income and expense allocations from such investments.

The carrying amounts of equity method investments are reflected in Investments, at fair value in the consolidated balance sheets. As the underlying entities that the Company manages and invests in are, for U.S. GAAP purposes, primarily investment companies which reflect their investments at estimated fair value, the carrying value of the Company’s equity method investments in such entities approximates fair value. The Company evaluates its equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

For presentation in its consolidated statements of cash flows, the Company treats distributions received from certain equity method investments using the cumulative earnings approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.

Investments also include publicly traded common stock. The Company measures the fair value of its publicly traded common stock at the quoted market price on the primary market or exchange on which the underlying shares trade. Any realized gains (losses) from the sale of investments and unrealized appreciation (depreciation) resulting from changes in fair value are recorded in other income (expense), net.

Investments of Consolidated Fund

In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company's consolidated fund has categorized its investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 5. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Investments for which market quotations are readily available are valued at such market quotations, which are generally obtained from an independent pricing service or multiple broker-dealers or market makers. The consolidated fund weighs the use of third-party broker quotations, if any, in determining fair value based on management's understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer. However, debt investments with remaining maturities within 60 days that are not credit impaired are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments for which market quotations are not readily available are valued at fair value as determined by the consolidated fund’s board of trustees based upon input from management and third party valuation firms. Because these investments are illiquid and because there may not be any directly comparable companies whose financial instruments have observable market values, these loans are valued using a fundamental valuation methodology, consistent with traditional asset pricing standards, that is objective and consistently applied across all loans and through time.

 Revenues

Effective January 1, 2018, the Company recognizes revenue in accordance with ASC 606, Revenues from Contracts with Customers. The Company recognizes revenue under the core principle of depicting the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for such goods or services. To achieve this, the Company applies a five step approach: (1) identify the contract(s) with a customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when, or as, each performance obligation is satisfied.

Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Such fees represent a capital allocation to the general partner or investment manager and are accounted for under ASC 323, Investments - Equity Method and Joint Ventures. As such, these types of performance fees are not in the scope of ASC 606.

As a result of the adoption of this new revenue guidance, the Company recorded a cumulative effect decrease to equity of $3.6 million, net of benefit from income taxes of $0.1 million, as of January 1, 2018, which relates to (1) certain performance fee revenue that would not have met the “probable that significant reversal will not occur” criteria of $3.0 million and (2) the reversal of reimbursable fund formation costs which were deferred on the Company’s consolidated balance sheet of $0.7 million.

Management Fees

Medley provides investment management services to both public and private investment vehicles. Management fees include base management fees, other management fees, and Part I incentive fees, as described below.

Base management fees are calculated based on either (i) the average or ending gross assets balance for the relevant period, (ii) limited partners’ capital commitments to the funds, (iii) invested capital, (iv) NAV or (v) lower of cost or market value of a fund’s portfolio investments. Depending upon the contracted terms of the investment management agreement, management fees are paid either quarterly in advance or quarterly in arrears, and are recognized as earned over the period the services are provided. 

Certain management agreements provide for Medley to receive other management fee revenue derived from up front origination fees paid by the funds' and/or separately managed accounts' underlying portfolio companies. These fees are recognized when the Company becomes entitled to such fees.

Certain management agreements also provide for Medley to receive Part I incentive fee revenue derived from net investment income (excluding gains and losses) above a hurdle rate. As it relates to MCC, these fees are subject to netting against realized and unrealized losses. Part I incentive fees are paid quarterly and are recognized as earned in the period the services are provided.

Performance Fees

Performance fees are contractual fees which do not represent a capital allocation of income to the general partner or investment manager that are earned based on the performance of certain funds, typically, the Company’s separately managed accounts. Performance fees are earned based on the fund performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement.

Other Revenues and Fees

Medley provides administrative services to certain affiliated funds and is reimbursed for direct and allocated expenses incurred in providing such administrative services, as set forth in the respective underlying agreements. These fees are recognized as revenue in the period administrative services are rendered. Medley also acts as the administrative agent on certain deals for which Medley may earn loan administration fees and transaction fees. Medley may also earn consulting fees for providing non-advisory services related to its managed funds. These fees are recognized as revenue over the period to which the fees directly relate.

Investment Income (loss) - Carried Interest

Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents and are accounted for under the equity method of accounting. Accordingly, these performance fees are reflected as carried interest within investment income on the Company's consolidated statements of operations and balances due for such fees are included as a part of equity method investments within Investments, at fair value on the Company's consolidated balance sheets.

The Company records carried interest based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on the Company's condensed consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

Carried interest received in prior periods may be required to be returned by the Company in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. For the three and six months endedJune 30, 2019, the Company received a carried interest distribution of$0.3 millionfrom one of its managed funds with no clawback liability established. Prior to the distribution received during the three months endedJune 30, 2019, the Company had not received any carried interest distributions, except for tax distributions related to the Company’s allocation of net income, which included an allocation of carried interest. Pursuant to the organizational documents of each respective fund, a portion of these tax distributions may be subject to clawback. As of June 30, 2019 and December 31, 2018, the Company had accrued $7.2 million for clawback obligations that would need to be paid if the funds were liquidated at fair value as of the end of the reporting period. The Company’s actual obligation, however, would not become payable or realized until the end of a fund’s life.

During the three and six months ended June 30, 2019 and 2018, the Company's reversal of previously recognized carried interest was less than $0.1 million.

Investment Income (loss) - Other

Other investment income is comprised of unrealized appreciation (depreciation) resulting from changes in fair value of the Company's equity method investments in addition to the income and expense allocations from such investments.

Stock-based Compensation

Stock-based compensation expense relating to equity based awards are measured at fair value as of the grant date, reduced for actual forfeitures in the period they occur, and expensed over the requisite service period on a straight-line basis as a component of compensation and benefits on the Company's consolidated statements of operations.

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires the recognition of tax benefits or expenses for temporary differences between the financial reporting and tax basis of assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company’s policy is to recognize interest and penalties on uncertain tax positions and other tax matters as a component of its provision for income taxes. For interim periods, the Company accounts for income taxes based on its estimate of the effective tax rate for the year. Discrete items and changes in its estimate of the annual effective tax rate are recorded in the period in which they occur.

Medley Management Inc. is subject to U.S. federal, state and local corporate income taxes on its allocable portion of the income of Medley LLC at prevailing corporate tax rates. Medley LLC and its subsidiaries are not subject to federal, state and local corporate income taxes since all income, gains and losses are passed through to its members. However, a portion of taxable income from Medley LLC and its subsidiaries are subject to New York City’s unincorporated business tax, which is included in the Company’s provision for income taxes.

The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established.

Reclassification of Prior Period Presentation

Performance fee compensation reported in the prior period has been reclassified to compensation and benefits to conform to the current period presentation in the condensed consolidated statements of operations. This reclassification had no effect on the reported results of operations.

Class A Earnings per Share

The Company computes and presents earnings per share using the two-class method. Under the two-class method, the Company allocates earnings between common stock and participating securities. The two-class method includes an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and undistributed earnings for the period. For purposes of calculating earnings per share, the Company reduces its reported net earnings by the amount allocated to participating securities to arrive at the earnings allocated to Class A common stockholders. Earnings are then divided by the weighted average number of Class A common stock outstanding to arrive at basic earnings per share. Diluted earnings per share reflects the potential dilution beyond shares for basic earnings per share that could occur if securities or other contracts to issue common stock were exercised, converted into common stock, or resulted in the issuance of common stock that would have shared in our earnings. Participating securities consist of the Company's unvested restricted stock units that contain non-forfeitable rights to dividend equivalent payments, whether paid or unpaid, in the number of shares outstanding in its basic and diluted calculations.

Recently Issued Accounting Pronouncements Adopted as of January 1, 2019

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase the transparency and comparability among organizations as it relates to lease assets and lease liabilities, by requiring lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months, with exceptions. Effective January 1, 2019, the Company adopted this guidance using a modified retrospective approach, which was required for all leases that exist at or commence after the date of the initial application with an option to use certain practical expedients. The Company has elected to use these practical expedients, which allow the Company to treat lease and non-lease components of its leases as a single component, have the ability to use hindsight in determining the lease term and assessing impairment of right-of-use assets, not to reassess lease classification or whether an arrangement is or contains a lease and not to reassess its initial accounting for direct lease costs.

The adoption of the new lease standard at January 1, 2019 resulted in the recognition of right-of-use assets and lease liabilities of $8.2 million and $10.2 million, respectively, consisting primarily of operating leases related to the rental of office space. The adoption of this guidance did not have a significant impact on the Company's consolidated statements of operations or cash flows. Additionally, this adoption did not impact any covenants associated with the Company's financial obligations.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. The adoption of this ASU is not expected to have a significant impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. The adoption of this ASU is not expected to have a significant impact on the Company's consolidated financial statements.    

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This ASU aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. It address when costs should be capitalized rather than expensed, the term to use when amortizing capitalized costs, and how to evaluate the unamortized portion of these capitalized implementation costs for impairment. This ASU also includes guidance on how to present implementation costs in the financial statements and creates additional disclosure requirements. The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. This ASU is effective for fiscal years beginning after December 31, 2019, including interim reporting within those fiscal years. Early adoption is permitted and can be applied either retrospectively or prospectively. The Company is currently evaluating the transition methods and the impact the adoption of this standard may have on its consolidated financial statements.

The Company does not believe any other recently issued, but not yet effective, revisions to authoritative guidance will have a material effect on its consolidated balance sheets, results of operations or cash flows.

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REVENUES FROM CONTRACTS WITH CUSTOMERS

6 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

Revenues from Contracts with Customers

REVENUES FROM CONTRACTS WITH CUSTOMERS

The majority of the Company's revenues are derived from investment management and advisory contracts that are accounted for in accordance with ASC 606.

Performance Obligations

Performance obligations are the unit of account under the revenue recognition standard and represent the distinct goods or services that are promised to the customer. The majority of the Company's contracts have a single performance obligation to provide asset management, advisory and other related services to permanent capital vehicles, long-dated private funds and separately managed accounts. The Company also has a separate performance obligation to act as an agent for certain third party lenders and provide loan administration services to certain borrowers. These loan administration services also represent a single performance obligation.

The Company primarily provides investment management services to a fund by managing the fund’s investments and maximizing returns on those investments. The Company’s asset management, advisory and other related services are transferred over time to the customer on a day-to-day basis. The contracts with each fund create a distinct performance obligation for each quarter the Company provides the promised services to the customer, from which the customer can benefit from each individual quarter of service. Furthermore, each quarter of the promised services is considered separately identifiable because there is no integration of the promised services between quarters, each quarter does not modify services provided prior to that quarter, and the services provided are not interdependent or interrelated. Most services provided to these funds are provided continuously over the contract period, so the services in the contract generally represent a single performance obligation comprising a series of distinct service periods. A contract’s transaction price is allocated to the series of distinct services that constitute a single performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The management fees earned by the Company are largely dependent on fluctuations in the market and, thus, the determination of such fees is highly susceptible to factors outside the Company's influence. Management fees typically have a large number and broad range of possible consideration amounts and historical experience is generally not indicative of future performance of the market. Hence, the Company is applying the exemption provided under the new revenue recognition guidance as the Company is unable to estimate the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied and the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.

Reimbursement of certain expenses incurred on behalf of the Company's funds are reported on a gross basis on the statements of operations if the Company is determined to be acting as the principal in those transactions.

Significant Judgments

The Company's contracts with customers generally include a single performance obligation to provide asset management, advisory and other related services on a quarterly basis. Revenues are recognized as such performance obligation is satisfied and the constraint on the management fees is lifted on a quarterly basis, hence, the Company does not need to exercise significant judgments in regards to management fees. Consideration for management fees is received on a quarterly basis as the performance obligations are satisfied.

With respect to performance fees based on the economic performance of its SMAs, significant judgment is required when determining recognition of revenues. Such judgments include:

• whether the fund is near final liquidation

• whether the fair value of the remaining assets in the fund is significantly in excess of the threshold at which the Company would earn an incentive fee

• the probability of significant fluctuations in the fair value of the remaining assets

• the SMA’s remaining investments are under contract for sale with contractual purchase prices that would result in no clawback and it is highly likely that the contracts will be consummated

As such, the Company will consider the above factors at each reporting period to determine whether there is an amount of the SMA performance fees which should be recognized as revenue because it is probable that there will not be a significant future revenue reversal, hence, the “constraint” on the performance fees has been lifted.

The Company accounts for performance fees which represent capital allocations to the general partner or investment manager pursuant to accounting rules relating to investments accounted for under the equity method of accounting. As such, these types of performance fees are not within the scope of the new revenue recognition standard and the above significant judgments and constraints do not apply to them. Refer to Note 2 “Summary of Significant Accounting Policies” and Note 4 "Investments" for additional information.

Revenue by Category

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and six months ended June 30, 2019:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
For the three months ended June 30, 2019:	(in thousands)
Management fees	$	7,021	$	1,710	$	1,477	$	—	$	10,208
Other revenues and fees	1,472		—		—		1,197		2,669
Total revenues from contracts with customers	$	8,493	$	1,710	$	1,477	$	1,197	$	12,877
For the six months ended June 30, 2019:
Management fees	$	14,550	$	3,570	$	3,001	$	—	$	21,121
Other revenues and fees	3,252		—		—		1,858		5,110
Total revenues from contracts with customers	$	17,802	$	3,570	$	3,001	$	1,858	$	26,231

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and six months ended June 30, 2018:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
For the three months ended June 30, 2018:	(in thousands)
Management fees	$	8,374	$	1,983	$	1,608	$	—	$	11,965
Other revenues and fees	1,920		—		—		1,118		3,038
Total revenues from contracts with customers	$	10,294	$	1,983	$	1,608	$	1,118	$	15,003
For the six months ended June 30, 2018:
Management fees	$	16,767	$	4,043	$	3,240	$	—	$	24,050
Other revenues and fees	3,765		—		—		1,602		5,367
Total revenues from contracts with customers	$	20,532	$	4,043	$	3,240	$	1,602	$	29,417

The Other revenues and fees balances above primarily consist of: (i) revenues earned by Medley while serving as loan administrative agent on certain deals, including loan administration fees and transaction fees, (ii) reimbursable origination and deal expenses, (iii) reimbursable entity formation and organizational expenses and (iv) consulting fees for providing non-advisory services related to one of our managed funds.

The Company's asset management, advisory and other related services are transferred over time and the Company recognizes these revenues over time as well.

Contract Balances

For certain customers, the Company has a performance obligation to provide loan administration services. The timing of revenue recognition may differ from the timing of invoicing to such customers or receiving consideration. For the majority of these services cash deposits are received prior to the performance obligation being met. The performance obligation of acting as a loan administrator is satisfied over time, therefore, the Company defers any payments received upfront as deferred revenue and recognizes revenue on a pro-rata basis over time as the loan administrative services are performed.

These contract liabilities are reported as deferred revenue within accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheets and amounted to $0.2 million and $0.3 million as of June 30, 2019 and December 31, 2018, respectively. During the three months ended June 30, 2019 and 2018, the Company recognized revenue from amounts included in deferred revenue of $0.2 million for each of those periods, and received cash deposits of $0.1 million and $0.2 million, respectively. During the six months ended June 30, 2019 and 2018, the Company recognized revenue from amounts included in deferred revenue of $0.3 million for each of those periods, and received cash deposits of $0.2 million and $0.3 million, respectively.

The Company did not have any contract assets as of June 30, 2019 or December 31, 2018.

Assets Recognized for the Costs to Obtain or Fulfill a Contract

As part of providing investment management services to a fund, the Company might incur certain placement fees to third parties for obtaining new investors for the fund. Any placement fees incurred to third party placement agents for placing investors into a fund are variable as it is based on a percentage of future fees and cannot be reasonably estimated. The Company determined that placement fees which are paid in cash over time as fees are earned, do not relate to a new contract at the time the payment is made. These costs do not represent a cost to obtain a new contract but rather a cost to fulfill an existing contract. The Company does not recognize any assets for the incremental costs of obtaining or fulfilling a contract with a customer and expenses placement fees as incurred.

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INVESTMENTS

6 Months Ended

Jun. 30, 2019

Schedule of Investments [Abstract]

Investments

INVESTMENTS

Investments consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Equity method investments, at fair value	$	13,018	$	13,422
Investment in shares of MCC, at fair value	18,151		20,633
Investment held at cost less impairment	316		418
Investments of consolidated fund	2,090		1,952
Total investments, at fair value	$	33,575	$	36,425

Equity Method Investments

Medley measures the carrying value of its public non-traded equity method investment in Sierra Income Corporation (“SIC” or "Sierra"), a related party, at NAV per share. Unrealized appreciation (depreciation) resulting from changes in NAV per share is reflected as a component of investment loss, net in the condensed consolidated statements of operations. The carrying value of the Company’s privately-held equity method investments is determined based on the amounts invested by the Company plus the equity in earnings or losses of the investee allocated based on the respective underlying agreements, less distributions received.

The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. There were no impairment losses recorded during the three and six months ended June 30, 2019 and 2018.

The Company's equity method investment in shares of Sierra were $7.1 million and $7.4 million as of June 30, 2019 and December 31, 2018, respectively. The remaining balance as of June 30, 2019 and December 31, 2018 relates primarily to the Company’s investments in Medley Opportunity Fund II, LP ("MOF II"), Medley Opportunity Fund III LP (“MOF III”), Medley Opportunity Fund Offshore III LP (“MOF III Offshore”) and Aspect-Medley Investment Platform B LP ("Aspect B").

For performance fees earned which represent a capital allocation to the general partner or investment manager, the Company accounts for them under the equity method of accounting. As of June 30, 2019 and December 31, 2018, the balance due to the Company for such performance fees was $0.9 million and $0.4 million, respectively. Revenues associated with these performance fees are classified as carried interest within investment income on the Company's condensed consolidated statements of operations.

The entities in which the Company's investments are accounted for under the equity method are considered to be related parties.

