What changed in this filing

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Item 1. Business

2024-04-24 compared with 2023-03-16 · 78 added, 53 removed, 192 unchanged (41% of the section changed)

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RILY) (the “Company”) is a diversified financial services platform that delivers tailored solutions to meet the strategic, operational, and capital needs of its clients and partners.

We operate through several

consolidated subsidiaries (collectively, “B.

We operate through several consolidated subsidiaries (collectively, “B.

Riley”) that provide investment banking, brokerage, wealth management, asset management, direct lending, business advisory, valuation, and asset disposition services to a broad client base spanning public and private companies, financial sponsors, investors, financial institutions, legal and professional services firms, and individuals.

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Our platform is comprised of more than 2,700 affiliated professionals, including employees and independent contractors.

We are headquartered in Los Angeles, California and maintain offices throughout the U.S.

including in New York, Chicago, Metro District of Columbia, Atlanta, Boston, Dallas, Metro Detroit, Houston, Memphis, Miami, San Francisco, Boca Raton, and West Palm Beach.

Our major operating subsidiaries include B.

Riley Securities, Inc.

(“BRS”), a full-service middle market investment bank and institutional broker-dealer;

Riley Wealth Management, Inc.

(“BRWM”), a national boutique wealth management firm and retail broker-dealer;

Riley Advisory Services, Inc.

(“BR Advisory”), a specialty business advisory and valuation services firm;

Riley Retail Solutions, Inc.

(“BR Retail”), a retail liquidation and asset disposition firm.

We are headquartered in Los Angeles, California and maintain offices throughout the U.S., including in New York, Chicago, Metro District of Columbia, Atlanta, Boston, Dallas, Metro Detroit, Houston, Memphis, Miami, San Francisco, Boca Raton, and West Palm Beach, as well as additional offices located in Canada, Europe, Asia, and Australia.

Riley was founded in 1997 by our Co-Chief Executive Officers Bryant Riley and Tom Kelleher, incorporated in Delaware in 2009, and became publicly listed through its strategic combination with Great American Group, LLC in 2014.

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We report our activities in six reportable business segments:

Capital Markets, Wealth Management, Financial Consulting, Auction and Liquidation, Communications, and Consumer segment.

Capital Markets, Wealth Management, Financial Consulting, Auction and Liquidation, Communications, and Consumer Products segment.

The descriptions below illustrate the businesses that comprise our segments.

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We maintain an investment portfolio comprised of public and private equities and debt securities.

We also opportunistically provide loans to our clients.

We also opportunistically provide loans to our clients and other borrowers.

Our investment approach is value-oriented and represents a core competency of our capital markets strategy.

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We invest in late-stage private growth companies with a path towards public markets.

We participate in rounds by allocating between $1.0-10.0 million as part of a larger round (Series B, C, or D), with an investment horizon targeting 2-3x returns over two to three years.

We typically participate in rounds by allocating between $1.0-10.0 million as part of a larger round (Series B, C, or D), with an investment horizon over two to three years.

We are not a venture fund;

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Our services support highly complex, sensitive matters spanning antitrust, competition and class action lawsuits, commercial litigation and construction disputes, valuation disputes, fraud, and internal investigations.

We are often called on to assist government agencies such as the Securities and Exchange Commission (“SEC”), Department of Justice, and various state and municipalities to investigate allegations and provide expert analyses related to lost profits and financial damages, data analytics, and to provide expert witness testimony in court proceedings.

We are often called on to assist government agencies such as the Securities and Exchange Commission (“SEC”), Department of Justice, and

various state and municipalities to investigate allegations and provide expert analyses related to lost profits and financial damages, data analytics, and to provide expert witness testimony in court proceedings.

Valuation and Appraisal

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We may pursue future acquisitions to expand this portfolio of businesses which currently includes:

Lingo Management, LLC (“Lingo”), a global cloud/unified communications (“UC”) and managed service provider;

BullsEye Telecom (“BullsEye”), a single source communications and cloud technology provider;

Lingo Management, LLC (“Lingo Management”), a global cloud/unified communications (“UC”) and managed service provider that includes the operations of BullsEye Telecom (“BullsEye”) that was merged into Lingo Management in July 2023, a single source communications and cloud technology provider (collectively “Lingo”);

Marconi Wireless Holdings, LLC (“Marconi Wireless”), a mobile virtual network operator (“MVNO”) that provides mobile phone voice, text, and data services and devices;

magicJack VocalTec Ltd.

