Exhibit 99.1

PART I

This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “may,” “will,” “should,” “could,” “future,” “likely,” “predict,” “project,” “potential,” “continue,” “estimate” and similar expressions are generally intended to identify forward-looking statements, but are not exclusive means of identifying forward-looking statements in this Annual Report. You should not place undue reliance on such forward-looking statements, which are based on the information currently available to us and speak only as of the date on which this Annual Report was filed with the Securities and Exchange Commission (the “SEC”). Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events or developments to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed in “Part I—Item 1A. Risk Factors” contained in this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Except as otherwise required by the context, references in this Annual Report to “the Company,” “B. Riley,” “B. Riley Financial,” “we,” “us” or “our” refer to the combined business of B. Riley Financial, Inc. and all of its subsidiaries.

Item 1. BUSINESS

General

B. Riley Financial, Inc. (NASDAQ: RILY) and its subsidiaries provide collaborative financial services and solutions through several operating subsidiaries including:

We are headquartered in Los Angeles with offices in major cities throughout the United States including New York, Chicago, Boston, Dallas, Memphis, Metro Washington D.C and West Palm Beach.

During the fourth quarter of 2020, the Company realigned its segment reporting structure to reflect organizational management changes. Under the new structure, the valuation and appraisal businesses are reported in the Financial Consulting segment and our bankruptcy, financial advisory, forensic accounting, and real estate consulting businesses that were previously reported in the Capital Markets segment are now reported as a part of the Financial Consulting segment. In conjunction with the new reporting structure, the Company recast its segment presentation for all periods presented.

On February 25, 2021, the Company completed the acquisition of National Holdings Corporation (“National”), pursuant to an agreement and plan of merger dated January 10, 2021, following the successful completion of a tender offer commenced by us on January 27, 2021. National is a full-service investment banking and asset management firm that, through its affiliates, provides a range of services including financial advisory, investment banking, institutional sales and trading, equity research, financial planning, market making, tax preparation and insurance to corporations, institutions, high net-worth individuals and retail investors. We previously owned approximately 45% of the common stock of National. National complements our Capital Markets and Wealth Management segments, bringing approximately 900 registered representatives managing over $30 billion in assets.

As a result of the National acquisition, the Company further realigned its segment reporting structure in the first quarter of 2021 to reflect organizational management changes for its wealth management business. Under the new structure, the wealth management business previously reported in the Capital Markets segment are now reported in the Wealth Management segment. In conjunction with the new reporting structure, the Company recast its segment presentation for all periods presented.

For financial reporting purposes we classify our businesses into six operating segments: (i) Capital Markets, (ii) Wealth Management, (iii) Auction and Liquidation, (iv) Financial Consulting, (v) Principal Investments – United Online and magicJack, and (vi) Brands.

Capital Markets Segment. Our Capital Markets segment provides a full array of investment banking, corporate finance, consulting, financial advisory, research, securities lending, asset management and sales and trading services to corporate, institutional and individual clients. Our corporate finance and investment banking services include merger and acquisitions as well as restructuring advisory services to public and private companies, initial and secondary public offerings, and institutional private placements. In addition, we trade equity securities as a principal for our account, including investments in funds managed by our subsidiaries. Our Capital Markets segment also includes our asset management businesses that manage various private and public funds for institutional and individual investors.

Wealth Management Segment. Our Wealth Management segment provides wealth management and tax services to corporate, and high net worth clients. We offer comprehensive wealth management services for corporate businesses that include investment strategies, executive services, retirement plans, lending & liquidity resources, and settlement solutions. Our wealth management services for individual client services provide investment management, education planning, retirement planning, risk management, trust coordination, lending & liquidity solutions, legacy planning, and wealth transfer. In addition, we supply market insights to provide unbiased guidance to make important financial decisions. Wealth management resources include market views from our highly regarded Chief Investment Strategist and Capital Markets segment’s research.

Auction and Liquidation Segment. Our Auction and Liquidation segment utilizes our significant industry experience, a scalable network of independent contractors and industry-specific advisors to tailor our services to the specific needs of a multitude of clients, logistical challenges and distressed circumstances. Furthermore, our scale and pool of resources allow us to offer our services across North American as well as parts of Europe, Asia and Australia. Our Auction and Liquidation segment operates through two main divisions, retail store liquidations and wholesale and industrial assets dispositions. Our wholesale and industrial assets dispositions division operates through limited liability companies that are controlled by us.

Financial Consulting Segment. Our Financial Consulting segment provides services to law firms, corporations, financial institutions, lenders, and private equity firms. These services primarily include bankruptcy, financial advisory, forensic accounting, litigation support, real estate consulting and valuation and appraisal services. Our Financial Consulting segment operates through limited liability companies that are wholly owned or majority owned by us.

Principal Investments - United Online and magicJack Segment. Our Principal Investments - United Online and magicJack segment consists of businesses which have been acquired primarily for attractive investment return characteristics. Currently, this segment includes UOL, through which we provide consumer Internet access, and magicJack, through which we provide VoIP communication and related product and subscription services.

Brands Segment. Our Brands segment consists of our brand investment portfolio that is focused on generating revenue through the licensing of trademarks and is held by BR Brand.

Recent Developments

On March 1, 2021, the Company announced its intention to redeem at par, and at its option, $128.2 million of senior notes due in February 2027 (“7.50% 2027 Notes”) on March 31, 2021 pursuant to the second supplemental indenture dated May 31, 2017. The total redemption payment will include approximately $1.6 million in accrued interest.