Investments in shares of MCC, at fair value

As of June 30, 2019 and December 31, 2018, the Company held 7,756,938 shares of MCC which are carried at fair value based upon the quoted market price on the exchange on which the shares trade. During the three months ended June 30, 2019 and 2018, the Company recognized unrealized losses of $6.0 million and $4.0 million, respectively, which are included as a component of other income (expense), net on the Company’s condensed consolidated statements of operations. During the six months ended June 30, 2019 and 2018, the Company recognized unrealized losses of $2.5 million and $13.6 million, respectively, which are included as a component of other income expenses, net on the Company’s condensed consolidated statements of operations.

Investment Held at Cost Less Impairment

The Company measures its investment in CK Pearl at cost less impairment, adjusted for observable price changes for an identical or similar investment of the same issuer as well as any distributions received during the period. The carrying amount of this investment was $0.3 million and $0.4 million as of June 30, 2019 and December 31, 2018, respectively. The Company performs a quantitative and qualitative assessment at each reporting date to determine whether the investment is impaired and an impairment loss equal to the difference between the carrying value and fair value is recorded within other income (expenses), net on the Company's consolidated statement of operations if an impairment has been determined. There were no impairment losses recorded during the three and six months ended June 30, 2019 and 2018.

Investments of consolidated fund

Medley measures the carrying value of investments held by its consolidated fund at fair value. As of June 30, 2019, investments of consolidated fund consisted of $0.4 million of equity investments and $1.6 million of senior secured loans. As of December 31, 2018, investments of consolidated fund consisted of $0.4 million of equity investments and $1.6 million of senior secured loans. Refer to Note 5 "Fair Value Measurements" for additional information.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy:

• Level I – Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level II – Valuations based on inputs other than quoted prices in active markets included in Level I, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

• Level III – Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets and liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level III information, assuming no additional corroborating evidence.

The following tables summarize the fair value hierarchy of the Company's financial assets measured at fair value:

	As of June 30, 2019
	Level I		Level II		Level III		Total
Assets	(in thousands)
Investments of consolidated fund	$	368	$	—	$	1,722	$	2,090
Investment in shares of MCC	18,151		—		—		18,151
Total Assets	$	18,519	$	—	$	1,722	$	20,241

	As of December 31, 2018
	Level I		Level II		Level III		Total
Assets	(in thousands)
Investments of consolidated fund	$	258	$	—	$	1,694	$	1,952
Investment in shares of MCC	20,633		—		—		20,633
Total Assets	$	20,891	$	—	$	1,694	$	22,585

Included in investments of consolidated fund as of June 30, 2019 are Level I assets of $0.4 million in equity investments and Level III assets of $1.7 million, which consists of senior secured loans and equity investments. Included in investments of consolidated fund as of December 31, 2018 are Level I assets of $0.3 million in equity investments and Level III assets of $1.7 million, which consists of senior secured loans and preferred equity investments. The significant unobservable inputs used in the fair value measurement of Level III assets of the consolidated fund's investments in senior secured loans include market yields. Significant increases or decreases in market yields in isolation would result in a significantly higher or lower fair value measurement. There were no significant unrealized gains or losses related to the investments of consolidated fund for each of the three and six months ended June 30, 2019 and 2018.

The following is a summary of changes in fair value of the Company's financial assets that have been categorized within Level III of the fair value hierarchy:

	Level III Financial Assets as of June 30, 2019
	Balance at December 31, 2018		Purchases	Transfers In or (Out) of Level III	Unrealized Appreciation/(Depreciation)	Sale of Level III Assets		Balance at June 30, 2019
	(in thousands)
Investments of consolidated fund	$	1,694	505	—	6	(483	)	$	1,722

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting all levels of the fair value hierarchy are reported as transfers in or out of Level I, II or III category as of the beginning of the quarter during which the reclassifications occur. There were no transfers between levels in the fair value hierarchy during the three and six months ended June 30, 2019.

When determining the fair value of publicly traded equity securities, the Company uses the quoted closing market price as of the valuation date on the primary market or exchange on which they trade. Our equity method investments for which fair value is measured at NAV per share, or its equivalent, using the practical expedient, are not categorized in the fair value hierarchy.

The Company's investments of consolidated fund are treated as investments at fair value and any realized and unrealized gains and losses from those investments are recorded through the condensed consolidated statement of operations. The Company's treatment is consistent with that of STRF, which is considered an investment company under ASC 946, Financial Services - Investment Companies, for standalone reporting purposes.

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LEASES

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

LEASES

On January 1, 2019, the company adopted ASC 842, Leases, under the modified retrospective method where any transition adjustments are recorded through a cumulative adjustment to retained earnings in the period of adoption. This new accounting standard requires a dual approach for lessee accounting whereby a lessee accounts for lease arrangements as either operating leases or finance leases. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company has elected the transition relief package of practical expedients permitted within ASC 842. Accordingly, the Company has not reassessed the classification of its existing leases as of the transition date, whether existing contracts at the transition date contain a lease, or whether unamortized initial direct costs before the transition adjustments would have met the definition of initial direct costs at lease commencement. The Company also applied practical expedients to not separate lease and non-lease components for all new leases as well as leases commencing before the effective date if certain criteria are met, and does not record leases on its consolidated balance sheet with expected terms of twelve months or less. Upon adoption of ASC 842, the Company recognized $8.2 million of right-of-use assets under operating leases and operating lease liabilities of $10.2 million.

Under ASC 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and lease liabilities. Lease liabilities and the corresponding right-of-use assets are recorded based on the present values of lease payments over the expected lease terms. The Company’s expected lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. When determining if a renewal option is reasonably certain of being exercised, the Company considers several factors, including but not limited to, the significance of leasehold improvements incurred on the property, whether the asset is difficult to replace, or specific characteristics unique to the particular lease that would make it reasonably certain that the Company would exercise such option. The Company has concluded that renewal and early termination options are not reasonably certain of being exercised by the Company and thus not included in its right-of-use assets and operating lease liabilities. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the lease liability by using revised inputs as of the reassessment date, and adjust the underlying right-of-use asset.

Substantially all of the Company's operating leases are comprised of its office space in New York City and San Francisco which expire at various times through September 2023. The Company does not have any contracts that would be classified as a finance lease nor any operating leases that contain variable payments.

The components of lease cost and other information for the three and six months ended June 30, 2019 are as follows (dollars in thousands):

	For the Three Months Ended June 30, 2019			For the Six Months Ended June 30, 2019
Lease cost
Operating lease costs	$	633		$	1,258
Variable lease costs	—			—
Sublease income	(115		)	(230		)
Total lease cost	$	518		$	1,028

Supplemental balance sheet information related to leases as of June 30, 2019 was as follows:

Weighted-average remaining lease term (in years)	4.0
Weighted-average discount rate	8.2	%

Future payments for operating leases as of June 30, 2019 are as follows (in thousands):

Remaining 2019	$	1,362
2020	2,846
2021	2,483
2022	2,441
2023	1,823
Total future lease payments	10,955
Less imputed interest	(1,688		)
Operating lease liabilities, as reported	$	9,267

For the three and six months ending June 30, 2018, rent expense amounted to $0.6 million and $1.2 million, respectively. There is no material difference between the amount of lease expense recognized under the new lease accounting standard versus the superseded lease accounting standard.

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OTHER ASSETS

6 Months Ended

Jun. 30, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Assets

OTHER ASSETS

Other assets consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Fixed assets, net of accumulated depreciation and amortization of $3,798 and $3,446, respectively	$	2,817	$	3,140
Security deposits	1,975		1,975
Administrative fees receivable (Note 13)	1,521		1,645
Deferred tax assets (Note 15)	3,400		3,739
Due from affiliates (Note 13)	1,555		1,421
Prepaid expenses and taxes	2,706		1,113
Other assets	1,185		1,265
Total other assets	$	15,159	$	14,298

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SENIOR UNSECURED DEBT

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Senior Unsecured Debt

SENIOR UNSECURED DEBT

The carrying value of the Company’s senior unsecured debt consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,765 and $2,946, respectively	$	50,830	$	50,649
2024 Notes, net of unamortized premium and debt issuance costs of $1,831 and $2,031 respectively	67,169		66,969
Total senior unsecured debt	$	117,999	$	117,618

2026 Notes 

On August 9, 2016 and October 18, 2016, the Company issued debt consisting of $53.6 million in aggregate principal amount of senior unsecured notes due 2026 at a stated coupon rate of 6.875% (the "2026 Notes"). The net proceeds from these offerings were used to pay down a portion of the Company's outstanding indebtedness under its Term Loan Facility. Interest is payable quarterly. The 2026 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after August 15, 2019 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2026 notes were recorded net of discount and direct issuance costs of $3.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2026 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLX.” The fair value of the 2026 Notes based on their underlying quoted market price was $35.2 million as of June 30, 2019.

Interest expense on the 2026 Notes, including accretion of note discount and amortization of debt issuance costs, was $1.0 million for each of the three months ended June 30, 2019 and 2018, and $2.0 million for each of the six months ended June 30, 2019 and 2018.

2024 Notes

On January 18, 2017 and February 22, 2017, the Company issued $69.0 million in aggregate principal amount of senior unsecured notes due 2024 at a stated coupon rate of 7.25% (the "2024 Notes"). The net proceeds from these offerings were used to pay down the remaining portion of the Company's outstanding indebtedness under its Term Loan Facility with the remaining to be used for general corporate purposes. Interest is payable quarterly and interest payments commenced on April 30, 2017. The 2024 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after January 30, 2020 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2024 notes were recorded net of premium and direct issuance costs of $2.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2024 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLQ.” The fair value of the 2024 Notes based on their underlying quoted market price was $46.0 million as of June 30, 2019.

Interest expense on the 2024 Notes, including amortization of debt premium and debt issuance costs, was $1.4 million for each of the three months ended June 30, 2019 and 2018, and $2.7 million for each of the six months ended June 30, 2019 and 2018, respectively.

LOANS PAYABLE

Loans payable consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Non-recourse promissory notes, net of unamortized discount of $108 at December 31, 2018	$	10,000	$	9,892
Total loans payable	$	10,000	$	9,892

Non-Recourse Promissory Notes 

In April 2012, the Company borrowed $10.0 million under two non-recourse promissory notes. Proceeds from the borrowings were used to purchase 1,108,033 shares of common stock of SIC, which were pledged as collateral for the obligations. Interest on the notes is paid monthly and is equal to the dividends received by the Company related to the pledged shares. The Company may prepay the notes in whole or in part at any time without penalty and the lenders may call the notes if certain conditions are met. The Company extended the maturity date from March 31, 2019 to June 30, 2019. The proceeds from the notes were recorded net of issuance costs of $3.8 million and were being accreted, using the effective interest method, over the original term of the non-recourse promissory notes. Total interest expense under these notes, including accretion of the notes discount, was $0.2 million and $0.3 million for the three months ending June 30, 2019 and 2018, respectively, and $0.5 million and $0.7 million for the six months ending June 30, 2019 and 2018, respectively. On June 28, 2019, the Company entered into an amendment which extended the June 30, 2019 maturity date to December 31, 2019. In consideration for this amendment, the interest rate on these notes were increased by 1.0% per annum. The fair value of the outstanding balance of the notes was $10.0 million as of each of June 30, 2019 and December 31, 2018, respectively.

On January 31, 2019, the Company entered into a termination agreement with the lenders which will become effective upon the closing of the Company's pending merger with Sierra. In accordance with the provisions of the termination agreement, the Company will be required to pay the lenders $6.5 million on or prior to the merger closing date, reimburse the lenders for their out of pocket legal fees and enter into a new $6.5 million promissory note ("New Promissory Note"). The New Promissory Note will bear interest at LIBOR plus 7.0% and maturity will be six months after the merger closing date. Such consideration would be for the full satisfaction of the two aforementioned non-recourse promissory notes and related agreements, including the Company's revenue share payable, as further described in Note 12.

Contractual Maturities of Loans Payable

As further described above, upon closing of the Company's pending merger with Sierra, the Company's two non-recourse promissory and revenue sharing arrangement would be settled for payment of $6.5 million on or prior to the merger closing date and delivery of the New Promissory Note. If the pending merger does not close, $10.0 million of future principal payments will be due, relating to loans payable, on December 31, 2019.

CNB Credit Agreement

On August 19, 2014, the Company entered into a $15.0 million senior secured revolving credit facility with City National Bank (as amended, the “Revolving Credit Facility”). The Company intended to use any proceeds from borrowings under the Revolving Credit Facility for general corporate purposes, including funding of its working capital needs. Borrowings under the Revolving Credit Facility bore interest, at the option of the Company, either (i) at an Alternate Base Rate, as defined, plus an applicable margin not to exceed 0.25% or (ii) at an Adjusted LIBOR plus an applicable margin not to exceed 2.5%.

The Revolving Credit Facility also contained financial covenants, customary negative covenants and other customary events of default, including defaults based on events of bankruptcy and insolvency, dissolution, nonpayment of principal, interest or fees when due, breach of specified covenants, change in control and material inaccuracy of representations and warranties.

Effective May 13, 2019, the Company terminated the Revolving Credit Facility. There were no early termination penalties incurred by the Company. For the three months ended June 30, 2019, there was no amortization of deferred issuance costs associated with the Revolving Credit Facility. Amortization of deferred issuance costs were less than $0.1 million for the three months ended June 30, 2018. For the six months ended June 30, 2019 and 2018, amortization of deferred issuance costs associated with the Revolving Credit Facility were $0.1 million and less than $0.1 million, respectively. The Company had not incurred any borrowings under the Revolving Credit Facility since its inception.

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LOANS PAYABLE

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Loans Payable

SENIOR UNSECURED DEBT

The carrying value of the Company’s senior unsecured debt consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,765 and $2,946, respectively	$	50,830	$	50,649
2024 Notes, net of unamortized premium and debt issuance costs of $1,831 and $2,031 respectively	67,169		66,969
Total senior unsecured debt	$	117,999	$	117,618

2026 Notes 

On August 9, 2016 and October 18, 2016, the Company issued debt consisting of $53.6 million in aggregate principal amount of senior unsecured notes due 2026 at a stated coupon rate of 6.875% (the "2026 Notes"). The net proceeds from these offerings were used to pay down a portion of the Company's outstanding indebtedness under its Term Loan Facility. Interest is payable quarterly. The 2026 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after August 15, 2019 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2026 notes were recorded net of discount and direct issuance costs of $3.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2026 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLX.” The fair value of the 2026 Notes based on their underlying quoted market price was $35.2 million as of June 30, 2019.

Interest expense on the 2026 Notes, including accretion of note discount and amortization of debt issuance costs, was $1.0 million for each of the three months ended June 30, 2019 and 2018, and $2.0 million for each of the six months ended June 30, 2019 and 2018.

2024 Notes

On January 18, 2017 and February 22, 2017, the Company issued $69.0 million in aggregate principal amount of senior unsecured notes due 2024 at a stated coupon rate of 7.25% (the "2024 Notes"). The net proceeds from these offerings were used to pay down the remaining portion of the Company's outstanding indebtedness under its Term Loan Facility with the remaining to be used for general corporate purposes. Interest is payable quarterly and interest payments commenced on April 30, 2017. The 2024 Notes are subject to redemption in whole or in part at any time or from time to time, at the option of the Company, on or after January 30, 2020 at a redemption price per security equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments. The 2024 notes were recorded net of premium and direct issuance costs of $2.8 million which are being amortized over the term of the notes using the effective interest rate method. The 2024 Notes are listed on the New York Stock Exchange and trade thereon under the trading symbol “MDLQ.” The fair value of the 2024 Notes based on their underlying quoted market price was $46.0 million as of June 30, 2019.

Interest expense on the 2024 Notes, including amortization of debt premium and debt issuance costs, was $1.4 million for each of the three months ended June 30, 2019 and 2018, and $2.7 million for each of the six months ended June 30, 2019 and 2018, respectively.

LOANS PAYABLE

Loans payable consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Non-recourse promissory notes, net of unamortized discount of $108 at December 31, 2018	$	10,000	$	9,892
Total loans payable	$	10,000	$	9,892

Non-Recourse Promissory Notes 

In April 2012, the Company borrowed $10.0 million under two non-recourse promissory notes. Proceeds from the borrowings were used to purchase 1,108,033 shares of common stock of SIC, which were pledged as collateral for the obligations. Interest on the notes is paid monthly and is equal to the dividends received by the Company related to the pledged shares. The Company may prepay the notes in whole or in part at any time without penalty and the lenders may call the notes if certain conditions are met. The Company extended the maturity date from March 31, 2019 to June 30, 2019. The proceeds from the notes were recorded net of issuance costs of $3.8 million and were being accreted, using the effective interest method, over the original term of the non-recourse promissory notes. Total interest expense under these notes, including accretion of the notes discount, was $0.2 million and $0.3 million for the three months ending June 30, 2019 and 2018, respectively, and $0.5 million and $0.7 million for the six months ending June 30, 2019 and 2018, respectively. On June 28, 2019, the Company entered into an amendment which extended the June 30, 2019 maturity date to December 31, 2019. In consideration for this amendment, the interest rate on these notes were increased by 1.0% per annum. The fair value of the outstanding balance of the notes was $10.0 million as of each of June 30, 2019 and December 31, 2018, respectively.

On January 31, 2019, the Company entered into a termination agreement with the lenders which will become effective upon the closing of the Company's pending merger with Sierra. In accordance with the provisions of the termination agreement, the Company will be required to pay the lenders $6.5 million on or prior to the merger closing date, reimburse the lenders for their out of pocket legal fees and enter into a new $6.5 million promissory note ("New Promissory Note"). The New Promissory Note will bear interest at LIBOR plus 7.0% and maturity will be six months after the merger closing date. Such consideration would be for the full satisfaction of the two aforementioned non-recourse promissory notes and related agreements, including the Company's revenue share payable, as further described in Note 12.