(“magicJack”), a VoIP cloud-based technology and communications provider that offers related devices and subscription services;

magicJack VoIP Services, LLC, (“magicJack”), a VoIP cloud-based technology and communications provider that offers related devices and subscription services;

and United Online, Inc.

(“UOL”), an Internet access provider that offers dial-up, mobile broadband and digital subscriber line (“DSL”) services under the NetZero and Juno brands.

Consumer Segment

Our Consumer segment consists of Targus (“Targus”) and our Brands (“Brands”) investment portfolio.

Targus is a multinational company that designs, manufactures, and sells consumer and enterprise productivity products with a large business-to-business (B2B) customer client base and global distribution in over 100 countries.

Consumer Products Segment

The Consumer Products segment is comprised of Targus, which is a multinational company that designs, manufactures, and sells consumer and enterprise productivity products with a large business-to-business (B2B) customer client base and global distribution in over 100 countries.

The Targus product line includes laptop and tablet cases, backpacks, universal docking stations, and computer accessories.

The Company acquired Targus on October 18, 2022.

Our brands portfolio is focused on generating revenue through the licensing of trademarks and our brand investments.

We hold majority ownership interest in BR Brands, which owns the assets and intellectual property related to licenses of six brands:

Catherine Malandrino, English Laundry, Joan Vass, Kensie Girl, Limited Too and Nanette Lepore.

Additionally, we maintain significant equity ownership in the Hurley and Justice brands with Bluestar Alliance, LLC.

Recent Developments

On October 18, 2022, we acquired all of the issued and outstanding shares of Targus in a transaction pursuant to a Securities Purchase Agreement (the “Purchase Agreement”).

The purchase price consideration totaled $247.5 million, which consisted of $112.7 million in cash, $54.0 million in seller financing, $59.0 million in 6.75% senior notes due 2024, $15.3 million in the issuance of the Company's common stock and stock options, and $6.5 million in deferred payments.

In accordance with Accounting Standards Codification (“ASC”) 805, we used the acquisition method of accounting for this acquisition.

Goodwill of $75.8 million and other intangible assets of $89.0 million were recorded as a result of the acquisition.

The acquisition offers the potential for accretive growth to our dividend capacity and complements our existing investments in our Consumer segment.

To finance part of the acquisition, on October 18, 2022, we entered into a credit agreement with PNC Bank, National Association (“PNC”), as agent and security trustee for a five-year $28.0 million term loan and a five-year $85.0 million revolver loan.

Great American Group Strategic Alternatives Review.

On February 29, 2024, we announced that we had retained Moelis & Company LLC as an independent financial advisor to assist in our review of strategic alternatives for our Appraisal and Valuation Services, and Retail, Wholesale & Industrial Solutions businesses (collectively formerly known as “Great American Group”), which could include a potential sale or other transaction.

If a potential transaction were to be consummated, we anticipate that proceeds may be used in a variety of ways including de-levering our balance sheet, repurchasing shares and bonds in the open market, and investing in the platform and in particular, B.

Riley Securities, Inc.

There can be no assurances that we will complete, or as to the terms of, any such potential transaction.

Audit Committee Review/Investigation .

As previously disclosed, after we learned from news reports in November 2023 that Brian Kahn, the then Chief Executive Officer of Freedom VCM Holdings, LLC (“Freedom VCM”) and the Franchise Group, Inc.

(“FRG”), was identified as an unindicted co-conspirator in SEC allegations and criminal charges of securities fraud against an executive of an unrelated hedge fund, the Audit Committee of the Board retained Sullivan & Cromwell LLP to conduct a thorough, internal review of the transactions among Mr.

Kahn (and his affiliates) and the Company (and its affiliates).

The review confirmed what we previously disclosed:

that the Company and its executives, including Bryant Riley, had no involvement with, or knowledge of, any of the alleged misconduct concerning Brian Kahn or any of his affiliates.

On February 22, 2024, our Board of Directors issued a statement regarding its review of the circumstances associated with our participation in the management-led buyout of FRG and related matters.