On January 25, 2021, the Company issued $230,000 of senior notes due in January 2028 (“6.0% 2028 Notes”) pursuant to the prospectus supplement dated February 12, 2020. Interest on the 6.0% 2028 Notes is payable quarterly at 6.0%. The 6.0% 2028 Notes are unsecured and due and payable in full on January 31, 2028. In connection with the issuance of the 6.0% 2028 Notes, the Company received net proceeds of $225,746 (after underwriting commissions, fees and other issuance costs of $4,254).

On January 23, 2021, the Company committed up to $400,000,000 aggregate principal amount of unsecured debt financing, consisting of $100,000 of secured debt financing, and $300,000,000 of unsecured debt financing, to affiliates of Franchise Group, Inc. (collectively, “FRG”) in connection with FRG’s acquisition of Pet Supplies Plus.

On January 15, 2021, the Company issued 1,413,045 shares of common stock inclusive of 184,310 shares issued pursuant to the full exercise of the Underwriter’s option to purchase additional shares of common stock at a price of $46.00 per share for net proceeds of approximately $61,370 after underwriting fees and costs.

On November 30, 2020 we closed a recapitalization transaction with Lingo Management, LLC (“Lingo”), a global cloud/UC and managed service provider. Pursuant to the recapitalization, B. Riley purchased Lingo’s existing indebtedness held by affiliates of Garrison Investment Group and converted a portion of such indebtedness into a 40% equity interest in Lingo with the ability to acquire an additional 40% equity interest in consideration for the conversion of an additional portion of such indebtedness.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”).  In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.  Coming into 2021, the full impact of the COVID-19 outbreak continues to evolve, as countries across the world manage repeated waves of the pandemic and vaccines come to market.  The impact of the COVID-19 outbreak on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions and the success of vaccines in slowing or halting the pandemic.  These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted, our results of operations, financial position and cash flows may be materially adversely affected.

B. Riley Securities

Investment Banking and Corporate Finance

B. Riley Securities’ investment banking professionals provide equity and debt capital raising, merger and acquisition, financial advisory and restructuring advisory services to both private and publicly traded companies. Those services include follow-on public offerings, debt and equity private placements, debt refinancing, corporate debt and equity security repurchases, and buy-side and sell-side representation, divestitures/carveouts, leveraged buyouts, management buyouts, strategic alternatives reviews, fairness opinions, valuations, return-of-capital advisory, hostile/activist advisory, and options trading programs.

Sales, Trading and Corporate Services

Our sales and trading professionals distribute B. Riley proprietary research products to our institutional investor clients and high net worth individuals. B. Riley Securities sales and trading also sells the securities of companies in which B. Riley Securities acts as an underwriter and executes equity trades on behalf of clients. We maintain active trading relationships with substantially all major institutional money managers. Our equity and fixed income traders make markets in over 1,000 securities. B. Riley Securities also conducts securities lending activities which involves the borrowing and lending of equity and fixed income securities. Our corporate services include retail orders, block trades, Rule 144 transactions, cashless exercise of options, and corporate equity repurchase programs.

Equity Research

Our equity research is focused on fundamentals-based research. Our research focuses on an in-depth analysis of earnings, cash flow trends, balance sheet strength, industry outlook, and strength of management that involves extensive meetings with key management, competitors, channel partners and customers. We provide research on all sizes of firms; however, our research primarily focuses on small and mid-cap stocks that are under-followed by Wall Street. Our analysts regularly communicate their findings through Research Updates and daily Morning Notes.

Our research department includes research analysts maintaining coverage on a variety of companies in a variety of industry sectors. Our research department annually organizes non-deal road shows for issuers in our targeted industries.

Proprietary Trading

We engage in trading activities for strategic investment purposes (i.e. proprietary trading) utilizing the firm’s capital. Proprietary trading activities include investments in public and private stock and debt securities.

B. Riley Securities is reported in our Capital Markets segment for financial reporting purposes.

B. Riley Capital Management

We provide investment management services under our subsidiary, B. Riley Capital Management, LLC. The registered investment advisor manages private investment funds, including a fund of funds. All of the funds managed typically invest in both public and private equity and debt. Investors in the various funds include institutional, high net worth, and individual investors. GACP is the general partner of GACP I, L.P. and GACP II, L.P., direct lending funds managed by WhiteHawk Capital Partners, L.P. pursuant to an investment advisory services agreement, that provide senior secured loans and second lien secured loan facilities to middle market public and private U.S. companies.

B. Riley Capital Management is reported in our Capital Markets segment for financial reporting purposes.

B. Riley Wealth Management

Wealth Management

B. Riley Wealth Management provides comprehensive wealth management and brokerage services to individuals and families, corporations and non-profit organizations, including qualified retirement plans, trusts, foundations and endowments. Our financial advisors provide a broad range of investments and services to our clients, including financial planning services. Wunderlich Securities, Inc. (“Wunderlich”) was established in 1996 and headquartered in Memphis, Tennessee. Wunderlich became a wholly-owned subsidiary of B. Riley Financial, Inc., in July 2017 and its operations are included in our Wealth Management segment. In June 2018, Wunderlich changed its name to B. Riley Wealth Management, Inc.

B. Riley Advisory Services

Financial Advisory Services

B. Riley Advisory Services provides consulting services to shareholders, creditors and companies which includes expert witness, bankruptcy, due diligence, financial advisory, forensic accounting, litigation support, and crisis management. These services are primarily composed of the former Glass Ratner business.

The financial advisory services business of B. Riley Advisory Services compliments the restructuring services provided by B. Riley Securities.

The financial advisory services business of B. Riley Advisory Services is reported in our Financial Consulting segment for financial reporting purposes.