Contractual Maturities of Loans Payable

As further described above, upon closing of the Company's pending merger with Sierra, the Company's two non-recourse promissory and revenue sharing arrangement would be settled for payment of $6.5 million on or prior to the merger closing date and delivery of the New Promissory Note. If the pending merger does not close, $10.0 million of future principal payments will be due, relating to loans payable, on December 31, 2019.

CNB Credit Agreement

On August 19, 2014, the Company entered into a $15.0 million senior secured revolving credit facility with City National Bank (as amended, the “Revolving Credit Facility”). The Company intended to use any proceeds from borrowings under the Revolving Credit Facility for general corporate purposes, including funding of its working capital needs. Borrowings under the Revolving Credit Facility bore interest, at the option of the Company, either (i) at an Alternate Base Rate, as defined, plus an applicable margin not to exceed 0.25% or (ii) at an Adjusted LIBOR plus an applicable margin not to exceed 2.5%.

The Revolving Credit Facility also contained financial covenants, customary negative covenants and other customary events of default, including defaults based on events of bankruptcy and insolvency, dissolution, nonpayment of principal, interest or fees when due, breach of specified covenants, change in control and material inaccuracy of representations and warranties.

Effective May 13, 2019, the Company terminated the Revolving Credit Facility. There were no early termination penalties incurred by the Company. For the three months ended June 30, 2019, there was no amortization of deferred issuance costs associated with the Revolving Credit Facility. Amortization of deferred issuance costs were less than $0.1 million for the three months ended June 30, 2018. For the six months ended June 30, 2019 and 2018, amortization of deferred issuance costs associated with the Revolving Credit Facility were $0.1 million and less than $0.1 million, respectively. The Company had not incurred any borrowings under the Revolving Credit Facility since its inception.

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DUE TO FORMER MINORITY INTEREST HOLDER

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

DUE TO FORMER MINORITY INTEREST HOLDER

DUE TO FORMER MINORITY INTEREST HOLDER

This balance consists of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Due to former minority interest holder, net of unamortized discount of $2,074 and $2,598, respectively	$	9,301	$	11,402
Total due to former minority interest holder	$	9,301	$	11,402

In January 2016, the Company executed an amendment to SIC Advisors' operating agreement which provided the Company with the right to redeem membership units owned by the minority interest holder, Strategic Capital Advisory Services, LLC. The Company’s redemption right was triggered by the termination of the dealer manager agreement between Sierra and SC Distributors LLC ("DMA Termination"), an affiliate of the minority interest holder. As a result of this redemption feature, the Company reclassified the non-controlling interest in SIC Advisors from the equity section of its consolidated balance sheet to redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet based on its fair value as of the amendment date. On July 31, 2018, a DMA Termination event occurred and, as a result, the Company reclassified the redeemable non-controlling interest in SIC Advisors from redeemable non-controlling in the mezzanine section of its consolidated balance sheet to due to former minority interest holder, a component of total liabilities on the Company's consolidated balance sheet, based on its fair value as of that date.

In December, 2018, Medley LLC entered into a Letter Agreement with Strategic Capital Advisory Services, LLC, whereby consideration of $14.0 million was agreed upon for the satisfaction in full of all amounts owed by Medley under the LLC Agreement. The amount due will be paid in sixteen equal installments through August 5, 2022. The Company evaluated this agreement under ASC 470-50, Debt - Modifications and Extinguishment, to determine if modification or extinguishment treatment was necessary. After performing this analysis, the Company determined modification treatment was appropriate and a new effective interest rate was established on the modification date.

As of June 30, 2019 future payments due to the former minority interest holder are as follows (in thousands):

Remaining in 2019	$	1,750
2020	3,500
2021	3,500
2022	2,625
Total future payments	$	11,375

The amount due will be paid in quarterly installments over a four year period, beginning 2019. For the three and six months ended June 30, 2019, the amortization of the discount was $0.3 million and $0.5 million, respectively, and is included as a component of interest expense on the Company's condensed consolidated statements of operations.

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ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

6 Months Ended

Jun. 30, 2019

Payables and Accruals [Abstract]

Accounts Payable, Accrued Expenses and Other Liabilities

ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Accounts payable, accrued expenses and other liabilities consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	3,444	$	7,438
Due to affiliates (Note 13)	7,199		7,635
Revenue share payable (Note 12)	2,627		2,976
Accrued interest	1,294		1,294
Professional fees	2,493		2,802
Deferred rent	—		2,035
Deferred tax liabilities (Note 15)	67		60
Accounts payable and other accrued expenses	1,912		2,499
Total accounts payable, accrued expenses and other liabilities	$	19,036	$	26,739

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES 

Operating Leases

Refer to Note 6 to these condensed consolidated financial statements.

Consolidation of Business Activities

During the first quarter of 2018, the Company initiated the consolidation of its business activities to its New York office. The Company believes this will enhance operations by consolidating origination, underwriting and asset management operations and personnel in a single location. During the three and six months ended June 30, 2018, the Company recorded $0.3 million and $2.2 million in severance costs, respectively. In addition, the company incurred a $0.1 million loss from subleasing its San Francisco office during the three months ended June 30, 2018.

Capital Commitments to Funds

As of June 30, 2019 and December 31, 2018, the Company had aggregate unfunded commitments of $0.3 million to certain long-dated private funds.

Other Commitments

In April 2012, the Company entered into an obligation to pay to a third party a fixed percentage of management and incentive fees received by the Company from Sierra. The agreement was entered into contemporaneously with the $10.0 million non-recourse promissory notes that were issued to the same parties (Note 9). The two transactions were deemed to be related freestanding contracts and the $10.0 million of loan proceeds were allocated to the contracts using their relative fair values. At inception, the Company recognized an obligation of $4.4 million representing the present value of the future cash flows expected to be paid under this agreement. As of June 30, 2019 and December 31, 2018, this obligation amounted to $2.6 million and $3.0 million, respectively, and is recorded as revenue share payable, a component of accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. The change in the estimated cash flows for this obligation is recorded in other expenses, net on the condensed consolidated statements of operations.

On January 31, 2019, the Company entered into a termination agreement with the lenders which would become effective upon the closing of the Company's pending merger with Sierra. In accordance with the provisions of the termination agreement, the Company would pay the lenders $6.5 million on or prior to the merger closing date, reimburse the lenders for their out of pocket legal fees and enter into a six month $6.5 million promissory note. The promissory note would bear interest at seven percentage points over the LIBOR Rate, as defined in the termination agreement. Such consideration would be for the full satisfaction of the two non-recourse promissory notes disclosed in Note 9 as well as the Company's obligation above.

Legal Proceedings

From time to time, the Company is involved in various legal proceedings, lawsuits and claims incidental to the conduct of its business. Its business is also subject to extensive regulation, which may result in regulatory proceedings against it. Except as described below, the Company is not currently party to any material legal proceedings.

One of the Company's subsidiaries, MCC Advisors LLC, was named as a defendant in a lawsuit on May 29, 2015, by Moshe Barkat and Modern VideoFilm Holdings, LLC (“MVF Holdings”) against MCC, MOF II, MCC Advisors LLC, Deloitte Transactions and Business Analytics LLP A/K/A Deloitte ERG (“Deloitte”), Scott Avila (“Avila”), Charles Sweet, and Modern VideoFilm, Inc. (“MVF”). The lawsuit is pending in the California Superior Court, Los Angeles County, Central District, as Case No. BC 583437. The lawsuit was filed after MCC, as agent for the lender group, exercised remedies following a series of defaults by MVF and MVF Holdings on a secured loan with an outstanding balance at the time in excess of $65 million. The lawsuit sought damages in excess of $100 million. Deloitte and Avila have settled the claims against them in exchange for payment of $1.5 million. On June 6, 2016, the court granted the Medley defendants’ demurrers on several counts and dismissed Mr. Barkat’s claims with prejudice except with respect to his claim for intentional interference with contract. On March 18, 2018, the court granted the Medley defendants’ motion for summary adjudication with respect to Mr. Barkat’s sole remaining claim against the Medley Defendants for intentional interference. Now that the trial court has ruled in favor of the Medley defendants on all counts, the only remaining claims in the Barkat litigation are MCC and MOF II’s affirmative counterclaims against Mr. Barkat and MVF Holdings, which MCC and MOF II are diligently prosecuting.

On August 29, 2016, MVF Holdings filed another lawsuit in the California Superior Court, Los Angeles County, Central District, as Case No. BC 631888 (the “Derivative Action”), naming MCC Advisors LLC and certain of Medley’s employees as defendants, among others. The plaintiff in the Derivative Action, asserts claims against the defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unfair competition, breach of the implied covenant of good faith and fair dealing, interference with prospective economic advantage, fraud, and declaratory relief. MCC Advisors LLC and the other defendants believe the causes of action asserted in the Derivative Action are without merit and all defendants intend to continue to assert a vigorous defense. All proceedings in the Derivative Action have been stayed as a result of the chapter 11 bankruptcy proceedings of MVF, which were commenced on May 16, 2018. On August 29, 2016, however, despite the automatic stay of the MVF Bankruptcy, the Plaintiff filed an amended complaint seeking to restyle the derivative action into a direct action to circumvent the MVF bankruptcy’s automatic stay. To date, the California Superior Court has not proceeded with the amended complaint.

Medley LLC, Medley Capital Corporation, Medley Opportunity Fund II LP, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube were named as defendants, along with other various parties, in a putative class action lawsuit captioned as Royce Solomon, Jodi Belleci, Michael Littlejohn, and Giulianna Lomaglio v. American Web Loan, Inc., AWL, Inc., Mark Curry, MacFarlane Group, Inc., Sol Partners, Medley Opportunity Fund, II, LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube, DHI Computing Service, Inc., Middlemarch Partners, and John Does 1-100, filed on December 15, 2017, amended on March 9, 2018, and amended a second time on February 15, 2019, in the United States District Court for the Eastern District of Virginia, Newport News Division, as Case No. 4:17-cv-145 (hereinafter, “Class Action 1”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned George Hengle and Lula Williams v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed February 13, 2018, in the United States District Court, Eastern District of Virginia, Richmond Division, as Case No. 3:18-cv-100 (“Class Action 2”). Medley Opportunity Fund II LP and Medley Capital Corporation were also named as defendants, along with various other parties, in a putative class action lawsuit captioned John Glatt, Sonji Grandy, Heather Ball, Dashawn Hunter, and Michael Corona v. Mark Curry, American Web Loan, Inc., AWL, Inc., Red Stone, Inc., Medley Opportunity Fund II LP, and Medley Capital Corporation, filed August 9, 2018 in the United States District Court, Eastern District of Virginia, Newport News Division, as Case No. 4:18-cv-101 (“Class Action 3”) (together with Class Action 1 and Class Action 2, the “Virginia Class Actions”). Medley Opportunity Fund II LP was also named as a defendant, along with various other parties, in a putative class action lawsuit captioned Christina Williams and Michael Stermel v. Red Stone, Inc. (as successor in interest to MacFarlane Group, Inc.), Medley Opportunity Fund II LP, Mark Curry, Brian McGowan, Vincent Ney, and John Doe entities and individuals, filed June 29, 2018 and amended July 26, 2018, in the United States District Court for the Eastern District of Pennsylvania, as Case No. 2:18-cv-2747 (the “Pennsylvania Class Action”) (together with the Virginia Class Actions, the “Class Action Complaints”). The plaintiffs in the Class Action Complaints filed their putative class actions alleging claims under the Racketeer Influenced and Corrupt Organizations Act, and various other claims arising out of the alleged payday lending activities of American Web Loan. The claims against Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube (in Class Action 1, as amended); Medley Opportunity Fund II LP and Medley Capital Corporation (in Class Action 2 and Class Action 3); and Medley Opportunity Fund II LP (in the Pennsylvania Class Action), allege that those defendants in each respective action exercised control over, or improperly derived income from, and/or obtained an improper interest in, American Web Loan’s payday lending activities as a result of a loan to American Web Loan. The loan was made by Medley Opportunity Fund II LP in 2011. American Web Loan repaid the loan from Medley Opportunity Fund II LP in full in February of 2015, more than 1 year and 10 months prior to any of the loans allegedly made by American Web Loan to the alleged class plaintiff representatives in Class Action 1. In Class Action 2, the alleged class plaintiff representatives have not alleged when they received any loans from American Web Loan. In Class Action 3, the alleged class plaintiff representatives claim to have received loans from American Web Loan at various times from February 2015 through April 2018. In the Pennsylvania Class Action, the alleged class plaintiff representatives claim to have received loans from American Web Loan in 2017. By orders dated August 7, 2018 and September 17, 2018, the Court presiding over the Virginia Class Actions consolidated those cases for all purposes. On October 12, 2018, Plaintiffs in Class Action 3 filed a notice of voluntary dismissal of all claims, and on October 29, 2018, Plaintiffs in Class Action 2 filed a notice of voluntary dismissal of all claims. Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube never made any loans or provided financing to, or had any other relationship with, American Web Loan. Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, Seth Taube are seeking indemnification from American Web Loan, various affiliates, and other parties with respect to the claims in the Class Action Complaints. Medley Opportunity Fund II LP, Medley LLC, Medley Capital Corporation, Medley Management, Inc., Medley Group, LLC, Brook Taube, and Seth Taube believe the alleged claims in the Class Action Complaints are without merit and they intend to defend these lawsuits vigorously.

On January 25, 2019, two purported class actions were commenced in the Supreme Court of the State of New York, County of New York, by alleged stockholders of Medley Capital Corporation, captioned, respectively, Helene Lax v. Brook Taube, et al., Index No. 650503/2019, and Richard Dicristino, et al. v. Brook Taube, et al., Index No. 650510/2019 (together with the Lax Action, the “New York Actions”). Named as defendants in each complaint are Brook Taube, Seth Taube, Jeffrey Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, John E. Mack, Mark Lerdal, Richard T. Allorto, Jr., Medley Capital Corporation, Medley Management Inc., Sierra Income Corporation, and Sierra Management, Inc. The complaints in each of the New York Actions allege that the individuals named as defendants breached their fiduciary duties in connection with the proposed merger of MCC with and into Sierra, and that the other defendants aided and abetted those alleged breaches of fiduciary duties. Compensatory damages in unspecified amounts are sought. On February 27, 2019, the Court entered a stipulated scheduling order requiring that defendants respond to the complaints 45 days following the later of (a) the stockholder vote on the proposed merger and (b) plaintiffs’ filing of a consolidated, amended complaint. A preliminary conference is scheduled to take place on September 24, 2019. The defendants believe the claims asserted in the New York Actions are without merit and they intend to defend these lawsuits vigorously. At this time, we are unable to determine whether an unfavorable outcome from these matters is probable or remote or to estimate the amount or range of potential loss, if any.

On February 11, 2019, a purported stockholder class action was commenced in the Court of Chancery of the State of Delaware by FrontFour Capital Group LLC and FrontFour Master Fund, Ltd. (together, “FrontFour”), captioned FrontFour Capital Group LLC, et al. v. Brook Taube, et al., Case No. 2019-0100 (the “FrontFour Action”), against defendants Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, Sierra, MCC, MCC Advisors LLC (“MCC Advisors”), Medley Group, and Medley LLC. The complaint, as amended on February 12, 2019, alleged that the individuals named as defendants breached their fiduciary duties to MCC stockholders in connection with the proposed merger of MCC with Sierra (the “MCC Merger”), and that MDLY, Sierra, MCC Advisors, Medley Group, and Medley LLC aided and abetted those alleged breaches of fiduciary duties. The complaint sought to enjoin the vote of MCC stockholders on the proposed merger and enjoin enforcement of certain provisions of the Agreement and Plan of Merger, dated as of August 9, 2018, by and between MCC and Sierra (the “MCC Merger Agreement”). The Court held a trial on the plaintiffs’ claims on March 6-7, 2019 and issued a Memorandum Opinion (the “Decision”) on March 11, 2019. The Court denied the plaintiffs’ requests to (i) permanently enjoin the proposed merger and (ii) require MCC to conduct a “shopping process” for MCC on terms proposed by the plaintiffs in their complaint. The Court held that MCC’s directors breached their fiduciary duties in entering into the proposed merger, but rejected the plaintiffs’ claim that Sierra aided and abetted those breaches of fiduciary duties. The Court ordered the defendants to issue corrective disclosures consistent with the Decision, and enjoined a vote of MCC stockholders on the proposed merger until such disclosures have been made and stockholders have had the opportunity to assimilate this information. On March 20, 2019, another purported stockholder class action was commenced by Stephen Altman against Brook Taube, Seth Taube, Jeff Tonkel, Arthur S. Ainsberg, Karin Hirtler-Garvey, Mark Lerdal, and John E. Mack in the Court of Chancery of the State of Delaware, captioned Altman v. Taube, Case No. 2019-0219 (the “Altman Action”). The complaint alleged that the defendants breached their fiduciary duties to stockholders of MCC in connection with the vote of MCC stockholders on the proposed mergers. On April 8, 2019, the Court granted a stipulation consolidating the FrontFour Action and the Altman Action, designating the amended complaint in the FrontFour Action as the operative complaint, and designating the plaintiffs in the FrontFour Action and their counsel the lead plaintiffs and lead plaintiffs’ counsel, respectively.

On April 15, 2019, certain parties reached agreement on the principal terms of a settlement of the FrontFour Action, which were contained in a term sheet, dated April 15, 2019 (the “Settlement Term Sheet”). On July 29, 2019 MDLY entered into a Stipulation of Settlement (and, as amended on August 8, 2019, the "Stipulation") by and among MCC, Brook Taube, Seth Taube, Jeff Tonkel, Mark Lerdal, Karin Hirtler-Garvey, John E. Mack, Arthur S. Ainsberg, MDLY, MCC Advisors, Medley LLC and Medley Group LLC (the “Medley Parties”), on the one hand, and FrontFour, on behalf of itself and a class of similarly situated stockholders of MCC, on the other hand, in connection with the FrontFour Action.

