ACQUISITIONS

9 Months Ended

Sep. 30, 2015

Business Combinations [Abstract]

ACQUISITIONS

NOTE 3— ACQUISITIONS

Acquisition of MK Capital

On January 2, 2015 the Company entered into a purchase agreement to acquire all of the equity interests of MK Capital, a wealth management business with operations primarily in New York. The terms of the purchase agreement required the sellers to meet certain pre-closing conditions. On February 2, 2015, the closing conditions were satisfied and the Company completed the purchase of MK Capital for a total purchase price of $9,386. The purchase price is comprised of a cash payment in the amount of $2,500 and 333,333 newly issued shares of the Company’s common stock at closing which were valued at $2,687 for accounting purposes determined based on the closing market price of the Company’s shares of common stock on the acquisition date on February 2, 2015, less a 19.4% discount for lack of marketability as the shares issued are subject to certain restrictions that limit their trade or transfer. The purchase agreement also requires the payment of contingent consideration in the form of future cash payments with a fair value of $2,229 and the issuance of common stock with a fair value of $1,970. The contingent cash consideration of $2,229 has been recorded based on the payment of the contingent cash consideration of $1,250 on the first anniversary date of the closing (February 2, 2016) and a final cash payment of $1,250 on the second anniversary date of the closing (February 2, 2017) to the former members of MK Capital discounted at 8.0% per annum (initial discount of $271). In accordance with ASC 805, “Business Combination”, the contingent consideration liability has been classified as a liability on the acquisition date. Imputed interest expense totaled $45 and $118 for the three and nine months ended September 30, 2015. The balance of the contingent consideration liability was $2,347 at September 30, 2015 (discount of $153 at September 30, 2015) and has been recorded as contingent consideration liability – current portion in the amount of $1,218 and contingent consideration liability, net of current portion in the amount of $1,129 in the condensed consolidated balance sheet. The fair value of the contingent stock consideration in the amount of $1,970 has been classified as equity in accordance with ASC 805, “Business Combinations”, and is comprised of the issuance of 166,667 shares of common stock on the first anniversary date of the closing (February 2, 2016) and 166,666 shares of common stock on the second anniversary date of the closing (February 2, 2017). The contingent cash and stock consideration is payable on the first and second anniversary dates of the closing provided that MK Capital generates a minimum amount of gross revenues as defined in the purchase agreement for the twelve months following the first and second anniversary dates of the closing. The acquisition of MK Capital allows the Company to expand into the wealth management business.

In connection with the issuance of common stock to the members of MK Capital, the Company entered into a registration rights agreement which allows the selling members of MK Capital to register their shares upon the Company filing a prospectus or registration statement at any time subsequent to the acquisition of MK Capital. The Company filed a registration statement with the Securities and Exchange Commission on May 22, 2015 that covers the resale of the common stock issued and potentially issuable in the acquisition of MK Capital, and such registration statement, as amended, was declared effective on July 2, 2015.

 The preliminary purchase price allocation was as follows:

Tangible assets acquired and assumed:
Cash and cash equivalents	$	49
Accounts receivable		8
Prepaid expenses and other assets		30
Property and equipment		15
Accounts payable and accrued liabilities		(87	)
Customer relationships		2,400
Goodwill		6,971
Total	$	9,386

The amount of revenue and earnings attributable to MK Capital in the Company’s condensed consolidated statement of operations during the three and nine months ended September 30, 2015 were as follows:

	Three Months Ended September 30, 2015		Period from February 2, 2015 through September 30, 2015
Revenues	$	479	$	1,285
Income before income taxes		107		226

The pro forma financial information for the three and nine months ended September 30, 2015 and 2014 as if the MK Capital acquisition had occurred on January 1, 2014 is in management’s opinion immaterial to the pro forma financial information amounts reported below.

2014 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

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, 2014. 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
	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014
Revenues	$	20,700		$	71,814
Net loss attributable to B. Riley Financial, Inc.	$	(881	)	$	(1,116	)
Basic loss per share	$	(0.06	)	$	(0.11	)
Diluted loss per share	$	(0.06	)	$	(0.11	)
Weighted average basic shares outstanding		15,911,482			10,069,572
Weighted average diluted shares outstanding		15,911,482			10,069,572