Valuation and Appraisal

Our appraisal teams provide independent appraisals to financial institutions, lenders, private equity firms and other providers of capital for estimated liquidation values of assets. These teams include experts specializing in particular industry niches and asset classes. We provide valuation and appraisal services across five general categories:

Consumer and Retail Inventory. Representative types of appraisals and valuations include inventory of specialty apparel retailers, department stores, jewelry retailers, sporting goods retailers, mass and discount merchants, home furnishing retailers and footwear retailers.

Wholesale and Industrial Inventory. Representative types of appraisals and valuations include inventory held by manufacturers or distributors of automotive parts, chemicals, food and beverage products, wine and spirits, building and construction products, industrial products, metals, paper and packaging.

Machinery and Equipment. Representative types of asset appraisals and valuations include a broad range of equipment utilized in manufacturing, construction, transportation and healthcare.

Intangible Assets. Representative types of asset appraisals and valuations include intellectual property, goodwill, brands, logos, trademarks and customer lists.

We provide valuation and appraisal services on a pre-negotiated flat fee basis.

The valuation and appraisal services business of B. Riley Advisory Services described above is reported in our Financial Consulting segment for financial reporting purposes.

Operations Management Services

Our Operations Management Services teams work with companies to fix troubled operations by improving their profitability, cash flow and enterprise value. Focus areas include due diligence, acquisitions, executive management, launch coordination, lean six sigma design and implementation, purchasing and inventory management, and quality systems. These services are reported in our Financial Consulting segment for financial reporting purposes.

B. Riley Retail Solutions (fka Great American Group)

Retail Store Liquidations and Wholesale and Industrial Liquidations

We enable our clients to quickly and efficiently dispose of under-performing assets and generate cash from excess inventory by conducting or assisting in retail store closings, going out of business sales, bankruptcy sales and fixture sales. Financial institution and other capital providers rely on us to maximize recovery rates in distressed asset sales and in retail bankruptcy situations. Additionally, healthy, mature retailers utilize our proven inventory management and strategic disposition solutions, relying on our extensive network of retail professionals, to close unproductive stores and dispose of surplus inventory and fixtures as existing stores are updated. 

We often conduct large retail liquidations that entail significant capital requirements through collaborative arrangements with other liquidators. By entering into an agreement with one or more collaborators, we are able to bid on larger engagements that we could not conduct on our own due to the significant capital outlay involved, number of independent contractors required or financial risk associated with the particular engagement. We act as the lead partner in many of the collaborative arrangements that we enter into, meaning that we have primary responsibility for the due diligence, contract negotiation and execution of the engagement.

We design and implement customized disposition programs for our clients seeking to convert excess wholesale and industrial inventory and operational assets into capital. We dispose of a wide array of assets including, among others, equipment related to transportation, heavy mobile construction, energy exploration and services, metal fabrication, food processing, semiconductor fabrication, and distribution services. We manage projects of all sizes and scopes across a variety of asset categories. We believe that our databases of information regarding potential buyers that we have collected from past transactions and engagements, our nationwide name recognition and experience with alternative distribution channels allow us to provide superior wholesale and industrial disposition services.

B. Riley Retail Solutions provides the foregoing services to clients on a guarantee, fee or outright purchase basis.

Guarantee. When providing services on a guarantee basis, we guarantee the client a specific recovery often expressed as a percentage of retail inventory value or wholesale inventory cost or, in the case of machinery or equipment, a set dollar amount. This guarantee is often required to be supported by a letter of credit, a cash deposit or a combination thereof. Cash deposits are typically funded in part with available cash together with short term borrowings under our credit facilities. Often when we provide auction or liquidation services on a guarantee basis, we do so through a collaborative arrangement with other service providers. In this situation, each collaborator agrees to provide a certain percentage of the guaranteed amount to the client through a combination of letters of credit, cash and financing. If we are engaged individually, we receive 100% of the net profit, less debt financing fees, sale related expenses (if any) and any share of the profits due to the client as a result of any profit sharing arrangement entered into based on a pre-negotiated formula. If the engagement was conducted through a collaborative arrangement, the profits or losses are divided among us and our partner or partners as set forth in the agreement governing the collaborative arrangement. If the net sales proceeds after expenses are less than the guarantee, we, together with our partners if the engagement was conducted through a collaborative arrangement, are responsible for the shortfall and will recognize a loss on the engagement.

Fee. When we provide services on a fee basis, clients pay a pre-negotiated flat fee for the services provided, a percentage of asset sales generated or a combination of both.

Outright Purchase. When providing services on an outright purchase basis, we purchase the assets from the client and typically sell them at auction, orderly liquidation, through a third-party broker or, less frequently, as augmented inventory in conjunction with another liquidation that we are conducting. In an outright purchase, we take, together with any collaboration partners, title to the assets and absorb the profit or loss associated with the asset disposition.

The retail store liquidations and wholesale and industrial asset dispositions business of B. Riley Retail Solutions described above is reported in our Auction and Liquidation segment for financial reporting purposes.

B. Riley Real Estate

We work with real estate owners and tenants through all stages of the real estate life cycle. Our real estate advisors advise companies, financial institutions, investors, family offices and individuals on real estate projects worldwide.

Acquisitions and Sales

We engage in a variety of acquisition strategies, including purchasing real estate and mortgages. We provide equity and "rescue" capital and participate in joint ventures.

Auctions

As bankruptcy auction professionals, we represent debtors in lease restructuring and renegotiations and the sale of real property.

Financial Advisory Services

We represent stakeholders in out-of-court restructurings, loan sales, lease renegotiation and restructuring, strategic investing and managing difficult refinancing transactions.

Liquidations and Loan Sales

We execute real estate liquidations and loan sale transactions in various market segments on both the “buy” side and the “sell” side.

Principal Investments and Financing

We maintain strategic relationships with institutional investors and high net worth clients that are seeking real estate investments that are opportunistic, value-added and traditional. Our strategic partners look to us to identify, underwrite, structure and close these principal investment transactions.

