ACQUISITIONS

12 Months Ended

Dec. 31, 2014

Acquisitions

ACQUISITIONS

NOTE 3— ACQUISITIONS

Acquisition of B. Riley and Co. Inc.

On June 18, 2014, the Company completed the acquisition of BRC pursuant to the terms of the Acquisition Agreement (the “Acquisition Agreement”), dated as of May 19, 2014, by and among the Company, Darwin Merger Sub I, Inc., a wholly owned subsidiary of the Company, B. Riley Capital Markets, LLC, a wholly owned subsidiary of the Company (“BCM”), BRC, B. Riley & Co. Holdings, LLC (“BRH”), Riley Investment Management LLC (“RIM,” and collectively with BRC and BRH, the “B. Riley Entities”) and Bryant Riley, a director of the Company and principal owner of each of the B. Riley Entities. In connection with the Company’s acquisition of BRC, Darwin Merger Sub I, Inc. merged with and into BRC, and BRC subsequently merged with and into BCM, with BCM surviving as a wholly owned subsidiary of the Company. The Company completed the acquisitions of BRH and RIM on August 1, 2014 in accordance with the terms of the Acquisition Agreement.

The Company acquired BRC in exchange for the issuance of 4,182,637 shares of newly issued for a total purchase price of $26,351. The fair value of the newly issued shares of the Company’s common stock for accounting purposes was determined based on the closing market price of the Company’s shares of common stock on the acquisition date on June 18, 2014, less a 25% discount for lack of marketability as the shares issued are subject to certain restrictions that limit their trade or transfer. The BRC acquisition has been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the June 18, 2014 acquisition date for BRC and August 1, 2014 for BRH and RIM. The application of the acquisition method of accounting resulted in goodwill of $21,869. Acquisition related costs, such as legal, accounting, valuation and other professional fees related to the acquisition of BRC in the amount of $997 were charged against earnings in the second quarter of 2014. All of the recognized goodwill is expected to be non-deductible for tax purposes.

The purchase price allocation was as follows:

Tangible assets acquired and assumed:
Cash and cash equivalents	$	2,667
Restricted cash		50
Securities owned		1,978
Accounts receivable		1,845
Prepaid expenses and other assets		302
Property and equipment		76
Accounts payable and accrued liabilities		(3,194	)
Securities sold, not yet purchased		(922	)
Deferred tax liability		(1,120	)
Customer relationships		1,200
Tradename		1,600
Goodwill		21,869
Total	$	26,351

The amount of revenue and earnings attributable to BRC in the Company’s consolidated statement of operations during the year ended December 31, 2014 were as follows:

	Period from
	June 18, 2014
	through
	December 31, 2014
Revenues	$	19,420
Income before income taxes		5,124

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Company and BRC as well as the related impact of the new employment agreements with Bryant Riley, Andrew Gumaer and Harvey Yellen that became effective upon the acquisition of BRC on a pro forma basis, as though they had occurred as of January 1, 2013. The pro forma financial information presented includes the effects of adjustments related to the amortization charges from the acquired intangible assets and the elimination of certain activities excluded from the transaction. The pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future results .

	Pro Forma Unaudited
	Year Ended			Year Ended
	December 31, 2014			December 31, 2013
Revenues	$	91,656		$	102,965
Net (loss) income attributable to B. Riley Financial, Inc.	$	(3,938	)	$	4,594
Basic (loss) income per share	$	(0.34	)	$	0.82
Diluted (loss) income per share	$	(0.34	)	$	0.81
Weighted average basic shares outstanding		11,533,178			5,613,307
Weighted average diluted shares outstanding		11,533,178			5,674,528