The Stipulation provides for the settlement of all claims brought against the Medley Parties in the FrontFour Action. Under the Stipulation, MCC agreed to seek the agreement and/or consent of Sierra to effect certain amendments to (i) the MCC Merger Agreement and (ii) the MDLY Merger Agreement (together with the MCC Merger Agreement, the “Merger Agreements”), which have been reflected in the revised Merger Agreements annexed to the Stipulation. The Stipulation also provides for, if the MCC Merger is consummated, the creation of a settlement fund, consisting of $17 million in cash and $30 million of Sierra stock, with the number of shares of Sierra stock to be calculated using the pro forma net asset value reported in the future proxy supplement describing the amendments to the MCC Merger Agreement, which will be distributed to eligible members of the Settlement Class (as defined in the Stipulation). Under the Stipulation, MDLY also consented to certain amendments to the Merger Agreements that have been reflected in the revised Merger Agreements annexed to the Stipulation. In addition, in connection with the Stipulation, on July 29, 2019, MCC entered into a Governance Agreement with FrontFour Capital Group LLC, FrontFour Master Fund, Ltd., FrontFour Capital Corp., FrontFour Opportunity Fund, David A. Lorber, Stephen E. Loukas and Zachary R. George, pursuant to which, among other matters, FrontFour is subject to customary standstill restrictions and required to vote in favor of the MCC Merger at a meeting of stockholders to approve the Amended MCC Merger Agreement.

The Stipulation also provides for mutual releases between and among FrontFour and the Settlement Class, on the one hand, and the Medley Parties, on the other hand, of all claims that were or could have been asserted in the FrontFour Action. The Medley Parties will also release all claims arising out of or relating to the prosecution and settlement of the FrontFour Action and all claims that were or could have been asserted (other than claims against the Highland Parties, as defined in the Stipulation) in the litigation pending in the United States District Court for the Southern District of New York captioned Medley Capital Corporation v. FrontFour Capital Group LLC, et al., No. 1:19-cv-02055-LTS (S.D.N.Y.) (the “Federal Action”), and FrontFour and the Settlement Class will release all claims arising out of or relating to the prosecution and settlement of the Federal Action.

The Stipulation further provides that MCC and FrontFour shall work together in good faith to agree to supplemental disclosures relating to the transactions contemplated by the Merger Agreements consistent with the Decision. The Stipulation is subject to the approval of the Court. The Court is expected to schedule a hearing on October 24, 2019 to consider the Stipulation.

MARILYN S. ADLER, v. MEDLEY CAPITAL LLC et. al. (Supreme Court of New York, March 2019). Marilyn Adler, a former employee who served as a Managing Director of Medley Capital LLC, filed suit in the New York Supreme Court, Commercial Part, on March 1, 2019 against Medley Capital LLC, MCC Advisors, Medley SBIC GP, LLC, Medley Capital Corporation, Medley Management Inc., as well as Brook Taube, and Seth Taube, individually. Ms. Adler alleges that she is due in excess of $6.5 million in compensation based upon her role with Medley’s SBIC Fund. Her claims are for breach of contract, unjust enrichment, conversion, tortious interference, as well as a claim for an accounting of funds maintained by the defendants. The Company believes the claims are without merit, intends to vigorously defend them, and has asserted counterclaims against Ms. Adler for breach of contract and breach of fiduciary duties. In response to the Company’s motion to dismiss the breach of contract claim, Ms. Adler has conceded there was no written contract. The parties are in the initial stages of discovery.

While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s consolidated financial position or overall trends in consolidated results of operations, litigation is subject to inherent uncertainties. The Company reviews relevant information with respect to litigation and regulatory matters on a quarterly and annual basis. The Company establishes liabilities for litigation and regulatory actions when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. For matters where a loss is believed to be reasonably possible, but not probable, no liability is established.

Employment Agreements

In connection with the Company's pending merger with Sierra, certain pre-IPO owners entered into employment agreements which would become effective upon the successful completion of the merger. Each employment agreement sets forth a base salary, which is subject to change at the discretion of the Board or compensation committee of the post-merged entity. The initial term of the employment agreements range from 24 to 30 months. Upon effectiveness of the employment agreements, the combined initial base salaries of the pre-IPO members would be $2.5 million. Under the employment agreements, each pre-IPO owner is eligible to receive each year a short-term incentive paid in cash and a long-term incentive in the form of an equity award, each paid after the end of the year. Each employment agreement provides that the post merged entity's Board or compensation committee will establish a target annual bonus for each year of no less than a specified percentage of each pre-IPO owner's base salary and will establish performance and other objectives for the year for such annual bonus, in consultation with management. During their first year of employment, the combined target annual bonuses could amount up to $10.9 million of which $4.1 million would consist of cash and $6.8 million in the form of restricted stock units which would vest over a three year period.

The employment agreements also set forth bonuses for 2019 which the Board or the compensation committee of the post-merger company may increase in recognition of performance in excess of performance objectives. The aggregate 2019 bonuses to certain pre-IPO owners amount to $10.9 million of which $4.1 million would be payable in cash and $6.8 million in the form of restricted stock units which would vest over a three year period. As of June 30, 2019, the Company did not accrue for any bonuses to these pre-IPO members as the 2019 bonus amounts per the employment agreements are not effective until the closing of the merger.

The long-term equity incentive will be made in the form of an equity award, vesting in three equal annual installments. The cash and equity award portions of the annual bonuses paid under the employment agreements will be subject to recoupment by the Combined Company to the extent required by applicable law (including without limitation Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Act) and/or the rules and regulations of the NYSE.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2019

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

Substantially all of Medley’s revenue is earned through agreements with its non-consolidated funds for which it collects management and performance fees for providing asset management, advisory and other related services.

Administration Agreements

In January 2011 and April 2012, Medley entered into administration agreements with MCC (the “MCC Admin Agreement”) and Sierra (the “SIC Admin Agreement”), respectively, whereby, as part of its performance obligation to provide asset management, advisory and other related services, Medley agreed to provide administrative services necessary for the operations of MCC and Sierra. MCC and Sierra agreed to pay Medley for the costs and expenses incurred in providing such administrative services, including an allocable portion of Medley’s overhead expenses and an allocable portion of the cost of MCC and Sierra's officers and their respective staff.

Additionally, Medley has entered into administration agreements with other entities that it manages (the “Funds Admin Agreements”), whereby Medley agreed to provide administrative services necessary for the operations of these entities. These entities agreed to reimburse Medley for the costs and expenses incurred in providing such administrative services, including an allocable portion of Medley’s overhead expenses and an allocable portion of the cost of these other vehicles' officers and their respective staffs.

Medley records these administrative fees as revenue in the period when the performance obligation of providing such administrative services is satisfied and such revenue is included as a component of other revenues and fees on the condensed consolidated statements of operations. Amounts due from these agreements are included as a component of other assets on the Company's condensed consolidated balance sheets.

Total revenues recorded under these agreements for the three and six months ended June 30, 2019 and 2018 are reflected in the table below:

	For the Three Months Ended June 30,				For the For the Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)
MCC Admin Agreement	$	734	$	917	$	1,615	$	1,818
SIC Admin Agreement	515		746		1,178		1,445
Funds Admin Agreements	223		257		459		502
Total administrative fees from related parties	$	1,472	$	1,920	$	3,252	$	3,765

Amounts due from related parties under these agreements are reflected in the table below:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Amounts due from MCC under the MCC Admin Agreement	$	762	$	804
Amounts due from SIC under the SIC Admin Agreement	536		619
Amounts due from entities under the Funds Admin Agreements	223		222
Total administrative fees receivable	$	1,521	$	1,645

Management fee Waiver

During the first quarter of 2018, the Company voluntarily waived $0.4 million in management fees for MCC. There were no management fee waivers during the three and six months ended June 30, 2019.

Investments

Refer to Note 4 "Investments" for information related to the Company's investments in related parties.

Exchange Agreement

Prior to the completion of the Company's IPO, Medley LLC's limited liability agreement was restated among other things, to modify its capital structure by reclassifying the interests held by its then existing owners (i.e. the members of Medley prior to the IPO) into the LLC Units. Medley’s existing owners also entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right (subject to the terms of the exchange agreement as described therein), to exchange their LLC Units for shares of Medley Management Inc.’s Class A common stock on a one-for-one basis at fair value, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications.

Tax Receivable Agreement

Medley Management Inc. entered into a tax receivable agreement with the holders of LLC Units that provides for the payment by Medley Management Inc. to exchanging holders of LLC Units of 85% of the benefits, if any, that Medley Management Inc. is deemed to realize as a result of increases in tax basis of tangible and intangible assets of Medley LLC from the future exchange of LLC Units for shares of Class A common stock, as well as certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. 

The term of the tax receivable agreement will continue until all such tax benefits under the agreement have been utilized or have expired, unless Medley Management Inc. exercises its right to terminate the tax receivable agreement for an amount based on an agreed value of payments remaining to be made under the agreement. There have been no transactions under this agreement through June 30, 2019.

In connection with the Amended and Restated Agreement Plan and of Merger between MDLY and Sierra, the parties to the aforementioned tax receivable agreement will enter into the Tax Receivable Termination Agreement, pursuant to which the existing tax receivable agreement between MDLY and the holders of LLC Units (other than MDLY) will be terminated, effective as of the MDLY Merger Effective Time, as defined in the Amended and Restated Agreement and Plan of Merger.

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EARNINGS PER CLASS A SHARE

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Earnings Per Class A Share

EARNINGS PER CLASS A SHARE

The table below presents basic and diluted net loss per share of Class A common stock using the two-class method for the three and six months ending June 30, 2019 and 2018:

	For the Three Months Ended June 30,						For the For the Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands, except share and per share amounts)
Basic and diluted net loss per share:
Numerator
Net loss attributable to Medley Management Inc.	$	(183	)	$	(128	)	$	(255	)	$	(1,356	)
Less: Allocation of earnings to participating securities	16			(320		)	(6		)	(544		)
Net loss available to Class A common stockholders	$	(167	)	$	(448	)	$	(261	)	$	(1,900	)
Denominator
Weighted average shares of Class A common stock outstanding	5,847,883			5,543,802			5,801,531			5,513,719
Net loss per share of Class A common stock	$	(0.03	)	$	(0.08	)	$	(0.04	)	$	(0.34	)

The allocation to participating securities above generally represents dividends paid or payable to holders of unvested restricted stock units which reduces net income available to common stockholders, adjusted for the impact of forfeitures in the period they are incurred.

The weighted average shares of Class A common stock is the same for both basic and diluted earnings per share as the diluted amount excludes the assumed conversion of 26,316,642 and 24,639,302 LLC Units and restricted LLC Units as of June 30, 2019 and 2018, respectively, to shares of Class A common stock, the impact of which would be antidilutive.

The following table reflects the per share dividend amounts that the Company declared on its common stock during the six months ended June 30, 2019 and 2018.

Declaration Dates	Record Date	Payment Dates	Per Share
During the six months ended June 30, 2019:
March 27, 2019	April 15, 2019	May 3, 2019	$	0.03
During the six months ended June 30, 2018:
May 10, 2018	May 24, 2018	June 1, 2018	$	0.20
February 7, 2018	February 22, 2018	March 7, 2018	$	0.20

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INCOME TAXES

6 Months Ended

Jun. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Deferred income taxes reflect the net effect of temporary differences between the tax basis of an asset or liability and its reported amount on the Company’s consolidated balance sheets. These temporary differences result in taxable or deductible amounts in future years. As of June 30, 2019 and December 31, 2018, the Company's deferred tax assets were $3.4 million and $3.7 million, respectively, which consists primarily of temporary differences relating to certain accrued expenses, stock-based compensation, unrealized losses and a tax benefit relating to tax goodwill. The Company's deferred tax asset balance as of June 30, 2019 and December 31, 2018 is presented net of a valuation allowance of $1.0 million. This valuation allowance was established during the year ended December 31, 2018 and relates to the portion of the Company's deferred tax assets associated with cumulative unrealized losses. Of the $1.0 million, $0.7 million was recorded during the six months ended June 30, 2018. The Company considers it more likely than not that it would not be able to generate enough capital gains in the near future to realize the deferred tax asset associated with such capital losses. Deferred tax liabilities were $0.1 million as of June 30, 2019 and December 31, 2018.

The quarterly provision for income taxes is determined based on the Company’s estimated full year effective tax rate adjusted by the amount of tax attributable to infrequent or unusual items that are recognized on a discrete basis in the income tax provision in the period in which they occur. The Company’s effective tax rate includes a rate benefit attributable to the fact that the Company’s subsidiaries operate as limited liability companies, which are not subject to federal or state income tax. Accordingly, a portion of the Company’s earnings attributable to non-controlling interests are not subject to corporate level taxes. However, a portion of the Company's subsidiaries' income is subject to New York City’s unincorporated business tax. For the three and six months ended June 30, 2019 and 2018, the Company was only subject to federal, state and city corporate income taxes on its pre-tax income attributable to Medley Management Inc.

The Company’s effective tax rate was 1.0% and (8.6)% for the three months ended June 30, 2019 and 2018, respectively and 3.0% and (3.3)% for the six months ended June 30, 2019 and 2018, respectively. The variance in the effective tax rate was primarily attributed to losses allocated to one of our non-controlling interests of $6.0 million and $3.1 million for the three months ended June 30, 2019 and 2018, respectively, and $2.0 million and $8.4 million for the six months ended June 30, 2019 and 2018, respectively, which are not subject to income taxes and the recording of a $0.7 million valuation allowance during the six months ended June 30, 2018.

Interest expense and penalties related to income tax matters are recognized as a component of the provision for income taxes and were not significant during the three and six months ended June 30, 2019 and 2018. As of and during the three and six months ended June 30, 2019 and 2018, there were no uncertain tax positions taken that were not more likely than not to be sustained.

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COMPENSATION EXPENSE

6 Months Ended

Jun. 30, 2019

Retirement Benefits [Abstract]

Compensation Expense

COMPENSATION EXPENSE

Compensation generally includes salaries, bonuses, equity and profit sharing awards. Bonuses, equity and profit sharing awards are accrued over the service period to which they relate. Guaranteed payments made to our senior professionals who are members of Medley LLC are recognized as compensation expense. The guaranteed payments to the Company’s Co-Chief Executive Officers are performance based and are periodically set subject to maximums based on the Company’s total assets under management. Such maximums aggregated to $1.3 million during each of the three months ended June 30, 2019 and 2018, and $2.5 million for each of the six months ended June 30, 2019 and 2018. During the three and six months ended June 30, 2019 and 2018, neither of the Company’s Co-Chief Executive Officers received any guaranteed payments.

Retirement Plan

The Company sponsors a defined-contribution 401(k) retirement plan that covers all employees. Employees are eligible to participate in the plan immediately, and participants are 100% vested from the date of eligibility. The Company makes contributions to the plan of 3% of an employee’s eligible wages, up to a maximum limit as determined by the Internal Revenue Service. The Company also pays all administrative fees related to the plan. During the three and six months ended June 30, 2019, the Company's accrued contributions to the plan were $0.1 million and $0.3 million, respectively. During the three and six months ended June 30, 2018, the Company's accrued contributions to the plan were $0.1 million and $0.4 million, respectively. As of June 30, 2019 and December 31, 2018 the Company's outstanding liability to the plan was $0.4 million and $0.5 million, respectively.

Stock-Based Compensation

In connection with the IPO, the Company adopted the Medley Management Inc. 2014 Omnibus Incentive Plan (as amended, the "Plan"). The purpose of the Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) of the Company can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of Medley Management Inc.’s Class A common stock or Medley LLC’s unit interests, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company’s stockholders. The Plan provides for the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), restricted LLC Units of Medley LLC, stock bonuses, other stock-based awards and cash awards. Shares of Class A common stock issued by the Company in settlement of awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the market or by private purchase or a combination of the foregoing. On May 29, 2019, at the Company's annual meeting of stockholders, the Company’s stockholders approved an amendment to the Plan to increase the number of the awards available for issuance thereunder by 4,500,000 to 9,000,000. As of June 30, 2019, there were 2.7 million awards available to be granted under the Plan, as amended. Excluded from the available amount as of June 30, 2019 are Board approved employee awards of 399,400 RSUs and an award of restricted LLC Units with an aggregate grant date fair value of $1,000,000. The grant of these awards is conditioned on the closing of the Company's pending merger with Sierra.

The fair value of RSUs granted under the Plan is determined to be the fair value of the underlying shares on the date of grant. The fair value of restricted LLC Units of Medley LLC is based on the public share price of MDLY at date of grant, adjusted for different distribution rights. The aggregate fair value of these awards is charged to compensation expense on a straight-line basis over the vesting period, which is generally up to five years, with the exception of certain restricted LLC Units that will only vest upon certain conditions such as death, disability, termination without cause or change of control. For these awards, compensation expense is recognized when such condition is met.

For the three and six months ended June 30, 2019 stock-based compensation was $1.4 million and $3.2 million, respectively. Stock-based compensation was $1.6 million and $2.6 million for the three and six months ended June 30, 2018, respectively.

A summary of RSU and restricted LLC Unit activity for the six months ended June 30, 2019 is as follows:

	Number of RSUs		Weighted Average Grant Date Fair Value		Number of Restricted LLC Units	Weighted Average Grant Date Fair Value
Balance at December 31, 2018	1,822,814		$	7.74	1,305,969	$	6.86
Granted	1,082,898		3.26		1,610,671	2.53
Forfeited	(231,712	)	6.89		—	—
Vested	(321,099	)	6.72		—	—
Balance at June 30, 2019	2,352,901		$	5.90	2,916,640	$	4.47

The aggregate grant date fair value of RSUs vested during the six months ended June 30, 2019 was $2.2 million. The vesting of 321,099 RSUs resulted in the issuance of 169,813 Class A common shares to employees and independent directors and 66,668 LLC Units to the pre-IPO members. The employee RSUs were net-share settled such that the Company withheld awards with the aggregate fair value equivalent to the employees' minimum statutory tax obligations in accordance with the terms of the Plan. Total employee tax obligations amounted to $0.3 million and payments to the appropriate taxing authorities are reflected as a financing activity on the Company's condensed consolidated statements of cash flows.