B. Riley Real Estate services described above is reported in our Financial Consulting segment for financial reporting purposes.

B. Riley Principal Investments

Principal Investments

B. Riley Principal Investments identifies attractive investment opportunities and aims to deliver financial and operational improvement to its portfolio companies. Our team concentrates on opportunities presented by distressed companies or divisions that exhibit challenging market dynamics. Representative transactions include recapitalization, direct equity investment, debt investment, active minority investment and buyouts. B. Riley Principal Investments seeks to control or influence the operations of our investments to deliver financial and operational improvements that will maximize free cash flow, and therefore, shareholder returns.

Venture Capital

B. Riley Venture Capital invests in late-stage private growth companies with a path towards public markets. We are not a venture fund; rather, investments are made off-balance sheet and syndicated across our institutional, banking and retail client base.

United Online and magicJack

We acquired UOL on July 1, 2016 and magicJack on November 14, 2018 as part of our principal investment strategy. UOL’s primary pay service is Internet access, offered under the NetZero and Juno brands. Internet access includes dial-up service, mobile broadband and DSL. magicJack is a VoIP cloud-based technology and services communications provider and the inventor of the magicJack devices.

Internet Access

Our Internet access services consist of dial-up, mobile broadband and, to a much lesser extent, DSL services. Our dial-up Internet access services are provided on both a free and pay basis, with the free services subject to hourly and other limitations. Basic pay dial-up Internet access services include accelerated dial-up Internet access and an email account. Our Internet access services are also bundled with additional benefits, including antivirus software and enhanced email storage, although we also offer each of these features and certain other value-added features as stand-alone pay services. We offer mobile broadband devices for sale in connection with our mobile broadband services. We also generate revenues from the resale of telecommunications to third parties. Over the past several years revenues from paid subscription services have declined year over year as a result of a decline in the number of paid subscribers for our services.  Management believes the decline in paid subscriber accounts is primarily attributable to the industry trends of consumers switching from dial-up Internet access to high speed Internet access such as cable and DSL.  Management expects revenues in the Principal Investments - United Online and magicJack segment to continue to decline year over year.

magicJack Devices

The magicJack is a VoIP device weighing about one ounce which includes an initial access right period. Customers receive free VoIP phone service for their home, enterprise or while traveling. The initial access right period for the different versions ranges from three to twelve months. The current device available for purchase is the magicJack GO, which includes a twelve month access right period. magicJack devices are sold either directly to customers through our website or through retailers.

Mobile apps

The Company also offers magicJack mobile apps, which are applications that allow users to make and receive telephone calls through their smart phones or devices. The mobile apps allow customers to place and receive telephone calls in the U.S. or Canada on their mobile devices through either an existing or new magicJack account. The mobile apps also give users the ability to add a second phone number to their smart phone for a monthly or annual fee. Customers may purchase international minutes to place telephone calls through the magicJack device or mobile apps to locations outside of the U.S. and Canada.

Access Right Renewals

Customers who own a magicJack device or mobile app may renew access rights for periods ranging from one month to five years.

Other magicJack-Related Products

The Company offers customers other optional products related to their magicJack devices and services, such as custom or vanity phone numbers, Canadian phone numbers and the ability to either change their existing phone numbers or port them to a magicJack device.

Prepaid Minutes

The Company’s customers can purchase international minutes on a prepaid basis.

Access and Wholesale Charges

The Company generates revenues from access fees charged to other carriers, as well as wholesaling telephone service to VoIP providers and telecommunication carriers.

UCaaS Services and Equipment

The Company provided hosted communication services and sold hardware and network equipment that are compatible with the service, through its subsidiary, Broadsmart, which was sold during 2019.

Advertising and other revenue

Advertising and other revenues are primarily derived from various advertising, marketing and media-related initiatives. The majority of our advertising and other revenues include advertising revenues from search placements, display advertisements and online market research associated with our Internet access and email services.

Brands

Our brand investment portfolio focuses on generating revenue through the licensing of trademarks. The Company holds a 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 as well as investments in the Hurley and Justice brands with Bluestar. The Company intends to grow licensing revenue from the brand holdings in partnership with Bluestar by leveraging its extensive relationships and strategic partnerships in the retail sector. The Company intends to pursue future acquisitions of consumer brands, intellectual property, trademarks and licenses, and participate in select transactions as an equity owner.

Customers

We serve retail, corporate, capital provider and individual customers across our services lines. The services provided to these customers were under short-term liquidation contracts that generally do not exceed a period of six months. There were no recurring revenues from year-to-year in connection with the services we performed under these contracts.

B. Riley Securities

We are engaged by corporate customers, including publicly held and privately owned companies, to provide investment banking, corporate finance, restructuring advisory, research and sales and trading services. We also provide corporate finance, research, wealth management, and sales and trading services to high net worth individuals. We maintain client relationships with companies in the consumer goods, industrials, energy, financial services, healthcare, real estate, strategy, and technology industries.

B. Riley Capital Management

Investors in the various funds of B. Riley Capital Management include institutional, high net worth, and individual investors.

B. Riley Wealth Management

We provide financial wealth management services as advisors, consultants, managers, and representatives to our clients. Wealth management clients can be individuals, families, small businesses, non-profit organizations, and qualified retirement plans. Our investment services are primarily comprised of asset management services to meet the financial plans, goals and needs of our clients. We service our clients through a network of 18 branch offices located in 12 states primarily located in the Mid-west and Southern region of the United States.