Subsequently, the Audit Committee engaged Winston & Strawn LLP as separate, independent counsel to assist the Audit Committee in conducting an investigation of these same matters and related allegations.

As separately disclosed by us on the date of this Annual Report, following receipt of the results of the independent investigation as assisted by Winston & Strawn LLP, the Board of Directors and the Audit Committee reconfirmed that the Company and its executives, including Bryant R.

Riley, Chairman and Co-Chief Executive Officer, had no involvement with, or knowledge of, any of the alleged misconduct concerning Brian Kahn or any of his affiliates.

FRG Take-Private and Related Transactions.

On August 21, 2023, we acquired an equity interest in Freedom VCM for $216.5 million in cash in connection with the closing of the acquisition of FRG, by a buyer group that included members of senior management of FRG, led by Brian Kahn, FRG’s then Chief Executive Officer (the “FRG take-private transaction”).

In connection with the closing of the FRG take-private transaction, we terminated an investment advisory agreement (the “Advisory Agreement”) with Mr.

Pursuant to the Advisory Agreement, Mr.

Kahn, as financial advisor, had the sole power to vote or dispose of $64.6 million of shares of FRG common stock (based on the value of FRG shares in the FRG take-private transaction as of the closing date of such transaction) held of record by BRS.

Upon the termination of the Advisory Agreement, (i) Mr.

Kahn’s right to vote or dispose of such FRG shares terminated, (ii) such FRG shares owned by BRS were rolled over into additional equity interests in Freedom VCM in connection with the FRG take-private transaction, and (iii) Mr.

Kahn owed a total of $20.9 million to us under the Advisory Agreement which amount was added to, and included in, the Amended and Restated Note (as defined below).

Simultaneously with the completion of the FRG take-private transaction, one of our subsidiaries and Vintage Capital Management, LLC (“VCM”), an affiliate of Mr.

Kahn, amended and restated a promissory note (the “Amended and Restated Note”), pursuant to which VCM owes our subsidiary the aggregate principal amount of $200.5 million and bears interest at the rate of 12% per annum payable-in-kind with a maturity date of December 31, 2027.

The Amended and Restated Note requires repayments prior to the maturity date from certain proceeds received by VCM, Mr.

Kahn or his affiliates from, among other proceeds, distributions or dividends paid by Freedom VCM in amount equal to the greater of (i) 80% of the net after-tax proceeds, and (ii) 50% of gross proceeds.

The obligations under the Amended and Restated Note are primarily secured by a first priority perfected security interest in Freedom VCM equity interests owned by Mr.

Kahn, the CEO and a board member of Freedom VCM as of December 31, 2023, and his spouse with a value (based on the transaction price in the FRG take-private transaction) of $227.3 million as of August 21, 2023.

On January 22, 2024, Mr.

Kahn resigned as CEO and a member of the board of directors of Freedom VCM.

The fair value of the Freedom VCM equity interest owned by Mr.

Kahn and his spouse was $232.1 million as of December 31, 2023.

Amounts owing under the Amended and Restated Note may be repaid at any time without penalty.

On a quarterly basis, the Company will continue to obtain third party appraisals to evaluate the value of the collateral of the loan since the repayment of the loan and accrued interest will be paid primarily from the cash distributions from Freedom VCM or foreclosure on the underlying collateral.

Deterioration in the collateral, including in the performance of Freedom VCM or delays in the execution of its strategies, including the possible disposition of additional businesses and further de-leveraging of its balance sheet, for the loan receivable may impact the ultimate collection of principal and interest.

In the event the loan balance and accrued interest exceed the underlying collateral value of the loan, this will impact the fair value of the loan and result in an unrealized loss being recorded in the consolidated statements of operations.

Following these transactions, we own an equity interest of $281.1 million or 31% of the outstanding equity interests in Freedom VCM.

Also in connection with the FRG take-private transaction, on August 21, 2023 all of the equity interests of B.

Riley Receivables II, LLC (“BRRII”), a majority-owned subsidiary of the Company, were sold to a Freedom VCM affiliate, which resulted in a loss of $0.1 million.

In connection with the sale, the Freedom VCM affiliate assumed the obligations with respect to the Pathlight Credit Agreement, as further discussed in Note 12 to our consolidated financial statements, and we entered into a non-recourse promissory note with another Freedom VCM affiliate in the amount of $58.9 million, with a stated interest rate of 19.74% and a maturity date of August 21, 2033 (the “Freedom Receivables Note”) with payments of principal and interest on the note limited solely to performance of certain receivables held by BRRII.