During the six months ended June 30, 2019 and 2018 there was $0.9 million and $0.6 million, respectively, of previously recognized compensation reversed relating to forfeited RSUs. In addition, during the six months ended June 30, 2019, the Company reclassified cumulative dividends of $0.3 million from retained earnings to other compensation expense as a result of such forfeitures. Cumulative dividends reclassified from retained earnings for the three months ended June 30, 2018 was $0.1 million. Unamortized compensation cost related to unvested RSUs and restricted LLC units as of June 30, 2019 was $16.9 million and is expected to be recognized over a weighted average period of 2.7 years. Such amount excludes unamortized compensation of $1.3 million relating to certain restricted LLC Units which only vest upon death, disability, termination without cause or change of control.

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REDEEMABLE NON-CONTROLLING INTERESTS

6 Months Ended

Jun. 30, 2019

Temporary Equity Disclosure [Abstract]

Redeemable Non-controlling Interests

REDEEMABLE NON-CONTROLLING INTERESTS

Changes in redeemable non-controlling interests during the six months ended June 30, 2019 and 2018 are reflected in the table below:

	For the Six Months Ended June 30,
	2019			2018
	(in thousands)
Beginning balance	$	23,186		$	53,741
Net loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(2,033		)	(6,980		)
Distributions	(1,576		)	(4,366		)
Ending balance	$	19,577		$	42,395

In January 2016, the Company executed an amendment to SIC Advisors' operating agreement which provided the Company with the right to redeem membership units owned by the minority interest holder. The Company’s redemption right is triggered by the termination of the dealer manager agreement between Sierra and SC Distributors LLC ("DMA Termination"), an affiliate of the minority interest holder. As a result of this redemption feature, the Company reclassified the non-controlling interest in SIC Advisors from the equity section to redeemable non-controlling interests in the mezzanine section of the consolidated balance sheet based on its fair value as of the amendment date. The fair value of the non-controlling interest was determined to be $12.2 million on the date of the amendment and was adjusted through a charge to non-controlling interests in Medley LLC.

On July 31, 2018, a DMA Termination event occurred and the membership units held by the minority interest holder were redeemed by Medley. In connection with the DMA Termination, the Company reclassified SIC Advisors' minority interest balance from redeemable non-controlling interests in the mezzanine section of its consolidated balance sheet to due to former minority interest holder (Note 10), a component of total liabilities, at its then fair value. The fair value of the non-controlling interest was determined to be $12.3 million on the DMA Termination date and was adjusted through a $1.0 million charge to non-controlling interests in Medley LLC.

During the three and six months ended June, 2018, profits allocated to this non-controlling interest were $0.8 million and $1.7 million, respectively, and distributions paid were $0.9 million and $2.3 million, respectively. There were no profits or distributions allocated to this non-controlling interest subsequent the Company's redemption of the membership units held by the former minority interest holder.

On June 3, 2016, the Company entered into a Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC (the ‘‘Investors’’) to invest up to $50.0 million in new and existing Medley managed funds (the ‘‘Joint Venture’’). The Company agreed to contribute up to $10.0 million and an interest in STRF Advisors LLC, the investment advisor to Sierra Total Return Fund, in exchange for common equity interests in the Joint Venture. On June 6, 2017, the Company entered into an amendment to its Master Investment Agreement with the Investors, which provided for, among other things, an increase in the Company’s capital contribution to up to $13.8 million and extended the term of the Joint Venture from seven to ten years. The Investors agreed to invest up to $40.0 million in exchange for preferred equity interests in the Joint Venture. Total contributions to the Joint Venture amounted to $53.8 million and were used to purchase $51.8 million of MCC shares on the open market and seed fund $2.0 million to STRF. On account of the preferred equity interests, the Investors will receive an 8% preferred distribution, 15% of the Joint Venture’s profits, and all of the profits from the contributed interest in STRF Advisors LLC. Medley has the option, subject to certain conditions, to cause the Joint Venture to redeem the Investors’ interest in exchange for repayment of the outstanding investment amount at the time of redemption, plus certain other considerations. The Investors have the right, after ten years, to redeem their interests in the Joint Venture. As such, the Investors’ interest in the Joint Venture is included as a component of redeemable non-controlling interests on the Company’s condensed consolidated balance sheets and amounted to $20.3 million and $23.9 million as of June 30, 2019 and December 31, 2018, respectively.

During the three and six months ended June 30, 2019, losses allocated to this non-controlling interest were $6.0 million and $2.0 million, respectively. During the three and six months ended June 30, 2018, losses allocated to this non-controlling interest were $3.2 million and $8.4 million, respectively. Distributions paid during the three and six months ended June 30, 2019 were $0.8 million and $1.6 million, respectively. Distributions paid during the three and six months ended June 30, 2018 were $1.1 million and $2.1 million, respectively.

In October 2016, the Company executed an operating agreement for STRF Advisors LLC which provided the Company with the right to redeem membership units owned by the minority interest holder. The Company’s redemption right is triggered by the termination of the dealer manager agreement between STRF and SC Distributors LLC, an affiliate of the minority interest holder. As a result of this redemption feature, the non-controlling interest in STRF Advisors LLC is classified as in redeemable non-controlling interests in the mezzanine section of the balance sheet. During the three and six months ended June 30, 2019, net losses allocated to this redeemable non-controlling interest were less than $0.1 million and $0.1 million, respectively. During the three and six months ended June 30, 2018, net losses allocated to this redeemable non-controlling interest were $0.1 million and $0.2 million, respectively. As of June 30, 2019 and December 31, 2018, the balance of the redeemable non-controlling interest in STRF Advisors LLC was $(0.7) million.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date of issuance of the condensed consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of and for the three and six months ended June 30, 2019, except as disclosed below.

On July 29, 2019, the Company entered into the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MDLY Merger Agreement”), by and among the Company, Sierra, and Merger Sub, pursuant to which the Company will, on the terms and subject to the conditions set forth in the Amended MDLY Merger Agreement, merge with and into Merger Sub (the "MDLY Merger"), with Merger Sub as the surviving company in the MDLY Merger. In the MDLY Merger, each share of MDLY Class A common stock, issued and outstanding immediately prior to the effective time of the MDLY Merger (the "MDLY Merger Effective Time"), other than shares of MDLY Class A common stock held by the Company, Sierra or their respective wholly owned subsidiaries (the “Excluded MDLY Shares”) and the Dissenting Shares (as defined in the Amended MDLY Merger Agreement), held, immediately prior to the MDLY Merger Effective Time, by any person other than a Unitholder (as defined below), will be exchanged for (i) 0.2668 shares of Sierra’s common stock; plus (ii) cash in an amount equal to $2.96 per share. In addition, in the MDLY Merger, each share of MDLY Class A common stock issued and outstanding immediately prior to the MDLY Merger Effective Time, other than the Excluded MDLY Shares and the Dissenting Shares, held, immediately prior to the MDLY Merger Effective Time, by holders of the issued and outstanding limited liability company interests of Medley LLC (the “Medley LLC Units” and, holders of the Medley LLC Units at any time on or after July 29, 2019, the “Unitholders”) will be exchanged for (i) 0.2072 shares of Sierra’s common stock; plus (ii) cash in an amount equal to $2.66 per share.

In addition, on July 29, 2019, MCC and Sierra announced the execution of the Amended and Restated Agreement and Plan of Merger, dated as of July 29, 2019 (the “Amended MCC Merger Agreement”), by and between MCC and Sierra, pursuant to which MCC will, on the terms and subject to the conditions set forth in the Amended MCC Merger Agreement, merge with and into Sierra (the "MCC Merger"), with Sierra as the surviving company in the MCC Merger. In the MCC Merger, each share of MCC’s common stock (other than shares of MCC’s common stock held by MCC, Sierra or their respective wholly owned subsidiaries, will be exchanged for the right to receive (i) 0.68 shares of Sierra’s common stock if the attorneys’ fees of plaintiffs’ counsel and litigation expenses paid or incurred by plaintiffs’ counsel or advanced by plaintiffs in connection with the Class Action (such fees and expenses, the “Plaintiff Attorney Fees”) are less than or equal to $10,000,000, (ii) 0.66 shares of Sierra’s common stock if the Plaintiff Attorney Fees are equal to or greater than $15,000,000, and (iii) between 0.68 and 0.66 per share of Sierra’s common stock if the Plaintiff Attorney Fees are greater than $10,000,000 but less than $15,000,000, calculated on a descending basis, based on straight line interpolation between $10,000,000 and $15,000,000.

Pursuant to terms of the Amended MCC Merger Agreement, the consummation of the MCC Merger is conditioned upon the satisfaction or waiver of each of the conditions to closing under the Amended MDLY Merger Agreement and the consummation of the MDLY Merger. However, pursuant to the terms of the Amended MDLY Merger Agreement, the consummation of the MDLY Merger is not contingent upon the consummation of the MCC Merger. If both Mergers are successfully consummated, Sierra’s common stock would be listed on the NYSE, with such listing expected to be effective as of the closing date of the Mergers, and Sierra’s common stock will be listed on the Tel Aviv Stock Exchange, with such listing expected to be effective as of the closing date of the MCC Merger. If, however, only the MDLY Merger is consummated, Sierra’s common stock would be listed on the NYSE. If both Mergers are successfully consummated, the investment portfolios of MCC and Sierra would be combined, Merger Sub, as a successor to MDLY, would be a wholly owned subsidiary of the Combined Company, and the Combined Company would be internally managed by MCC Advisors LLC, its wholly controlled adviser subsidiary. If only the MDLY Merger is consummated, while the investment portfolios of MCC and Sierra would not be combined, the investment management function relating to the operation of the Company, as the surviving company, would still be internalized.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of Medley Management Inc., Medley LLC and its consolidated subsidiaries (collectively, “Medley” or the “Company”). Additionally, the accompanying condensed consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with U.S. GAAP may be omitted. In the opinion of management, the unaudited condensed consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. Therefore, this Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The current period's results of operations will not necessarily be indicative of results that ultimately may be achieved for any future interim period or the full year ending December 31, 2019.

Principles of Consolidation

Principles of Consolidation

In accordance with Accounting Standards Codification (“ASC”) 810, Consolidation, the Company consolidates those entities where it has a direct and indirect controlling financial interest based on either a variable interest model or voting interest model. As such, the Company consolidates entities that the Company concludes are variable interest entities (“VIEs”), for which the Company is deemed to be the primary beneficiary and entities in which it holds a majority voting interest or has majority ownership and control over the operational, financial and investing decisions of that entity.

For legal entities evaluated for consolidation, the Company must determine whether the interests that it holds and fees paid to it qualify as a variable interest in an entity. This includes an evaluation of the management fee and performance fee paid to the Company when acting as a decision maker or service provider to the entity being evaluated. If fees received by the Company are customary and commensurate with the level of services provided, and the Company does not hold other economic interests in the entity that would absorb more than an insignificant amount of the expected losses or returns of the entity, the interest that the Company holds would not be considered a variable interest. The Company factors in all economic interests including proportionate interests through related parties, to determine if fees are considered a variable interest.

An entity in which the Company holds a variable interest is a VIE if any one of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the legal entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk have the right to direct the activities of the entity that most significantly impact the legal entity’s economic performance, or (c) the voting rights of some investors are disproportionate to their obligation to absorb losses or rights to receive returns from a legal entity. For limited partnerships and other similar entities, non-controlling investors must have substantive rights to either dissolve the fund or remove the general partner (“kick-out rights”) in order to not qualify as a VIE.

For those entities that qualify as a VIE, the primary beneficiary is generally defined as the party who has a controlling financial interest in the VIE. The Company is generally deemed to have a controlling financial interest if it has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and the obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes initially involved with the VIE and reconsiders that conclusion continuously. The primary beneficiary evaluation is generally performed qualitatively on the basis of all facts and circumstances. However, quantitative information may also be considered in the analysis, as appropriate. These assessments require judgment. Each entity is assessed for consolidation on a case-by-case basis. 

For those entities evaluated under the voting interest model, the Company consolidates the entity if it has a controlling financial interest. The Company has a controlling financial interest in a voting interest entity (“VOE”) if it owns a majority voting interest in the entity.

Consolidated and Non-Consolidated Variable Interest Entities

Consolidated Variable Interest Entities

Medley Management Inc. is the sole managing member of Medley LLC and, as such, it operates and controls all of the business and affairs of Medley LLC and, through Medley LLC, conducts its business. Under ASC 810, Medley LLC meets the definition of a VIE because the equity of Medley LLC is not sufficient to permit business activities without additional subordinated financial support. Medley Management Inc. has the obligation to absorb expected losses that could be significant to Medley LLC and holds 100% of the voting power, therefore Medley Management Inc. is considered to be the primary beneficiary of Medley LLC.

As a result, Medley Management Inc. consolidates the financial results of Medley LLC and its subsidiaries and records a non-controlling interest for the economic interest in Medley LLC held by the non-managing members. As of June 30, 2019, Medley Management Inc.’s and the non-managing members’ economic interests in Medley LLC were 18.4% and 81.6%, respectively, and as of December 31, 2018, were 18.9% and 81.1%, respectively. Net (loss) income attributable to the non-controlling interests in Medley LLC on the consolidated statements of operations represents the portion of earnings or losses attributable to the economic interest in Medley LLC held by its non-managing members. Non-controlling interests in Medley LLC on the consolidated balance sheets represents the portion of net assets of Medley LLC attributable to the non-managing members based on total LLC Units and participating restricted LLC Units of Medley LLC owned by such non-managing members.

As of June 30, 2019 and December 31, 2018, Medley LLC had three majority owned subsidiaries, Medley Seed Funding I LLC, Medley Seed Funding II LLC and STRF Advisors LLC, which are consolidated VIEs. Each of these entities was organized as a limited liability company and was legally formed to either manage a designated fund or to strategically invest capital as well as isolate business risk. As of June 30, 2019, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $18.3 million and less than $0.1 million, respectively. As of December 31, 2018, total assets and total liabilities, after eliminating entries, of these VIEs reflected in the consolidated balance sheets were $22.2 million and less than $0.1 million, respectively. Except to the extent of the assets of these VIEs that are consolidated, the holders of the consolidated VIEs’ liabilities generally do not have recourse to the Company.

Non-Consolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated because the Company is not deemed the primary beneficiary. The Company's interest in these entities is in the form of insignificant equity interests and fee arrangements. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities.

Seed Investments

Seed Investments

The Company accounts for seed investments through the application of the voting interest model under ASC 810-10-25-1 through 25-14 and consolidates a seed investment when the investment advisor holds a controlling interest, which is, in general, 50% or more of the equity in such investment. For seed investments in which the Company does not hold a controlling interest, the Company accounts for such seed investment under the equity method of accounting, at its ownership percentage of such seed investment’s net asset value.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Management’s estimates are based on historical experience and other factors, including expectations of future events that management believes to be reasonable under the circumstances. These assumptions and estimates also require management to exercise judgment in the process of applying the Company’s accounting policies. Significant estimates and assumptions by management affect the carrying value of investments, performance compensation payable and certain accrued liabilities. Actual results could differ from these estimates, and such differences could be material.

Non-Controlling Interests in Consolidated Subsidiaries and Redeemable Non-Controlling Interests

Non-Controlling Interests in Consolidated Subsidiaries

Non-controlling interests in consolidated subsidiaries represent the component of equity in such consolidated entities held by third-parties and certain employees. These interests are adjusted for contributions to and distributions from Medley entities and are allocated income or loss from Medley entities based on their ownership percentages. 

Redeemable Non-Controlling Interests

Redeemable non-controlling interests represents interests of certain third parties that are not mandatorily redeemable but redeemable for cash or other assets at a fixed or determinable price or a fixed or determinable date, at the option of the holder or upon the occurrence of an event that is not solely within the control of the Company. These interests are classified in the mezzanine section on the Company's condensed consolidated balance sheets.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents include liquid investments in money market funds and demand deposits. The Company had cash balances with financial institutions in excess of Federal Deposit Insurance Corporation insured limits as of June 30, 2019 and December 31, 2018. The Company monitors the credit standing of these financial institutions and has not experienced, and has no expectations of experiencing, any losses with respect to such balances.

Investments

Investments

Investments include equity method investments that are not consolidated but over which the Company exerts significant influence. The Company measures the carrying value of its privately-held equity method investments by recording its share of the earnings or losses of its investee in the periods for which they are reported by the investee in the investee's financial statements rather than in the period in which an investee declares a dividend or distribution. For the Company's public non-traded equity method investment, it measures the carrying value of such investment at Net Asset Value ("NAV") per share. Unrealized appreciation (depreciation) resulting from changes in fair value of the equity method investments is reflected as a component of investment income in the condensed consolidated statements of operations along with the income and expense allocations from such investments.

The carrying amounts of equity method investments are reflected in Investments, at fair value in the consolidated balance sheets. As the underlying entities that the Company manages and invests in are, for U.S. GAAP purposes, primarily investment companies which reflect their investments at estimated fair value, the carrying value of the Company’s equity method investments in such entities approximates fair value. The Company evaluates its equity-method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.

For presentation in its consolidated statements of cash flows, the Company treats distributions received from certain equity method investments using the cumulative earnings approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.

Investments also include publicly traded common stock. The Company measures the fair value of its publicly traded common stock at the quoted market price on the primary market or exchange on which the underlying shares trade. Any realized gains (losses) from the sale of investments and unrealized appreciation (depreciation) resulting from changes in fair value are recorded in other income (expense), net.

Revenues

Revenues

Effective January 1, 2018, the Company recognizes revenue in accordance with ASC 606, Revenues from Contracts with Customers. The Company recognizes revenue under the core principle of depicting the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for such goods or services. To achieve this, the Company applies a five step approach: (1) identify the contract(s) with a customer, (2) identify the performance obligations within the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when, or as, each performance obligation is satisfied.

Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Such fees represent a capital allocation to the general partner or investment manager and are accounted for under ASC 323, Investments - Equity Method and Joint Ventures. As such, these types of performance fees are not in the scope of ASC 606.