B. Riley Advisory Services

We provide specialty financial advisory services to companies, shareholders, creditors and investors on complex business problems and critical board level agenda items including transaction advisory and due diligence, fraud investigations, corporate litigation, business valuations, crisis management and bankruptcy. We provide bankruptcy and restructuring services, forensic accounting and litigation support, valuation services, and real estate consulting. Additionally, we are engaged by financial institutions, lenders, private equity firms and other capital providers, as well as professional service providers, to provide valuation and appraisal services. We have extensive experience in the appraisal and valuation of retail and consumer inventories, wholesale and industrial inventories, machinery and equipment, intellectual property and real estate.

B. Riley Retail Solutions

Our retail Auction and Liquidation clients include financially healthy retailers as well as distressed retailers, bankruptcy professionals, financial institution workout groups and a wide range of professional service providers. Some retail segments in which we specialize include apparel, arts and crafts, department stores, discount stores, drug / health and beauty, electronics, footwear, grocery stores, hardware / home improvement, home goods and linens, jewelry, office / party supplies, specialty stores, and sporting goods. We also provide wholesale and industrial auction services and customized disposition programs to a wide range of clients.

B. Riley Real Estate

Our Real Estate clients include real property owners and tenants in a wide variety of sectors and include both healthy and distressed businesses.

B. Riley Principal Investments

B. Riley Principal Investments serves businesses seeking capital investment, including debt or equity financing.

United Online

Our Internet access services are available to customers, which are primarily comprised of individuals, in more than 12,000 cities across the U.S. and Canada. Generally, our Internet access customers also subscribe to value-added features that include antivirus software and enhanced email storage. Our advertising customers primarily include business customers that market products and services over the Internet.

magicJack

magicJack provides complete phone service for home, enterprise and while traveling for retailers, wholesalers or directly to customer over the period associated with the access right period. The Company provides customers with an ability to make and receive telephone calls through their smart phones, add a second phone number to their smart phone and purchase prepaid minutes to place telephone calls through the magicJack device or mobile apps to locations outside of the U.S. and Canada.

Brands

Our brand investment portfolio focuses on generating revenue through the licensing of trademarks. The Company holds a majority ownership interest in BR Brand, 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 as well as an investment in the Hurley Brand with Bluestar Alliance LLC (“Bluestar”). The Company intends to grow licensing revenue from the brand holdings in partnership with Bluestar by leveraging its extensive relationships and strategic partnerships in the retail sector. The Company intends to pursue future acquisitions of consumer brands, intellectual property, trademarks and licenses, and participate in select transactions as an equity owner.

Competition

B. Riley Securities, B. Riley Capital Management, B. Riley Wealth Management and B. Riley Advisory Services

We face intense competition for our Capital Markets and Wealth Management services. Since the mid-1990s, there has been substantial consolidation among U.S. and global financial institutions. In particular, a number of large commercial banks, insurance companies and other diversified financial services firms have merged with other financial institutions or have established or acquired broker-dealers. During 2008, the failure or near-collapse of a number of very large financial institutions led to the acquisition of several of the most sizeable U.S. investment banking firms, consolidating the financial industry to an even greater extent. Currently, our competitors are other investment banks, bank holding companies, brokerage firms, merchant banks and financial advisory firms. Our focus on our target industries also subjects us to direct competition from a number of specialty securities firms and smaller investment banking boutiques that specialize in providing services to these industries. 

The industry trend toward consolidation has significantly increased the capital base and geographic reach of many of our competitors. Our larger and better-capitalized competitors may be better able than we are to respond to changes in the investment banking industry, to recruit and retain skilled professionals, to finance acquisitions, to fund internal growth and to compete for market share generally. Many of these firms have the ability to offer a wider range of products than we do, including loans, deposit-taking and insurance, in addition to brokerage, asset management and investment banking services, all of which may enhance their competitive position relative to us. These firms also have the ability to support investment banking and securities products with commercial banking, insurance and other financial services revenues in an effort to gain market share, which could result in downward pricing pressure in our businesses. In particular, the trend in the equity underwriting business toward multiple book runners and co-managers has increased the competitive pressure in the investment banking industry and has placed downward pressure on average transaction fees. 

As we seek to expand our asset management business, we face competition in the pursuit of investors for our investment funds, in the identification and completion of investments in attractive portfolio companies or securities, and in the recruitment and retention of skilled asset management professionals.

Other Business Lines

We also face intense competition in our other service areas. While some competitors are unique to specific service offerings, some competitors cross multiple service offerings. A number of companies provide services or products to the Retail Solutions and real estate markets, and existing and potential clients can, or will be able to, choose from a variety of qualified service providers. Some of our competitors may even be able to offer discounts or other preferred pricing arrangements. In a cost-sensitive environment, such arrangements may prevent us from acquiring new clients or new engagements with existing clients. Some of our competitors may be able to negotiate secure alliances with clients and affiliates on more favorable terms, devote greater resources to marketing and promotional campaigns or to the development of technology systems than us. In addition, new technologies and the expansion of existing technologies with respect to the online auction business may increase the competitive pressures on us. We must also compete for the services of skilled professionals. There can be no assurance that we will be able to compete successfully against current or future competitors, and competitive pressures we face could harm our business, operating results and financial condition.  

We face competition for our retail services from traditional liquidators as well as Internet-based liquidators such as overstock.com and eBay. Our wholesale and industrial services competitors include traditional auctioneers and fixed site auction houses that may specialize in particular industries or geographic regions as well as other large, prestigious or well-recognized auctioneers. We also face competition and pricing pressure from the internal remarketing groups of our clients and potential clients and from companies that may choose to liquidate or auction assets and/or excess inventory without assistance from service providers like us. We face competition for our Retail Solutions businesses from large accounting, consulting and other professional service firms as well as other valuation, financial consulting and advisory firms. We face competition for our Real Estate Services from large real estate brokerage and advisory firms.