As of December 31, 2023, the loan balance was $42.2 million.

On December 18, 2023, we made a $108.0 million loan to Conn’s Inc.

(“Conn’s”) a specialty retailer of home goods, pursuant to a second-lien term loan and security agreement (the “Conn’s Term Loan”) in connection with the acquisition by Conn’s of W.S.

Badcock LLC (“Badcock”), a portfolio company of Freedom VCM.

The Conn’s Term Loan bears interest at an aggregate rate per annum equal to the Term SOFR Rate (as defined in the Conn’s Term Loan), subject to a 4.80% floor, plus a margin of 8.00% and matures on February 20, 2027.

The Conn’s Term Loan is secured by liens (subject, in the case of priority, to the liens under Conn’s revolving credit facility with JPMorgan Chase Bank, N.A., as Administrative Agent for the lenders party thereto) on substantially all of the assets of the Conn’s, the other borrowers party thereto and their subsidiaries, subject to customary exceptions.

This loan is reported as a related party loan receivable due to the Company’s related party relationship with Freedom VCM and Freedom VCM’s ability to exercise influence over Conn’s as a result of the equity consideration Freedom VCM received from the sale of Badcock to Conn’s on December 18, 2023.

Our Customers

We serve retail, corporate, capital providers and individual customers across our services lines.

We are primarily engaged for our financial services by corporate customers, including publicly held and privately owned companies,

financial institutions, institutional investors, lenders and other capital providers, and legal and other professional services firms.

We are primarily engaged for our financial services by corporate customers, including publicly held and privately owned companies, financial institutions, institutional investors, lenders and other capital providers, and legal and other professional services firms.

We maintain client relationships with companies and service providers to the consumer goods, industrials, energy, financial services, healthcare, real estate, and technology industries.

We provide fund and asset management services and products to institutional, high-net-worth and individual investors.

Our communications and consumer businesses primarily provide services and related consumer products to individual customers.

Our communications and consumer products businesses primarily provide services and related consumer products to individual customers.

We face intense competition across all our business lines.

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Also, we compete against established alternative voice communication providers, and may face competition from other large, well-capitalized Internet companies.

Our consumer and brand businesses compete with companies that own other brands and trademarks, and other consumer brands as these companies could enter into similar licensing arrangements with domestic and international retailers and wholesalers.

Our Targus and brand businesses compete with companies that own other brands and trademarks, and other consumer brands as these companies could enter into similar licensing arrangements with domestic and international retailers and wholesalers.

Existing and potential clients across our businesses can choose from a variety of qualified service providers and products.

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record-keeping and reporting procedures;

relationships with

customers, including the handling of cash and margin accounts;

relationships with customers, including the handling of cash and margin accounts;

the experience of and training requirements for certain employees;

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Failure to comply with these requirements may result in monetary, regulatory and, in the case of the USA Patriot Act, criminal penalties.

Our asset management subsidiaries, BRCM, BRAM, and BRWM, are SEC-registered investment advisers, and accordingly subject to regulation by the SEC.

Our asset management subsidiaries are SEC-registered investment advisers, and accordingly subject to regulation by the SEC.

Requirements under the Investment Advisors Act of 1940 include record-keeping, advertising and operating requirements, and prohibitions on fraudulent activities.

We are subject to federal and state consumer protection laws, including regulations prohibiting unfair and deceptive trade practices.

In addition, numerous states and municipalities regulate the conduct of auctions and the liability of auctioneers.

In addition, numerous states and municipalities regulate the conduct of auctions and the liability of

We and/or our auctioneers are licensed or bonded in the following states where we conduct, or have conducted, retail, wholesale or industrial asset auctions:

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Some of magicJack’s operations are also subject to regulation by state public utility commissions.

Our consumer businesses conduct operations in a number of countries and is subject to a variety of laws and regulations which vary from country to country.

Our Targus business conducts operations in a number of countries and is subject to a variety of laws and regulations which vary from country to country.

Such laws and regulations include, in addition to environmental regulations described below, tax, import/export and anti-corruption laws, varying accounting, auditing and financial reporting standards, import or export restrictions or licensing requirements, trade protection measures, custom duties, tariffs, import or export duties, and other trade barriers, restrictions and regulations.