As a result of the adoption of this new revenue guidance, the Company recorded a cumulative effect decrease to equity of $3.6 million, net of benefit from income taxes of $0.1 million, as of January 1, 2018, which relates to (1) certain performance fee revenue that would not have met the “probable that significant reversal will not occur” criteria of $3.0 million and (2) the reversal of reimbursable fund formation costs which were deferred on the Company’s consolidated balance sheet of $0.7 million.

Management Fees

Medley provides investment management services to both public and private investment vehicles. Management fees include base management fees, other management fees, and Part I incentive fees, as described below.

Base management fees are calculated based on either (i) the average or ending gross assets balance for the relevant period, (ii) limited partners’ capital commitments to the funds, (iii) invested capital, (iv) NAV or (v) lower of cost or market value of a fund’s portfolio investments. Depending upon the contracted terms of the investment management agreement, management fees are paid either quarterly in advance or quarterly in arrears, and are recognized as earned over the period the services are provided. 

Certain management agreements provide for Medley to receive other management fee revenue derived from up front origination fees paid by the funds' and/or separately managed accounts' underlying portfolio companies. These fees are recognized when the Company becomes entitled to such fees.

Certain management agreements also provide for Medley to receive Part I incentive fee revenue derived from net investment income (excluding gains and losses) above a hurdle rate. As it relates to MCC, these fees are subject to netting against realized and unrealized losses. Part I incentive fees are paid quarterly and are recognized as earned in the period the services are provided.

Performance Fees

Performance fees are contractual fees which do not represent a capital allocation of income to the general partner or investment manager that are earned based on the performance of certain funds, typically, the Company’s separately managed accounts. Performance fees are earned based on the fund performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement.

Other Revenues and Fees

Medley provides administrative services to certain affiliated funds and is reimbursed for direct and allocated expenses incurred in providing such administrative services, as set forth in the respective underlying agreements. These fees are recognized as revenue in the period administrative services are rendered. Medley also acts as the administrative agent on certain deals for which Medley may earn loan administration fees and transaction fees. Medley may also earn consulting fees for providing non-advisory services related to its managed funds. These fees are recognized as revenue over the period to which the fees directly relate.

Investment Income (loss) - Carried Interest

Carried interest are performance based fees that represent a capital allocation of income to the general partner or investment manager. Carried interest are allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents and are accounted for under the equity method of accounting. Accordingly, these performance fees are reflected as carried interest within investment income on the Company's consolidated statements of operations and balances due for such fees are included as a part of equity method investments within Investments, at fair value on the Company's consolidated balance sheets.

The Company records carried interest based upon an assumed liquidation of that fund's net assets as of the reporting date, regardless of whether such amounts have been realized. For any given period, carried interest on the Company's condensed consolidated statements of operations may include reversals of previously recognized carried interest due to a decrease in the value of a particular fund that results in a decrease of cumulative fees earned to date. Since fund return hurdles are cumulative, previously recognized carried interest also may be reversed in a period of appreciation that is lower than the particular fund's hurdle rate.

Carried interest received in prior periods may be required to be returned by the Company in future periods if the funds’ investment performance declines below certain levels. Each fund is considered separately in this regard and, for a given fund, carried interest can never be negative over the life of a fund. If upon a hypothetical liquidation of a fund’s investments, at their then current fair values, previously recognized and distributed carried interest would be required to be returned, a liability is established for the potential clawback obligation. For the three and six months endedJune 30, 2019, the Company received a carried interest distribution of$0.3 millionfrom one of its managed funds with no clawback liability established. Prior to the distribution received during the three months endedJune 30, 2019, the Company had not received any carried interest distributions, except for tax distributions related to the Company’s allocation of net income, which included an allocation of carried interest. Pursuant to the organizational documents of each respective fund, a portion of these tax distributions may be subject to clawback. As of June 30, 2019 and December 31, 2018, the Company had accrued $7.2 million for clawback obligations that would need to be paid if the funds were liquidated at fair value as of the end of the reporting period. The Company’s actual obligation, however, would not become payable or realized until the end of a fund’s life.

During the three and six months ended June 30, 2019 and 2018, the Company's reversal of previously recognized carried interest was less than $0.1 million.

Investment Income (loss) - Other

Other investment income is comprised of unrealized appreciation (depreciation) resulting from changes in fair value of the Company's equity method investments in addition to the income and expense allocations from such investments.

Stock-based Compensation

Stock-based Compensation

Stock-based compensation expense relating to equity based awards are measured at fair value as of the grant date, reduced for actual forfeitures in the period they occur, and expensed over the requisite service period on a straight-line basis as a component of compensation and benefits on the Company's consolidated statements of operations.

Income Taxes

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires the recognition of tax benefits or expenses for temporary differences between the financial reporting and tax basis of assets and liabilities. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company also recognizes a tax benefit from uncertain tax positions only if it is “more likely than not” that the position is sustainable based on its technical merits. The Company’s policy is to recognize interest and penalties on uncertain tax positions and other tax matters as a component of its provision for income taxes. For interim periods, the Company accounts for income taxes based on its estimate of the effective tax rate for the year. Discrete items and changes in its estimate of the annual effective tax rate are recorded in the period in which they occur.

Medley Management Inc. is subject to U.S. federal, state and local corporate income taxes on its allocable portion of the income of Medley LLC at prevailing corporate tax rates. Medley LLC and its subsidiaries are not subject to federal, state and local corporate income taxes since all income, gains and losses are passed through to its members. However, a portion of taxable income from Medley LLC and its subsidiaries are subject to New York City’s unincorporated business tax, which is included in the Company’s provision for income taxes.

The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established.

Class A Earnings per Share

Class A Earnings per Share

The Company computes and presents earnings per share using the two-class method. Under the two-class method, the Company allocates earnings between common stock and participating securities. The two-class method includes an earnings allocation formula that determines earnings per share for each class of common stock according to dividends declared and undistributed earnings for the period. For purposes of calculating earnings per share, the Company reduces its reported net earnings by the amount allocated to participating securities to arrive at the earnings allocated to Class A common stockholders. Earnings are then divided by the weighted average number of Class A common stock outstanding to arrive at basic earnings per share. Diluted earnings per share reflects the potential dilution beyond shares for basic earnings per share that could occur if securities or other contracts to issue common stock were exercised, converted into common stock, or resulted in the issuance of common stock that would have shared in our earnings. Participating securities consist of the Company's unvested restricted stock units that contain non-forfeitable rights to dividend equivalent payments, whether paid or unpaid, in the number of shares outstanding in its basic and diluted calculations.

Recently Issued Accounting Pronouncements Adopted and Not Yet Adopted

Recently Issued Accounting Pronouncements Adopted as of January 1, 2019

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase the transparency and comparability among organizations as it relates to lease assets and lease liabilities, by requiring lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months, with exceptions. Effective January 1, 2019, the Company adopted this guidance using a modified retrospective approach, which was required for all leases that exist at or commence after the date of the initial application with an option to use certain practical expedients. The Company has elected to use these practical expedients, which allow the Company to treat lease and non-lease components of its leases as a single component, have the ability to use hindsight in determining the lease term and assessing impairment of right-of-use assets, not to reassess lease classification or whether an arrangement is or contains a lease and not to reassess its initial accounting for direct lease costs.

The adoption of the new lease standard at January 1, 2019 resulted in the recognition of right-of-use assets and lease liabilities of $8.2 million and $10.2 million, respectively, consisting primarily of operating leases related to the rental of office space. The adoption of this guidance did not have a significant impact on the Company's consolidated statements of operations or cash flows. Additionally, this adoption did not impact any covenants associated with the Company's financial obligations.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty, and adding new disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. The adoption of this ASU is not expected to have a significant impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements. The adoption of this ASU is not expected to have a significant impact on the Company's consolidated financial statements.    

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). This ASU aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. It address when costs should be capitalized rather than expensed, the term to use when amortizing capitalized costs, and how to evaluate the unamortized portion of these capitalized implementation costs for impairment. This ASU also includes guidance on how to present implementation costs in the financial statements and creates additional disclosure requirements. The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. This ASU is effective for fiscal years beginning after December 31, 2019, including interim reporting within those fiscal years. Early adoption is permitted and can be applied either retrospectively or prospectively. The Company is currently evaluating the transition methods and the impact the adoption of this standard may have on its consolidated financial statements.

The Company does not believe any other recently issued, but not yet effective, revisions to authoritative guidance will have a material effect on its consolidated balance sheets, results of operations or cash flows.

Fair Value Measurements

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy:

• Level I – Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.

• Level II – Valuations based on inputs other than quoted prices in active markets included in Level I, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities.

• Level III – Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. The inputs for the determination of fair value may require significant management judgment or estimation and are based upon management’s assessment of the assumptions that market participants would use in pricing the assets and liabilities. These investments include debt and equity investments in private companies or assets valued using the Market or Income Approach and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates, beta and EBITDA multiples. The information may also include pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level III information, assuming no additional corroborating evidence.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Condensed Balance Sheet of STRF

The condensed balance sheet of STRF as of June 30, 2019 and December 31, 2018 is presented in the table below.

	As of
	June 30, 2019		December 31, 2018
Assets	(in thousands)
Cash and cash equivalents	$	310	$	274
Investments, at fair value	2,090		1,952
Other assets	295		248
Total assets	$	2,695	$	2,474
Liabilities and Equity
Accrued expenses and other liabilities	$	469	$	330
Equity	2,226		2,144
Total liabilities and equity	$	2,695	$	2,474

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REVENUES FROM CONTRACTS WITH CUSTOMERS (Tables)

6 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

Revenue by Category

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and six months ended June 30, 2019:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
For the three months ended June 30, 2019:	(in thousands)
Management fees	$	7,021	$	1,710	$	1,477	$	—	$	10,208
Other revenues and fees	1,472		—		—		1,197		2,669
Total revenues from contracts with customers	$	8,493	$	1,710	$	1,477	$	1,197	$	12,877
For the six months ended June 30, 2019:
Management fees	$	14,550	$	3,570	$	3,001	$	—	$	21,121
Other revenues and fees	3,252		—		—		1,858		5,110
Total revenues from contracts with customers	$	17,802	$	3,570	$	3,001	$	1,858	$	26,231

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and six months ended June 30, 2018:

	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
For the three months ended June 30, 2018:	(in thousands)
Management fees	$	8,374	$	1,983	$	1,608	$	—	$	11,965
Other revenues and fees	1,920		—		—		1,118		3,038
Total revenues from contracts with customers	$	10,294	$	1,983	$	1,608	$	1,118	$	15,003
For the six months ended June 30, 2018:
Management fees	$	16,767	$	4,043	$	3,240	$	—	$	24,050
Other revenues and fees	3,765		—		—		1,602		5,367
Total revenues from contracts with customers	$	20,532	$	4,043	$	3,240	$	1,602	$	29,417

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INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2019

Schedule of Investments [Abstract]

Composition of Investments

Investments consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Equity method investments, at fair value	$	13,018	$	13,422
Investment in shares of MCC, at fair value	18,151		20,633
Investment held at cost less impairment	316		418
Investments of consolidated fund	2,090		1,952
Total investments, at fair value	$	33,575	$	36,425

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Financial Assets

The following tables summarize the fair value hierarchy of the Company's financial assets measured at fair value:

	As of June 30, 2019
	Level I		Level II		Level III		Total
Assets	(in thousands)
Investments of consolidated fund	$	368	$	—	$	1,722	$	2,090
Investment in shares of MCC	18,151		—		—		18,151
Total Assets	$	18,519	$	—	$	1,722	$	20,241

	As of December 31, 2018
	Level I		Level II		Level III		Total
Assets	(in thousands)
Investments of consolidated fund	$	258	$	—	$	1,694	$	1,952
Investment in shares of MCC	20,633		—		—		20,633
Total Assets	$	20,891	$	—	$	1,694	$	22,585

Changes in Fair Value of Financial Assets Categorized within Level 3

The following is a summary of changes in fair value of the Company's financial assets that have been categorized within Level III of the fair value hierarchy:

	Level III Financial Assets as of June 30, 2019
	Balance at December 31, 2018		Purchases	Transfers In or (Out) of Level III	Unrealized Appreciation/(Depreciation)	Sale of Level III Assets		Balance at June 30, 2019
	(in thousands)
Investments of consolidated fund	$	1,694	505	—	6	(483	)	$	1,722

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LEASES (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Lease Cost

The components of lease cost and other information for the three and six months ended June 30, 2019 are as follows (dollars in thousands):

	For the Three Months Ended June 30, 2019			For the Six Months Ended June 30, 2019
Lease cost
Operating lease costs	$	633		$	1,258
Variable lease costs	—			—
Sublease income	(115		)	(230		)
Total lease cost	$	518		$	1,028

Supplemental balance sheet information related to leases as of June 30, 2019 was as follows:

Weighted-average remaining lease term (in years)	4.0
Weighted-average discount rate	8.2	%

Future Payments for Operating Leases

Future payments for operating leases as of June 30, 2019 are as follows (in thousands):

Remaining 2019	$	1,362
2020	2,846
2021	2,483
2022	2,441
2023	1,823
Total future lease payments	10,955
Less imputed interest	(1,688		)
Operating lease liabilities, as reported	$	9,267

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OTHER ASSETS (Tables)

6 Months Ended

Jun. 30, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Components of Other Assets

Other assets consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Fixed assets, net of accumulated depreciation and amortization of $3,798 and $3,446, respectively	$	2,817	$	3,140
Security deposits	1,975		1,975
Administrative fees receivable (Note 13)	1,521		1,645
Deferred tax assets (Note 15)	3,400		3,739
Due from affiliates (Note 13)	1,555		1,421
Prepaid expenses and taxes	2,706		1,113
Other assets	1,185		1,265
Total other assets	$	15,159	$	14,298

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SENIOR UNSECURED DEBT (Tables)

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Schedule of Senior Unsecured Debt

The carrying value of the Company’s senior unsecured debt consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,765 and $2,946, respectively	$	50,830	$	50,649
2024 Notes, net of unamortized premium and debt issuance costs of $1,831 and $2,031 respectively	67,169		66,969
Total senior unsecured debt	$	117,999	$	117,618

Loans payable consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Non-recourse promissory notes, net of unamortized discount of $108 at December 31, 2018	$	10,000	$	9,892
Total loans payable	$	10,000	$	9,892

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LOANS PAYABLE (Tables)

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Schedule of Debt

The carrying value of the Company’s senior unsecured debt consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
2026 Notes, net of unamortized discount and debt issuance costs of $2,765 and $2,946, respectively	$	50,830	$	50,649
2024 Notes, net of unamortized premium and debt issuance costs of $1,831 and $2,031 respectively	67,169		66,969
Total senior unsecured debt	$	117,999	$	117,618

Loans payable consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Non-recourse promissory notes, net of unamortized discount of $108 at December 31, 2018	$	10,000	$	9,892
Total loans payable	$	10,000	$	9,892

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DUE TO FORMER MINORITY INTEREST HOLDER (Tables)

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Schedule of Former Minority Interest

This balance consists of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Due to former minority interest holder, net of unamortized discount of $2,074 and $2,598, respectively	$	9,301	$	11,402
Total due to former minority interest holder	$	9,301	$	11,402

Schedule of Maturities

As of June 30, 2019 future payments due to the former minority interest holder are as follows (in thousands):

Remaining in 2019	$	1,750
2020	3,500
2021	3,500
2022	2,625
Total future payments	$	11,375

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ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2019

Payables and Accruals [Abstract]

Components of Accounts Payable, Accrued Expenses, and Other Liabilities

Accounts payable, accrued expenses and other liabilities consist of the following:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Accrued compensation and benefits	$	3,444	$	7,438
Due to affiliates (Note 13)	7,199		7,635
Revenue share payable (Note 12)	2,627		2,976
Accrued interest	1,294		1,294
Professional fees	2,493		2,802
Deferred rent	—		2,035
Deferred tax liabilities (Note 15)	67		60
Accounts payable and other accrued expenses	1,912		2,499
Total accounts payable, accrued expenses and other liabilities	$	19,036	$	26,739

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RELATED PARTY TRANSACTIONS (Tables)

6 Months Ended

Jun. 30, 2019

Related Party Transactions [Abstract]

Schedule of Related Party Transactions

Total revenues recorded under these agreements for the three and six months ended June 30, 2019 and 2018 are reflected in the table below:

	For the Three Months Ended June 30,				For the For the Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)
MCC Admin Agreement	$	734	$	917	$	1,615	$	1,818
SIC Admin Agreement	515		746		1,178		1,445
Funds Admin Agreements	223		257		459		502
Total administrative fees from related parties	$	1,472	$	1,920	$	3,252	$	3,765

Amounts due from related parties under these agreements are reflected in the table below:

	As of
	June 30, 2019		December 31, 2018
	(in thousands)
Amounts due from MCC under the MCC Admin Agreement	$	762	$	804
Amounts due from SIC under the SIC Admin Agreement	536		619
Amounts due from entities under the Funds Admin Agreements	223		222
Total administrative fees receivable	$	1,521	$	1,645

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EARNINGS PER CLASS A SHARE (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Basic and Diluted Income per Class A Share

The table below presents basic and diluted net loss per share of Class A common stock using the two-class method for the three and six months ending June 30, 2019 and 2018:

	For the Three Months Ended June 30,						For the For the Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands, except share and per share amounts)
Basic and diluted net loss per share:
Numerator
Net loss attributable to Medley Management Inc.	$	(183	)	$	(128	)	$	(255	)	$	(1,356	)
Less: Allocation of earnings to participating securities	16			(320		)	(6		)	(544		)
Net loss available to Class A common stockholders	$	(167	)	$	(448	)	$	(261	)	$	(1,900	)
Denominator
Weighted average shares of Class A common stock outstanding	5,847,883			5,543,802			5,801,531			5,513,719
Net loss per share of Class A common stock	$	(0.03	)	$	(0.08	)	$	(0.04	)	$	(0.34	)

Dividends Declared

The following table reflects the per share dividend amounts that the Company declared on its common stock during the six months ended June 30, 2019 and 2018.