United Online

The U.S. market for Internet and broadband services is highly competitive. We compete with numerous providers of broadband services, as well as other dial-up Internet access providers. Our principal competitors for broadband services include, among others, local exchange carriers, wireless and satellite service providers, cable service providers, and broadband resellers. These competitors include established providers such as AT&T, Verizon, Sprint and T-Mobile. Our principal dial-up Internet access competitors include established online service and content providers, such as AOL and MSN, and independent national Internet service providers, such as EarthLink. We believe the primary competitive factors in the Internet access industry are speed, price, coverage area, ease of use, scope of services, quality of service, and features. Our dial-up Internet access services do not compete favorably with broadband services with respect to certain of these factors, including, but not limited to, speed.

magicJack

The principal competitors for our products and services include the traditional telephone service providers, such as AT&T, Inc., CenturyLink, Inc. and Verizon Communications Inc., which provide telephone service using the public switched telephone network. Certain of these traditional providers have also added, or are planning to add, broadband telephone services to their existing telephone and broadband offerings. We also face, or expect to face, competition from cable companies, such as Cablevision Systems Corp., Charter Communications, Inc., Comcast Corporation, Cox Communications, Inc. and Time Warner Cable (a division of Time Warner Inc.), which offer broadband telephone services to their existing cable television and broadband offerings. Further, wireless providers, including AT&T Mobility, Inc., Sprint Corporation, T-Mobile USA Inc., and Verizon Wireless, Inc. offer services that some customers may prefer over wireline-based service. In the future, as wireless companies offer more minutes at lower prices, their services may become more attractive to customers as a replacement for broadband or wireline-based phone service.

We face competition on magicJack device sales from Apple, Samsung, Motorola and other manufacturers of smart phones, tablets and other handheld wireless devices. Also, we compete against established alternative voice communication providers, such as Vonage, Google Voice, Ooma, and Skype, which is another non-interconnected voice provider, and may face competition from other large, well-capitalized Internet companies. In addition, we compete with independent broadband telephone service providers.

Brands

Our brand investment portfolio competes with companies that own other brands and trademarks, as these companies could enter into similar licensing arrangements with retailers and wholesalers in the United States and internationally. These arrangements could be with our existing retail and wholesale partners, thereby competing with us for consumer attention and limited floor or rack space in the same stores in which our branded products are sold and vying with us for the time and resources of the retailers and wholesale licensees that manufacture and distribute our products. These companies may be able to respond more quickly to changes in retailer, wholesaler and consumer preferences and devote greater resources to brand acquisition, development and marketing. We may not be able to compete effectively against these companies.

Regulation

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. 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: California, Florida, Georgia, Illinois, Massachusetts, Ohio, South Carolina, Texas, Virginia and Washington. In addition, we are licensed or obtain permits in cities and/or counties where we conduct auctions, as required. If we conduct an auction in a state where we are not licensed or where reciprocity laws do not exist, we will work with an auctioneer of record in such state. We and/or our real estate professionals are licensed in Illinois, California, Florida and Georgia. When we conduct real estate activities that require licensure in a state where we are not licensed or where reciprocity laws do not exist, we will work with a broker of record in such state.

As a participant in the financial services industry, we are subject to complex and extensive regulation of most aspects of our business by U.S. federal and state regulatory agencies, self-regulatory organizations and securities exchanges. The laws, rules and regulations comprising the regulatory framework are constantly changing, as are the interpretation and enforcement of existing laws, rules and regulations. The effect of any such changes cannot be predicted and may direct the manner of our operations and affect our profitability.

B. Riley Securities and B. Riley Wealth Management, our broker-dealer subsidiaries, are subject to regulations governing every aspect of the securities business, including the execution of securities transactions; capital requirements; record-keeping and reporting procedures; relationships with customers, including the handling of cash and margin accounts; the experience of and training requirements for certain employees; and business interactions with firms that are not members of regulatory bodies.

B. Riley Securities and B. Riley Wealth Management are registered as securities broker-dealers with the SEC and are members of FINRA. FINRA is a self-regulatory body composed of members such as our broker-dealer subsidiaries that have agreed to abide by the rules and regulations of FINRA. FINRA may expel, fine and otherwise discipline member firms and their employees. B. Riley Securities and B. Riley Wealth Management are licensed as broker-dealers in all 50 states in the U.S., requiring us to comply with the laws, rules and regulations of each such state. Each state may revoke the license to conduct securities business, fine and otherwise discipline broker-dealers and their employees. We are also registered with NASDAQ and must comply with its applicable rules.

B. Riley Securities and B. Riley Wealth Management are also subject to the SEC’s Uniform Net Capital Rule, Rule 15c3-1, which may limit our ability to make withdrawals of capital from our broker-dealer subsidiaries. The Uniform Net Capital Rule sets the minimum level of net capital a broker-dealer must maintain and also requires that a portion of its assets be relatively liquid. In addition, B. Riley Securities and B. Riley Wealth Management are subject to certain notification requirements related to withdrawals of excess net capital.

We are also subject to the USA PATRIOT Act of 2001 (the Patriot Act), which imposes obligations regarding the prevention and detection of money-laundering activities, including the establishment of customer due diligence and customer verification, and other compliance policies and procedures. The conduct of research analysts is also the subject of rule-making by the SEC, FINRA and the federal government through the Sarbanes-Oxley Act. These regulations require certain disclosures by, and restrict the activities of, research analysts and broker-dealers, among others. 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, B. Riley Capital Management, LLC and B. Riley Wealth Management, 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.