Our consumer businesses and their respective contract manufacturers are subject to regulation under various federal, state, local, and foreign laws concerning the environment, including laws addressing governing the manufacturing use and distribution of materials and chemical substances in products, their safe use, and laws restricting the presence of certain substances in electronics products.

Our Targus business and its respective contract manufacturers are subject to regulation under various federal, state, local, and foreign laws concerning the environment, including laws addressing governing the manufacturing use and distribution of materials and chemical substances in products, their safe use, and laws restricting the presence of certain substances in electronics products.

We could incur costs, including fines and civil or criminal sanctions, and third-party damage or personal injury claims, if we or our contract manufacturers were to violate or become liable under environmental laws.

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Human Capital

As of December 31, 2022, we had 2,210 full time employees across our business and industry verticals, spanning, among others, investment professionals, investment bankers, brokers, advisors, and experts in forensic accounting, appraisal, and asset disposition.

As of December 31, 2023, we had 2,383 full time employees across our business and industry verticals, spanning, among others, investment professionals, investment bankers, brokers, advisors, and experts in appraisal, forensic accounting, restructuring and turnaround, and asset disposition.

Over the past year, we have welcomed colleagues through our acquisitions and attracted top talent to our platform.

We graduated our largest intern class to date in 2022, including several who converted into full time roles.

We graduated another large intern class in 2023, including several who converted into full time roles.

The dedication and support of our internal Finance and Accounting, Human Resources, Operations, Technology, Marketing and Communication, and Legal and Compliance teams continue to be paramount to both B.

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We operate in a highly collaborative, competitive, and fast-paced environment with an entrepreneurial culture that empowers our professionals to grow their own way and to succeed through mentorship opportunities.

We strive to attract quality talent with the expertise to lead in their respective fields, innovative and independent thinkers who can collaborate on creative ways to better serve our clients and customers, and individuals with the agility to thrive in a fast-paced environment.

the agility to thrive in a fast-paced environment.

We believe access to leadership is a critical part of mentoring our associates and the future leaders of our profession across all practices and sectors.

In 2019, we launched our Ambassador program to facilitate increased intra and inter-organizational relationships and to identify and support emerging leaders across our organization.

Each of our major functional groups selects rising stars within their respective divisions who represent highly motivated individuals who demonstrate their interest to grow with the firm by participating in collaborative knowledge sharing across our divisions and promoting firmwide internal learning and development initiatives across B.

We foster our culture and purpose across our affiliated companies with firmwide initiatives, including our Ambassador Program.

Five years ago, we launched our Ambassador Program to facilitate increased intra- and inter-organizational relationships and to identify and support emerging leaders across our organization.

Every two years, each of our major functional groups selects rising stars within their respective divisions.

These are highly motivated individuals who have demonstrated their interest to grow with the firm by participating in collaborative knowledge sharing across our divisions and serve to promote firmwide internal learning and development initiatives across B.

The Ambassador Program is just one example of initiatives developed to foster our culture and purpose across our affiliated companies.

We strive to expand our efforts in attracting talent from diverse cultural backgrounds to support the expansion of racial and gender diversity, equity, and inclusion within the industries in which we operate.

We participate in targeted job fairs and events to seek out diverse talent recruits.

We participate in targeted job fairs and events to seek out underrepresented talent.

We partner with a nonprofit foundation whose mission is to develop industry education programs that support developing diverse leaders as they prepare to embark upon their careers.

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Our benefits program includes healthcare, wellness initiatives, retirement offerings, paid time off, and flexible leave arrangements.

We also offer all employees access to our employee assistance program, physical health and mental wellness programs, and when possible, support flexible employment arrangements, such as remote work that empower individuals to pursue a work/life balance model that provides personal flexibility while supporting high level of productivity and client service.

Workplace health and safety is a vital to the successful operation of our business.

We also offer all employees access to our employee assistance program, physical health and mental wellness programs and whenever possible, support flexible employment arrangements, such as remote work, that provide personal flexibility without sacrificing productivity and client service.

Workplace health and safety is vital to the successful operation of our business.

The safety and protection of our employees, visitors, and event attendees is our utmost priority and an integral part of any function or service we provide.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business