Declaration Dates	Record Date	Payment Dates	Per Share
During the six months ended June 30, 2019:
March 27, 2019	April 15, 2019	May 3, 2019	$	0.03
During the six months ended June 30, 2018:
May 10, 2018	May 24, 2018	June 1, 2018	$	0.20
February 7, 2018	February 22, 2018	March 7, 2018	$	0.20

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COMPENSATION EXPENSE (Tables)

6 Months Ended

Jun. 30, 2019

Retirement Benefits [Abstract]

Schedule of Nonvested RSU Activity

A summary of RSU and restricted LLC Unit activity for the six months ended June 30, 2019 is as follows:

	Number of RSUs		Weighted Average Grant Date Fair Value		Number of Restricted LLC Units	Weighted Average Grant Date Fair Value
Balance at December 31, 2018	1,822,814		$	7.74	1,305,969	$	6.86
Granted	1,082,898		3.26		1,610,671	2.53
Forfeited	(231,712	)	6.89		—	—
Vested	(321,099	)	6.72		—	—
Balance at June 30, 2019	2,352,901		$	5.90	2,916,640	$	4.47

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REDEEMABLE NON-CONTROLLING INTERESTS (Tables)

6 Months Ended

Jun. 30, 2019

Temporary Equity Disclosure [Abstract]

Schedule of Redeemable Noncontrolling Interest

Changes in redeemable non-controlling interests during the six months ended June 30, 2019 and 2018 are reflected in the table below:

	For the Six Months Ended June 30,
	2019			2018
	(in thousands)
Beginning balance	$	23,186		$	53,741
Net loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(2,033		)	(6,980		)
Distributions	(1,576		)	(4,366		)
Ending balance	$	19,577		$	42,395

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ORGANIZATION AND BASIS OF PRESENTATION (Initial Public Offering) (Details) $ / shares in Units, $ in Millions		6 Months Ended
	Sep. 29, 2014 USD ($) $ / shares shares	Jun. 30, 2019 segment
Subsidiary, Sale of Stock [Line Items]
Number of reportable segments | segment		1
Common Class A [Member]
Subsidiary, Sale of Stock [Line Items]
Proceeds from IPO | $	$ 100.4
Issuance of Class A shares in Initial Public Offering, net of underwriters discount (in shares)	6,000,000
Issuance of Class A shares, offering price (in dollars per share) | $ / shares	$ 18.00
Percentage of common stock owned by LLC personnel for voting rights entitlement, minimum	10.00%
Common Class B [Member]
Subsidiary, Sale of Stock [Line Items]
Issuance of Class A shares in Initial Public Offering, net of underwriters discount (in shares)	100
Voting rights multiplier upon LLC ownership threshold	10

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ORGANIZATION AND BASIS OF PRESENTATION (Medley LLC Reorganization) (Details)		6 Months Ended
	Sep. 29, 2014 shares	Jun. 30, 2019
Class of Stock [Line Items]
Transfer of units to common stock, prior to fourth anniversary		33.33%
Transfer of units to common stock, prior to fifth anniversary		66.66%
Common Class A [Member]
Class of Stock [Line Items]
Common stock exchange ratio		1
Medley LLC [Member]
Class of Stock [Line Items]
Conversion of pre-IPO interests to LLC Units (in shares)	23,333,333

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ORGANIZATION AND BASIS OF PRESENTATION (Agreement and Plan of Merger) (Details) $ / shares in Units, $ in Millions						3 Months Ended		6 Months Ended
	Jul. 29, 2019 USD ($) $ / shares	Mar. 27, 2019 $ / shares	Aug. 09, 2018 USD ($) $ / shares	May 10, 2018 $ / shares	Feb. 07, 2018 $ / shares	Jun. 30, 2019 USD ($) $ / shares	Jun. 30, 2018 USD ($) $ / shares	Jun. 30, 2019 USD ($) $ / shares	Jun. 30, 2018 USD ($) $ / shares
Business Acquisition [Line Items]
Special cash dividends (USD per share)		$ 0.03		$ 0.20	$ 0.20
Transaction expenses | $						$ 1.1	$ 0.9	$ 1.4	$ 1.8
Sierra [Member]
Business Acquisition [Line Items]
Cash consideration (USD per share)			$ 3.44
Cash | $			$ 17.0
Stock | $			$ 30.0
Sierra [Member] | Subsequent Event [Member]
Business Acquisition [Line Items]
Cash consideration (USD per share)	$ 2.96
Cash | $	$ 17.0
Stock | $	$ 30.0
MCC Member] | Sierra [Member]
Business Acquisition [Line Items]
Exchange ratio			0.805
MCC Member] | Sierra [Member] | Subsequent Event [Member] | Minimum [Member]
Business Acquisition [Line Items]
Exchange ratio	0.66
MCC Member] | Sierra [Member] | Subsequent Event [Member] | Maximum [Member]
Business Acquisition [Line Items]
Exchange ratio	0.68
Medley LLC [Member] | Sierra [Member]
Business Acquisition [Line Items]
Exchange ratio			0.3836
Medley LLC [Member] | Sierra [Member] | Subsequent Event [Member]
Business Acquisition [Line Items]
Exchange ratio	0.2072
Common Class A [Member]
Business Acquisition [Line Items]
Special cash dividends (USD per share)						$ 0	$ 0.20	$ 0.03	$ 0.4
Common Class A [Member] | Sierra [Member]
Business Acquisition [Line Items]
Exchange ratio			0.3836
Special cash dividends (USD per share)			$ 0.65
Common Class A [Member] | Sierra [Member] | Subsequent Event [Member]
Business Acquisition [Line Items]
Exchange ratio	0.2668
Common Class A [Member] | Medley LLC [Member] | Sierra [Member]
Business Acquisition [Line Items]
Cash consideration (USD per share)			3.44
Special cash dividends (USD per share)			$ 0.35
Common Class A [Member] | Medley LLC [Member] | Sierra [Member] | Subsequent Event [Member]
Business Acquisition [Line Items]
Cash consideration (USD per share)	$ 2.66

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Consolidated and Non-Consolidated Variable Interest Entities Narrative) (Details) $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($) subsidiary	Dec. 31, 2018 USD ($)
Variable Interest Entity [Line Items]
Percent of voting power in Medley LLC	100.00%
Total assets of consolidated variable interest entity	$ 18.3	$ 22.2
Total liabilities of consolidated variable interest entity, less than	0.1	0.1
Fair value of investments in non-consolidated VIEs	3.7	4.2
Receivables included as a component of other assets and clawback obligation	1.7	1.8
Accrued clawback obligations	7.2	$ 7.2
Maximum loss exposure	$ 5.4
Medley LLC [Member]
Variable Interest Entity [Line Items]
Number of majority owned subsidiaries | subsidiary	3
Medley LLC [Member]
Variable Interest Entity [Line Items]
Parent ownership percentage of LLC	18.40%	18.90%
Noncontrolling interest ownership percentage of LLC	81.60%	81.10%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Seed Investments) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Assets
Cash and cash equivalents	$ 10,211	$ 17,219
Investments, at fair value	33,575	36,425
Other assets	15,159	14,298
Total Assets	75,589	78,216
Liabilities and Equity
Accrued expenses and other liabilities	19,036	26,739
Equity	(9,319)	(12,032)
Total Liabilities, Redeemable Non-controlling Interests and Equity	75,589	78,216
STRF [Member]
Schedule of Equity Method Investments [Line Items]
Amount funded	2,100
Assets
Cash and cash equivalents	310	274
Investments, at fair value	2,090	1,952
Other assets	295	248
Total Assets	2,695	2,474
Liabilities and Equity
Accrued expenses and other liabilities	469	330
Equity	2,226	2,144
Total Liabilities, Redeemable Non-controlling Interests and Equity	2,695	2,474
Other assets eliminated	100	200
Accrued expense and other liabilities eliminated (less than)	100	100
Equity eliminated	$ 2,200	$ 2,100

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Jan. 01, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Jan. 01, 2019	Dec. 31, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Decrease in equity		$ 19,812		$ 19,812			$ 19,618
(Benefit from) provision for income taxes		(70)	$ 195	(93)	$ 385
Revenues		12,877	15,003	26,231	29,417
Carried interest distribution		300		300
Accrued clawback obligations		7,200		7,200			$ 7,200
Reversal of previously recognized carried interest, less than		100	$ 100	100	$ 100
Right-of-use assets under operating leases		7,418		7,418		$ 8,200
Operating lease liabilities		9,267		9,267		10,200
ASC 606 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Decrease in equity	$ (3,600)
(Benefit from) provision for income taxes	100
Reimbursable fund	700
ASC 606 [Member] | Performance Fee [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Revenues	$ 3,000
ASU 2016-02 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right-of-use assets under operating leases		8,233		8,233		8,200
Operating lease liabilities		$ 10,229		$ 10,229		$ 10,200

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REVENUES FROM CONTRACTS WITH CUSTOMERS (Revenue by Category) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	$ 12,877	$ 15,003	$ 26,231	$ 29,417
Management Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	10,208	11,965	21,121	24,050
Other Revenues and Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	2,669	3,038	5,110	5,367
Permanent Capital Vehicles [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	8,493	10,294	17,802	20,532
Permanent Capital Vehicles [Member] | Management Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	7,021	8,374	14,550	16,767
Permanent Capital Vehicles [Member] | Other Revenues and Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	1,472	1,920	3,252	3,765
Long-dated Private Funds [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	1,710	1,983	3,570	4,043
Long-dated Private Funds [Member] | Management Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	1,710	1,983	3,570	4,043
Long-dated Private Funds [Member] | Other Revenues and Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	0	0	0	0
SMAs [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	1,477	1,608	3,001	3,240
SMAs [Member] | Management Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	1,477	1,608	3,001	3,240
SMAs [Member] | Other Revenues and Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	0	0	0	0
Other [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	1,197	1,118	1,858	1,602
Other [Member] | Management Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	0	0	0	0
Other [Member] | Other Revenues and Fees [Member]
Disaggregation of Revenue [Line Items]
Total revenues from contracts with customers	$ 1,197	$ 1,118	$ 1,858	$ 1,602

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REVENUES FROM CONTRACTS WITH CUSTOMERS (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Revenue from Contract with Customer [Abstract]
Contract liabilities	$ 0.2		$ 0.2		$ 0.3
Deferred revenue	0.2	$ 0.2	0.3	$ 0.3
Cash deposits	$ 0.1	$ 0.2	$ 0.2	$ 0.3

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INVESTMENTS (Composition of Investments) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Investment [Line Items]
Equity method investments, at fair value	$ 13,018	$ 13,422
Investment held at cost less impairment	316	418
Investments of consolidated fund	2,090	1,952
Total investments, at fair value	33,575	36,425
MCC Member]
Investment [Line Items]
Investment in shares of MCC, at fair value	$ 18,151	$ 20,633

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INVESTMENTS (Narrative) (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Schedule of Investments [Line Items]
Loss from other than temporary impairment equity investments	$ 0	$ 0	$ 0	$ 0
Equity method investments, at fair value	13,018,000		13,018,000		$ 13,422,000
Performance fees			900,000		400,000
Consolidated Subsidiaries [Member] | Reported Value Measurement [Member]
Schedule of Investments [Line Items]
Equity method investments, at fair value	400,000		400,000		400,000
Consolidated Subsidiaries [Member] | Senior Notes [Member] | Reported Value Measurement [Member]
Schedule of Investments [Line Items]
Investments of consolidated fund	1,600,000		1,600,000		1,600,000
Sierra Income Corporation [Member]
Schedule of Investments [Line Items]
Equity method investments, at fair value	$ 7,100,000		$ 7,100,000		$ 7,400,000
MCC Member]
Schedule of Investments [Line Items]
Shares in MCC (in shares)	7,756,938		7,756,938		7,756,938
Cumulative unrealized gains (losses)	$ (6,000,000)	$ (4,000,000)	$ (2,500,000)	$ (13,600,000)
CK Pearl Fund [Member]
Schedule of Investments [Line Items]
Investment held at cost less impairment	$ 300,000		$ 300,000		$ 400,000

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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund	$ 33,575	$ 36,425
Equity method investments, at fair value	13,018	13,422
Level III [Member] | Consolidated Subsidiaries [Member] | Investments [Member]
Level III Financial Assets as of June 30, 2019
Beginning balance	1,694
Purchases	505
Transfers In or (Out) of Level III	0
Unrealized Appreciation/(Depreciation)	6
Sale of Level III Assets	(483)
Ending balance	1,722
Reported Value Measurement [Member] | Consolidated Subsidiaries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity method investments, at fair value	400	400
Reported Value Measurement [Member] | Senior Notes [Member] | Consolidated Subsidiaries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	1,600	1,600
Reported Value Measurement [Member] | Level I [Member] | Consolidated Subsidiaries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity method investments, at fair value	400	300
Reported Value Measurement [Member] | Level III [Member] | Senior Notes [Member] | Consolidated Subsidiaries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Assets	1,700	1,700
Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment in shares of MCC	18,151	20,633
Total Assets	20,241	22,585
Nonrecurring [Member] | Consolidated Subsidiaries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund	2,090	1,952
Nonrecurring [Member] | Reported Value Measurement [Member] | Level I [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment in shares of MCC	18,151	20,633
Total Assets	18,519	20,891
Nonrecurring [Member] | Reported Value Measurement [Member] | Level I [Member] | Consolidated Subsidiaries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund	368	258
Nonrecurring [Member] | Reported Value Measurement [Member] | Level II [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment in shares of MCC	0	0
Total Assets	0	0
Nonrecurring [Member] | Reported Value Measurement [Member] | Level II [Member] | Consolidated Subsidiaries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund	0	0
Nonrecurring [Member] | Reported Value Measurement [Member] | Level III [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investment in shares of MCC	0	0
Total Assets	1,722	1,694
Nonrecurring [Member] | Reported Value Measurement [Member] | Level III [Member] | Consolidated Subsidiaries [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments of consolidated fund	$ 1,722	$ 1,694

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LEASES (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018	Jun. 30, 2019	Jan. 01, 2019
Leases [Abstract]
Right-of-use assets under operating leases			$ 7,418	$ 8,200
Operating lease liabilities			$ 9,267	$ 10,200
Rent expense	$ 600	$ 1,200

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LEASES (Lease Cost) (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Leases [Abstract]
Operating lease costs	$ 633	$ 1,258
Variable lease costs	0	0
Sublease income	(115)	(230)
Total lease cost	$ 518	$ 1,028

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LEASES (Supplemental Balance Sheet Information) (Details)	Jun. 30, 2019
Leases [Abstract]
Weighted-average remaining lease term (in years)	4 years
Weighted-average discount rate	8.20%

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LEASES (Future Payments for Operating Leases) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019
Leases [Abstract]
Remaining 2019	$ 1,362
2020	2,846
2021	2,483
2022	2,441
2023	1,823
Total future lease payments	10,955
Less imputed interest	(1,688)
Operating lease liabilities, as reported	$ 9,267	$ 10,200

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OTHER ASSETS (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Fixed assets, net of accumulated depreciation and amortization of $3,798 and $3,446, respectively	$ 2,817	$ 3,140
Security deposits	1,975	1,975
Administrative fees receivable (Note 13)	1,521	1,645
Deferred tax assets	3,400	3,739
Due from affiliates (Note 13)	1,555	1,421
Prepaid expenses and taxes	2,706	1,113
Other assets	1,185	1,265
Total other assets	15,159	14,298
Accumulated depreciation	$ 3,798	$ 3,446

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SENIOR UNSECURED DEBT (Schedule of Senior Unsecured Debt) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018	Feb. 22, 2017	Oct. 18, 2016
Debt Instrument [Line Items]
Senior unsecured debt, net	$ 117,999	$ 117,618
Senior Notes [Member]
Debt Instrument [Line Items]
Senior unsecured debt, net	117,999	117,618
Senior Notes [Member] | Senior Notes Due 2026 [Member]
Debt Instrument [Line Items]
Senior unsecured debt, net	50,830	50,649
Debt instrument, unamortized discount (premium) and debt issuance costs	2,765	2,946		$ 3,800
Senior Notes [Member] | Senior Notes Due 2024 [Member]
Debt Instrument [Line Items]
Senior unsecured debt, net	67,169	66,969
Debt instrument, unamortized discount (premium) and debt issuance costs	$ 1,831	$ 2,031	$ 2,800

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SENIOR UNSECURED DEBT (Narrative) (Details) - Senior Notes [Member] - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018	Feb. 22, 2017	Oct. 18, 2016
Senior Notes Due 2026 [Member]
Debt Instrument [Line Items]
Debt instrument, face amount							$ 53,600,000.0
Stated interest rate							6.875%
Discount (premium) and direct issuance costs	$ 2,765,000		$ 2,765,000		$ 2,946,000		$ 3,800,000
Notes payable, fair value disclosure	35,200,000		35,200,000
Interest expense, including amortization of discount and debt issuance costs	1,000,000	$ 1,000,000	$ 2,000,000	$ 2,000,000
Senior Notes Due 2026 [Member] | On or after August 15, 2019 [Member]
Debt Instrument [Line Items]
Redemption percentage			100.00%
Senior Notes Due 2024 [Member]
Debt Instrument [Line Items]
Debt instrument, face amount						$ 69,000,000.0
Stated interest rate						7.25%
Discount (premium) and direct issuance costs	1,831,000		$ 1,831,000		$ 2,031,000	$ 2,800,000
Notes payable, fair value disclosure	46,000,000		46,000,000
Interest expense, including amortization of discount and debt issuance costs	$ 1,400,000	$ 1,400,000	$ 2,700,000	$ 2,700,000
Senior Notes Due 2024 [Member] | On or after January 30, 2020 [Member]
Debt Instrument [Line Items]
Redemption percentage			100.00%

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LOANS PAYABLE (Schedule of Debt) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Long-term debt	$ 10,000	$ 9,892
Nonrecourse Promissory Notes [Member]
Debt Instrument [Line Items]
Long-term debt	$ 10,000	9,892
Unamortized discount		$ 108