UOL is subject to a number of international, federal, state, and local laws and regulations, including, without limitation, those relating to taxation, bulk email or "spam," advertising, user privacy and data protection, consumer protection, antitrust, export, and unclaimed property. In addition, proposed laws and regulations relating to some or all of the foregoing, as well as to other areas affecting our businesses, are continuously debated and considered for adoption in the U.S. and other countries, and such laws and regulations could be adopted in the future. For additional information, see "Risk Factors," which appears in Item 1A of this Annual Report on Form 10-K.

In the United States, magicJack is subject to federal regulation under the rules and regulations of the Federal Communications Commission (“FCC” or the “Commission”) and various state and local regulations. magicJack provides broadband telephone services using VoIP technology and/or services treated as information services by the FCC. magicJack is also licensed as a Competitive Local Exchange Carrier (“CLEC”) and is subject to extensive federal and state regulation applicable to CLECs. The FCC has to date asserted limited statutory jurisdiction and regulatory authority over the operations and offerings of certain providers of broadband telephone services, including non-interconnected VoIP. FCC regulations may now, or may in the future, be applied to magicJack’s broadband telephone operations. Other FCC regulations apply to magicJack because it provides international calling capability. Some of the magicJack’s operations are also subject to regulation by state public utility commissions.

Human Capital

As of December 31, 2020, we had 996 full time employees who comprise diverse a team, including seasoned experts in our various lines of business. Since our inception, our human capital focus has been to gather top talent, with the expertise to lead in every sector, creating a group of collaborative, innovative and independent thinkers who adopt a unique approach to serving our clients and customers.  Management appreciates, and never takes for granted, that without the expertise and dedication of our talented professionals, our firm would cease to exist. In that regard, we are dedicated to our people above all else. We have made a commitment to provide the direction, support and resources needed for our team members to succeed both professionally and personally.

An entrepreneurial spirit is the epitome of the B. Riley culture. We thrive in a collaborative environment and our culture is one that empowers the individual to grow and succeed through mentorship and that celebrates successes. We work to attract talent that will mesh with our entrepreneurial, collaborative, and fast-passed environment. Junior staff members have a unique opportunity to learn at a rapid pace from accessible leaders who are all recognized experts across several practices and sectors.

In 2019, we launched our Ambassador program to help build intra and inter-organizational relationships, facilitate collaborative knowledge sharing, and to identify and support emerging leaders.  Each of our major functional groups hand-pick rising stars to serve as the “face” of that group. Ambassadors are selected based on their demonstration that they are highly motivated for growth at the firm. This leadership development program is one example of how we work to provide development opportunities to our employees and expand their networks within the B. Riley platform.

We strive to attract a diverse group of candidates within our firm and support the expansion of diversity within the industries in which we operate. By participating in targeted job fairs and similar events we seek out diverse talent to recruit to our firm. We partner with a nonprofit foundation to develop industry education programs that support developing diverse leaders as they prepare to embark upon their careers, and we look forward to expanding our efforts.

We offer competitive compensation and benefits to support our employees’ wellbeing and reward strong performance. Our pay for performance compensation philosophy is designed to reward employees for achievement and to align employee interests with the firm’s long-term growth. 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, and 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 aspect of running our business. We believe that safety must always be an integral part of any function or service performed, and the protection of our employees, visitors and event attendees is our utmost priority. We have a business continuity plan in place that allow us to respond to threats to our health and safety, while ensuring that we can continue to provide quality service to our clients and shareholders at all times. During the COVID-19 pandemic that erupted in early 2020, we adopted a work-from-home policy for our professionals designed to safeguard our employees’ health and safety without a disruption to client service.

Available Information

We were incorporated in Delaware in May 2009. We maintain a website at www.brileyfin.com. The information on our website is not a part of, or incorporated in, this Annual Report. We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements, among other reports and filings, with the SEC, and make available, free of charge, on or through our website, such reports and filings and amendments thereto filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The public may obtain copies of these reports and filings and any amendments thereto at the SEC’s Internet site, www.sec.gov. Our Board has adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees. The Code of Business Conduct and Ethics is available for review on our website at http://ir.brileyfin.com/corporate-governance. Each of our directors, employees and officers, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, and all of our other principal executive officers, are required to comply with the Code of Business Conduct and Ethics.  Any changes to or waiver of our Code of Business Conduct and Ethics for senior financial officers, executive officers or Directors will be posted on that website.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “seek,” “likely,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law we are under no obligation to update any of the forward-looking statements after the filing of this Annual Report to conform such statements to actual results or to changes in our expectations.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Annual Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made in Item 1A of Part II of this Annual Report under the caption “Risk Factors.”

Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to: volatility in our revenues and results of operations; changing conditions in the financial markets; our ability to generate sufficient revenues to achieve and maintain profitability; our exposure to credit risk; the short term nature of our engagements; the accuracy of our estimates and valuations of inventory or assets in “guarantee” based engagements; competition in the asset management business; potential losses related to our auction or liquidation engagements; our dependence on communications, information and other systems and third parties; potential losses related to purchase transactions in our auction and liquidations business; the potential loss of financial institution clients; potential losses from or illiquidity of our proprietary investments; changing economic and market conditions; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation; potential mark-downs in inventory in connection with purchase transactions; failure to successfully compete in any of our segments; loss of key personnel; our ability to borrow under our credit facilities or at-the-market offering as necessary; failure to comply with the terms of our credit agreements or senior notes; our ability to meet future capital requirements; our ability to realize the benefits of our completed acquisitions, including our ability to achieve anticipated opportunities and operating cost savings, and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all; the diversion of management time on acquisition- related issues; the failure of our brand investment portfolio licensees to pay us royalties; and the intense competition to which our brand investment portfolio is subject. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Except as otherwise required by the context, references in this Annual Report to the “Company,” “B. Riley,” “B. Riley Financial,” “we,” “us” or “our” refer to the combined business of B. Riley Financial, Inc. and all of its subsidiaries.