2012 Acquisition of Shoon Trading Limited

On May 4, 2012, the Company invested $65 for a 44.4% interest in the common stock of Shoon. Shoon purchased the rights to operate the former Shoon internet business and retail stores that were in administration in the United Kingdom. As part of the investment, the Company also loaned Shoon approximately $1,300 that is collateralized by retail inventory. The loan bore interest at an annual rate of LIBOR plus 6.0% payable monthly and had a maturity date of May 3, 2014. In accordance with the Shoon shareholder agreement, the Company had the right to appoint a Chairman of Shoon. Together with the Company’s 44.4% investment in the common stock of Shoon and control of the majority of the board of directors, the Company had a controlling interest in Shoon. On August 2, 2013, an additional loan in the amount of $847 (net of $40 discount) was extended to Shoon with a maturity date of August 3, 2015. This increased the outstanding principal from both loans to $1,371. Interest on the new loan was payable monthly at 6.5%. Both of the loans are collateralized by the inventory of Shoon. The remaining balance of the loans receivable at December 31, 2013 is included in the Company’s consolidated balance sheet in note receivable related party – current portion in the amount of $703 and in note receivable related party - net of current portion in the amount of $497. In connection with the new loan in August 2013, the Shoon shareholder agreement was amended and restated to eliminate the Company’s super majority voting rights which enable the Company to control the board of directors of Shoon. As a result of this amendment, the Company no longer controls Shoon and the operating results of Shoon are not consolidated for any periods after July 31, 2013. As such, the Company has consolidated the operations of Shoon and included the results of operations of Shoon from May 4, 2012, the date of investment, through July 31, 2013 in the Company’s consolidated statements of operations. In January 2014, Shoon was sold to a third party and the two loans in the amount of $1,200 outstanding at December 31, 2013 were repaid to the Company. As a result of the sale of Shoon, the Company recorded an impairment charge as of December 31, 2013 of $111 to write-down the investment in Shoon to its estimated net realizable value.

In accordance with the accounting guidance for consolidation of variable interest entities, the Company has determined that the additional financing arrangement in the form of the new note receivable with Shoon and the elimination of the Company’s super majority voting rights in August 2013, as discussed above, changes the status of Shoon to a VIE. The Company, in determining whether or not it is the primary beneficiary of Shoon, considered the voting interests of the shareholders of Shoon and the shareholders ability to direct the activities of Shoon. The Company determined it is not the primary beneficiary of the VIE since the Company does not have the ability to exercise any rights or powers to direct the activities of Shoon that most significantly impact Shoon’s economic performance. Accordingly, Shoon’s operating results are not consolidated for any periods after July 31, 2013. As of December 31, 2013, the carrying amount and maximum exposure to loss due to the Company’s involvement with Shoon is the combined balance of both loans in the amount of $1,200 and $22 equity investment in Shoon. The Company’s loss under the equity method of accounting for Shoon was $156 for the five months ended December 31, 2013.

The summarized financial information below includes amounts related to Shoon, the Company’s less-than-majority-owned subsidiary, for periods after July 31, 2013.

	Five Months
	Ended
	December 31, 2013
Total revenues	$	6,294
Cost of goods sold		3,375
Loss before income taxes		(160	)
Income tax benefit		58
Net loss	$	(102	)
GAG, Inc equity share of net loss	$	(45	)

	As of
	December 31, 2013
Current assets	$	3,865
Non-current asstes		397
Total assets		4,262
Current liabilities		3,338
Non-current liabilities		497
Net assets	$	427

The Company determined the fair value of assets acquired exceeded consideration paid by approximately $1,366 which was recorded as a bargain purchase gain during the three months ended June 30, 2012. The gain on bargain purchase is included as a separate component of other income (expense) in the Company’s consolidated statements of operations.

The following details the estimated fair value of the net assets acquired and the excess of such net assets over the purchase price upon acquisition:

Fixed assets	$	78
Retail inventory		3,752
Accounts payable and accrued liabilities		(810	)
Deferred tax liability		(408	)
Fair value of net assets acquired		2,612
Total cash consideration		(1,246	)
Gain on bargain purchase	$	1,366

The following financial statement amounts of Shoon were included in the accompanying consolidated financial statements in the UK retail stores segment for the period from May 4, 2012, the date of investment, through December 31, 2012 and for the period from January 1, 2013 through July 31, 2013:

	Period From			Period From
	January 1, 2013 to			May 4, 2012 to
	July 31, 2013			December 31, 2012
Revenues:
Revenues - Sale of goods	$	6,202		$	10,206
Cost of goods sold		(3,566	)		(5,475	)
Selling, general and administrative expenses		(3,818	)		(4,480	)
Operating (loss) income		(1,182	)		251
Other expenses		(94	)		(251	)
Gain on bargain purchase		-			1,366
(Loss) income before income taxes		(1,276	)		1,366
Benefit (provision) for income taxes		319			(1	)
Net (loss) income		(957	)		1,365
Net (loss) income attributable to noncontrolling interest		(532	)		819
Net (loss) income attributable to B. Riley Financial, Inc.	$	(425	)	$	546

The disclosure of pro forma financial information for the year ended December 31, 2012 has not been provided given the impracticality of obtaining the information since the former owners of Shoon were operating in administration in the United Kingdom.