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LOANS PAYABLE (Narrative) (Details) - USD ($)				1 Months Ended	3 Months Ended		6 Months Ended
	Jan. 31, 2019	Jan. 01, 2019	Aug. 19, 2014	Apr. 30, 2012	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Debt Instrument [Line Items]
Payment of debt					$ 6,500,000		$ 6,500,000
Future principal payments due in 2019					10,000,000		10,000,000
Amortization of debt issuance costs, less than					0		407,000	$ 370,000
Nonrecourse Promissory Notes [Member]
Debt Instrument [Line Items]
Debt instrument, face amount				$ 10,000,000.0
Number of shares of common stock purchased (in shares)				1,108,033
Unamortized debt issuance expense				$ 3,800,000
Interest expense					200,000	$ 300,000	$ 500,000	700,000
Debt instrument interest rate increase							1.00%
Notes payable, fair value disclosure					$ 10,000,000		$ 10,000,000		$ 10,000,000
New Promissory Note [Member]
Debt Instrument [Line Items]
Debt instrument, face amount	$ 6,500,000.0
Repayments of debt	$ 6,500,000
Debt maturity term		6 months
New Promissory Note [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Spread on interest rate	7.00%	7.00%
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Debt instrument, face amount			$ 15,000,000.0
Amortization of debt issuance costs, less than						$ 100,000	$ 100,000	$ 100,000
Revolving Credit Facility [Member] | Alternate Base Rate [Member]
Debt Instrument [Line Items]
Spread on interest rate			0.25%
Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Spread on interest rate			2.50%

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DUE TO FORMER MINORITY INTEREST HOLDER (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($) installment
Debt Instrument [Line Items]
Due to former minority interest holder, net	$ 9,301,000	$ 9,301,000	$ 11,402,000
Future payments:
Total future payments	10,000,000	10,000,000	9,892,000
Due to Former Minority Interest Holder [Member]
Debt Instrument [Line Items]
Unamortized discount	2,074,000	2,074,000	2,598,000
Debt consideration			$ 14,000,000.0
Number of installments | installment			16
Future payments:
Remaining in 2019	1,750,000	1,750,000
2020	3,500,000	3,500,000
2021	3,500,000	3,500,000
2022	2,625,000	2,625,000
Total future payments	11,375,000	$ 11,375,000
Debt maturity term		4 years
Debt discount	$ 300,000	$ 500,000

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ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Payables and Accruals [Abstract]
Accrued compensation and benefits	$ 3,444	$ 7,438
Due to affiliates	7,199	7,635
Revenue share payable	2,627	2,976
Accrued interest	1,294	1,294
Professional fees	2,493	2,802
Deferred rent	0	2,035
Deferred tax liabilities	67	60
Accounts payable and other accrued expenses	1,912	2,499
Total accounts payable, accrued expenses and other liabilities	$ 19,036	$ 26,739

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COMMITMENTS AND CONTINGENCIES (Narrative) (Details) - USD ($)					1 Months Ended		3 Months Ended	6 Months Ended
	Jan. 31, 2019	Jan. 01, 2019	Aug. 09, 2018	May 29, 2015	Feb. 28, 2015	Apr. 30, 2012	Jun. 30, 2018	Jun. 30, 2018	Jun. 30, 2019	Dec. 31, 2018
Loss Contingencies [Line Items]
Severance costs							$ 300,000	$ 2,200,000
Loss from sublease							$ 100,000
Possible contingency amount (more than)									$ 6,500,000
Sierra [Member]
Loss Contingencies [Line Items]
Cash			$ 17,000,000
Stock			$ 30,000,000
American Web Loan [Member]
Loss Contingencies [Line Items]
Repayment of loan					1 year 10 months
Nonrecourse Promissory Notes [Member]
Loss Contingencies [Line Items]
Proceeds from issuance of debt						$ 10,000,000
Present value of future cash flows expected to be paid						4,400,000
Contractual obligation									2,600,000	$ 3,000,000
Debt instrument, face amount						$ 10,000,000.0
New Promissory Note [Member]
Loss Contingencies [Line Items]
Repayments of debt	$ 6,500,000
Debt maturity term		6 months
Debt instrument, face amount	$ 6,500,000.0
New Promissory Note [Member] | London Interbank Offered Rate (LIBOR) [Member]
Loss Contingencies [Line Items]
Spread on interest rate	7.00%	7.00%
Consolidated Funds [Member]
Loss Contingencies [Line Items]
Unfunded capital commitments									$ 300,000	$ 300,000
MCC Member] | Moshe Barkat and MVF Holdings [Member]
Loss Contingencies [Line Items]
Debt default				$ 65,000,000
Damages sought				100,000,000
Settlement amount				$ 1,500,000

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COMMITMENTS AND CONTINGENCIES (Employment Agreements) (Details) $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($) installment
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Initial base salaries	$ 2.5
Bonuses	10.9
Cash bonus	$ 4.1
Number of equal installments | installment	3
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of employee agreements	24 months
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of employee agreements	30 months
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Bonuses	$ 6.8
RSU vesting period	3 years

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RELATED PARTY TRANSACTIONS (Details)	3 Months Ended			6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Related Party Transaction [Line Items]
Total revenues from contracts with customers	$ 12,877,000	$ 15,003,000		$ 26,231,000	$ 29,417,000
Total administrative fees receivable	$ 1,521,000			1,521,000		$ 1,645,000
Management fees waived				$ 0
Percentage of tax benefit under tax receivable agreement	85.00%			85.00%
Common Class A [Member]
Related Party Transaction [Line Items]
Common stock exchange ratio				1
Affiliated Entity [Member]
Related Party Transaction [Line Items]
Total revenues from contracts with customers	$ 1,472,000	1,920,000		$ 3,252,000	3,765,000
MCC Advisors LLC [Member]
Related Party Transaction [Line Items]
Management fees waived	0		$ 400,000
MCC Admin Agreement [Member]
Related Party Transaction [Line Items]
Total administrative fees receivable	762,000			762,000		804,000
MCC Admin Agreement [Member] | Affiliated Entity [Member]
Related Party Transaction [Line Items]
Total revenues from contracts with customers	734,000	917,000		1,615,000	1,818,000
SIC Admin Agreement [Member]
Related Party Transaction [Line Items]
Total administrative fees receivable	536,000			536,000		619,000
SIC Admin Agreement [Member] | Affiliated Entity [Member]
Related Party Transaction [Line Items]
Total revenues from contracts with customers	515,000	746,000		1,178,000	1,445,000
Funds Admin Agreement [Member]
Related Party Transaction [Line Items]
Total administrative fees receivable	223,000			223,000		$ 222,000
Funds Admin Agreement [Member] | Affiliated Entity [Member]
Related Party Transaction [Line Items]
Total revenues from contracts with customers	$ 223,000	$ 257,000		$ 459,000	$ 502,000

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EARNINGS PER CLASS A SHARE (Basic and Diluted Income per Class A Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Numerator
Net loss attributable to Medley Management Inc.	$ (183)	$ (128)	$ (255)	$ (1,356)
Denominator
Weighted average shares of Class A common stock outstanding (in shares)	5,847,883	5,543,802	5,801,531	5,513,719
Participating Securities [Member]
Numerator
Less: Allocation of earnings to participating securities	$ 16	$ (320)	$ (6)	$ (544)
Common Class A [Member]
Numerator
Net loss available to Class A common stockholders	$ (167)	$ (448)	$ (261)	$ (1,900)
Denominator
Net loss per Class A share (in dollars per share)	$ (0.03)	$ (0.08)	$ (0.04)	$ (0.34)

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EARNINGS PER CLASS A SHARE (Narrative) (Details) - shares	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Earnings Per Share [Abstract]
Antidilutive securities excluded from computation of earnings per share (shares)	26,316,642	24,639,302

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EARNINGS PER CLASS A SHARE (Dividends Declared) (Details) - $ / shares	May 03, 2019	Mar. 27, 2019	Jun. 01, 2018	May 10, 2018	Mar. 07, 2018	Feb. 07, 2018
Earnings Per Share [Abstract]
Dividends declared per share of Class A common stock (in dollars per share)		$ 0.03		$ 0.20		$ 0.20
Dividends paid per Class A common stock (in dollars per share)	$ 0.03		$ 0.20		$ 0.20

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INCOME TAXES (Narrative) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Deferred tax assets	$ 3,400,000		$ 3,400,000		$ 3,739,000
Valuation allowance	(1,000,000)	$ (700,000)	(1,000,000)	$ (700,000)	(1,000,000)
Deferred tax liabilities	$ 67,000		$ 67,000		$ 60,000
Effective tax rate	1.00%	(8.60%)	3.00%	(3.30%)
Noncontrolling interest income (loss)	$ 6,000,000	$ 3,100,000	$ 2,000,000	$ 8,400,000
Decrease in deferred tax asset				700,000
Uncertain tax positions	$ 0	$ 0	$ 0	$ 0

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COMPENSATION EXPENSE (Retirement Plan Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage vested from participants eligibility date			100.00%
Contributions as a percent of employee eligible wages			3.00%
Accrued contributions	$ 0.1	$ 0.1	$ 0.3	$ 0.4
Retirement plan liability	0.4		0.4		$ 0.5
Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum aggregate compensation	$ 1.3		$ 2.5	$ 2.5

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COMPENSATION EXPENSE (Stock-Based Compensation Narrative) (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	May 29, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares authorized for grant (in shares)	4,500,000	9,000,000		9,000,000
Incentive Plan shares available for grant (in shares)		2,700,000		2,700,000
Stock-based compensation		$ 1,400	$ 1,600	$ 3,222	$ 2,644
Retained Earnings [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Reclass of cumulative dividends on forfeited RSUs, less than		100		$ 300
Common Class A [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Issuance of shares (in shares)				169,813
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares authorized for grant (in shares)	399,400
RSU vesting period				5 years
Fair value of RSUs vested	$ 1,000			$ 2,200
Shares vested (in shares)				321,099
Cash used to settle awards		300		$ 300
Reversal of previously recognized compensation, less than				900	$ 600
Unvested RSU compensation cost not yet recognized		16,900		$ 16,900
Unamortized compensation cost				2 years 8 months 12 days
Restricted Stock Units (RSUs), LLC [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares vested (in shares)				0
Issuance of shares (in shares)				66,668
Unvested RSU compensation cost not yet recognized		$ 1,300		$ 1,300

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COMPENSATION EXPENSE (Schedule of RSU Activity) (Details)	6 Months Ended
	Jun. 30, 2019 $ / shares shares
Restricted Stock Units (RSUs) [Member]
Number of RSUs
Beginning Balance (in shares) | shares	1,822,814
Granted (in shares) | shares	1,082,898
Forfeited (in shares) | shares	(231,712)
Vested (in shares) | shares	(321,099)
Ending Balance (in shares) | shares	2,352,901
Weighted Average Grant Date Fair Value
Beginning Balance (in dollars per share) | $ / shares	$ 7.74
Granted (in dollars per share) | $ / shares	3.26
Forfeited (in dollars per share) | $ / shares	6.89
Vested (in dollars per share) | $ / shares	6.72
Ending Balance (in dollars per share) | $ / shares	$ 5.90
Restricted Stock Units (RSUs), LLC [Member]
Number of RSUs
Beginning Balance (in shares) | shares	1,305,969
Granted (in shares) | shares	1,610,671
Forfeited (in shares) | shares	0
Vested (in shares) | shares	0
Ending Balance (in shares) | shares	2,916,640
Weighted Average Grant Date Fair Value
Beginning Balance (in dollars per share) | $ / shares	$ 6.86
Granted (in dollars per share) | $ / shares	2.53
Forfeited (in dollars per share) | $ / shares	0.00
Vested (in dollars per share) | $ / shares	0.00
Ending Balance (in dollars per share) | $ / shares	$ 4.47

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REDEEMABLE NON-CONTROLLING INTERESTS (Schedule of Redeemable Non-controlling Interest) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Increase (Decrease) in Temporary Equity [Roll Forward]
Beginning balance	$ 23,186
Ending balance	19,577
Nonredeemable Noncontrolling Interest [Member]
Increase (Decrease) in Temporary Equity [Roll Forward]
Beginning balance	23,186	$ 53,741
Net loss attributable to redeemable non-controlling interests in consolidated subsidiaries	(2,033)	(6,980)
Distributions	(1,576)	(4,366)
Ending balance	$ 19,577	$ 42,395

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REDEEMABLE NON-CONTROLLING INTERESTS (Narrative) (Details) - USD ($)			3 Months Ended		6 Months Ended		16 Months Ended
	Jun. 06, 2017	Jun. 03, 2016	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Sep. 30, 2018	Dec. 31, 2018	Jul. 31, 2018	Dec. 31, 2017	Jan. 31, 2016
Redeemable Noncontrolling Interest [Line Items]
Distributions to members and redeemable non-controlling interests					$ 2,531,000	$ 14,697,000
Balance of redeemable non-controlling interest			$ 19,577,000		19,577,000			$ 23,186,000
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC [Member]
Redeemable Noncontrolling Interest [Line Items]
Distributions to members and redeemable non-controlling interests			800,000	$ 1,100,000	1,600,000	2,100,000
Investments and contributions	$ 13,800,000.0	$ 10,000,000
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC [Member] | Minimum [Member]
Redeemable Noncontrolling Interest [Line Items]
Investment period	7 years
Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC [Member] | Maximum [Member]
Redeemable Noncontrolling Interest [Line Items]
Investment period	10 years
Medley and ''Investors'' [Member] | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC [Member]
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions		$ 50,000,000
Contributions to the joint venture					53,800,000
Medley and ''Investors'' [Member] | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC [Member] | MCC Advisors LLC [Member]
Redeemable Noncontrolling Interest [Line Items]
Purchases of available for sale securities							$ 51,800,000
Investors [Member]
Redeemable Noncontrolling Interest [Line Items]
Percent of preferred distributions given to Investors		8.00%
Investors [Member] | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC [Member]
Redeemable Noncontrolling Interest [Line Items]
Investments and contributions	$ 40,000,000
Percent of Joint Venture profits given to Investors		15.00%
Period before Investors can redeem their interests		10 years
STRF [Member]
Redeemable Noncontrolling Interest [Line Items]
Net income allocated to non-controlling interest			100,000	100,000	100,000	200,000
Balance of redeemable non-controlling interest			700,000		700,000			700,000
Seed investment			2,100,000		2,100,000
STRF [Member] | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC [Member]
Redeemable Noncontrolling Interest [Line Items]
Seed investment			2,000,000		2,000,000
Nonredeemable Noncontrolling Interest [Member]
Redeemable Noncontrolling Interest [Line Items]
Balance of redeemable non-controlling interest			19,577,000	42,395,000	19,577,000	42,395,000		23,186,000		$ 53,741,000
Nonredeemable Noncontrolling Interest [Member] | SIC Advisors LLC [Member]
Redeemable Noncontrolling Interest [Line Items]
Fair value of non-controlling interest									$ 12,300,000		$ 12,200,000
Net income allocated to non-controlling interest				800,000		1,700,000
Distributions to members and redeemable non-controlling interests				900,000		2,300,000
Non-controlling Interests [Member] | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC [Member]
Redeemable Noncontrolling Interest [Line Items]
Net income allocated to non-controlling interest			6,000,000	$ (3,200,000)	2,000,000	$ (8,400,000)
Non-controlling Interests [Member] | Investors [Member] | Master Investment Agreement with DB MED Investor I LLC and DB MED Investor II LLC [Member]
Redeemable Noncontrolling Interest [Line Items]
Balance of redeemable non-controlling interest			$ 20,300,000		20,300,000			$ 23,900,000
Accounts Payable, Accrued Expenses And Other Liabilities [Member] | Nonredeemable Noncontrolling Interest [Member]
Redeemable Noncontrolling Interest [Line Items]
Fair value adjustment					$ 1,000,000

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SUBSEQUENT EVENTS (Details) - Sierra [Member]	Jul. 29, 2019 USD ($) $ / shares	Aug. 09, 2018 $ / shares
Subsequent Event [Line Items]
Cash consideration (USD per share) | $ / shares		$ 3.44
Subsequent Event [Member]
Subsequent Event [Line Items]
Cash consideration (USD per share) | $ / shares	$ 2.96
MCC Advisors LLC [Member]
Subsequent Event [Line Items]
Exchange ratio		0.805
MCC Advisors LLC [Member] | Minimum [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Exchange ratio	0.66
MCC Advisors LLC [Member] | Maximum [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Exchange ratio	0.68
MCC Advisors LLC [Member] | Merger Agreement Term One [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Exchange ratio	0.68
Legal fees | $	$ 10,000,000
MCC Advisors LLC [Member] | Merger Agreement Term Two [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Exchange ratio	0.66
Legal fees | $	$ 15,000,000
MCC Advisors LLC [Member] | Merger Agreement Term Three [Member] | Minimum [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Exchange ratio	0.68
Legal fees | $	$ 10,000,000
MCC Advisors LLC [Member] | Merger Agreement Term Three [Member] | Maximum [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Exchange ratio	0.66
Legal fees | $	$ 15,000,000
Common Class A [Member]
Subsequent Event [Line Items]
Exchange ratio		0.3836
Common Class A [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Exchange ratio	0.2668
Medley LLC [Member]
Subsequent Event [Line Items]
Exchange ratio		0.3836
Medley LLC [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Exchange ratio	0.2072
Medley LLC [Member] | Common Class A [Member]
Subsequent Event [Line Items]
Cash consideration (USD per share) | $ / shares		$ 3.44
Medley LLC [Member] | Common Class A [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Cash consideration (USD per share) | $ / shares	$ 2.66

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Label	Element	Value
Accounting Standards Update 2016-01 [Member]
Deferred Income Tax Assets, Net	us-gaap_DeferredIncomeTaxAssetsNet	$ 649,000
Accounting Standards Update 2014-09 [Member]
Deferred Income Tax Assets, Net	us-gaap_DeferredIncomeTaxAssetsNet	$ (125,000)