Overview

General

B. Riley Financial, Inc. (NASDAQ: RILY) and its subsidiaries provide collaborative financial services and solutions through several operating subsidiaries including:

We are headquartered in Los Angeles with offices in major cities throughout the United States including New York, Chicago, Boston, Atlanta, Dallas, Memphis, Metro Washington D.C and West Palm Beach.

During the fourth quarter of 2020, the Company realigned its segment reporting structure to reflect organizational management changes. Under the new structure, the valuation and appraisal businesses are reported in the Financial Consulting segment and our bankruptcy, financial advisory, forensic accounting, and real estate consulting businesses that were previously reported in the Capital Markets segment are now reported as part of the Financial Consulting segment. In conjunction with the new reporting structure, the Company recast its segment presentation for all periods presented.

On February 25, 2021, the Company completed the acquisition of National Holdings Corporation (“National”), pursuant to an agreement and plan of merger dated January 10, 2021, following the successful completion of a tender offer commenced by us on January 27, 2021. National is a full-service investment banking and asset management firm that, through its affiliates, provides a range of services including financial advisory, investment banking, institutional sales and trading, equity research, financial planning, market making, tax preparation and insurance to corporations, institutions, high net-worth individuals and retail investors. We previously owned approximately 45% of the common stock of National. National complements our Capital Markets and Wealth Management segments, bringing approximately 900 registered representatives managing over $30 billion in assets.

As a result of the National acquisition, the Company further realigned its segment reporting structure in the first quarter of 2021 to reflect organizational management changes for its wealth management business. Under the new structure, the wealth management business previously reported in the Capital Markets segment are now reported in the Wealth Management segment. In conjunction with the new reporting structure, the Company recast its segment presentation for all periods presented.

For financial reporting purposes we classify our businesses into six operating segments: (i) Capital Markets, (ii) Wealth Management, (iii) Auction and Liquidation, (iv) Financial Consulting, (v) Principal Investments – United Online and magicJack and (vi) Brands.

Capital Markets Segment. Our Capital Markets segment provides a full array of investment banking, corporate finance, consulting, financial advisory, research, securities lending, asset management and sales and trading services to corporate, institutional and individual clients. Our corporate finance and investment banking services include merger and acquisitions as well as restructuring advisory services to public and private companies, initial and secondary public offerings, and institutional private placements. In addition, we trade equity securities as a principal for our account, including investments in funds managed by our subsidiaries. Our Capital Markets segment also includes our asset management businesses that manage various private and public funds for institutional and individual investors.

Wealth Management Segment. Our Wealth Management segment provides wealth management and tax services to corporate, and high net worth clients. We offer comprehensive wealth management services for corporate businesses that include investment strategies, executive services, retirement plans, lending & liquidity resources, and settlement solutions. Our wealth management services for individual client services provide investment management, education planning, retirement planning, risk management, trust coordination, lending & liquidity solutions, legacy planning, and wealth transfer. In addition, we supply market insights to provide unbiased guidance to make important financial decisions. Wealth management resources include market views from our highly regarded Chief Investment Strategist and Capital Markets segment’s research.

Auction and Liquidation Segment. Our Auction and Liquidation segment utilizes our significant industry experience, a scalable network of independent contractors and industry-specific advisors to tailor our services to the specific needs of a multitude of clients, logistical challenges and distressed circumstances. Furthermore, our scale and pool of resources allow us to offer our services across North American as well as parts of Europe, Asia and Australia. Our Auction and Liquidation segment operates through two main divisions, retail store liquidations and wholesale and industrial assets dispositions. Our wholesale and industrial assets dispositions division operates through limited liability companies that are controlled by us.

Financial Consulting Segment. Our Financial Consulting segment provides services to law firms, corporations, financial institutions, lenders, and private equity firms. These services primarily include bankruptcy, financial advisory, forensic accounting, litigation support, real estate consulting and valuation and appraisal services. Our Financial Consulting segment operates through limited liability companies that are wholly owned or majority owned by us.

Principal Investments - United Online and magicJack Segment. Our Principal Investments - United Online and magicJack segment consists of businesses which have been acquired primarily for attractive investment return characteristics. Currently, this segment includes UOL, through which we provide consumer Internet access, and magicJack, through which we provide VoIP communication and related product and subscription services.

Brands Segment. Our Brands segment consists of our brand investment portfolio that is focused on generating revenue through the licensing of trademarks and is held by BR Brand.

Recent Developments

On March 1, 2021, the Company announced its intention to redeem at par, and at its option, $128.2 million of senior notes due in February 2027 (“7.50% 2027 Notes”) on March 31, 2021 pursuant to the second supplemental indenture dated May 31, 2017. The total redemption payment will include approximately $1.6 million in accrued interest.

On January 25, 2021, the Company issued $230,000 of senior notes due in January 2028 (“6.0% 2028 Notes”) pursuant to the prospectus supplement dated February 12, 2020. Interest on the 6.0% 2028 Notes is payable quarterly at 6.0%. The 6.0% 2028 Notes are unsecured and due and payable in full on January 31, 2028. In connection with the issuance of the 6.0% 2028 Notes, the Company received net proceeds of $225,746 (after underwriting commissions, fees and other issuance costs of $4,254). The Notes bear interest at the rate of 6.0% per annum.

On January 23, 2021, we committed up to $400.0 million aggregate principal amount of debt financing, consisting of $100.0 million of secured debt financing, and $300.0 million of unsecured debt financing, to affiliates of Franchise Group, Inc. (collectively, “FRG”) in connection with FRG’s acquisition of Pet Supplies Plus.

On January 15, 2021, the Company issued 1,413,045 shares of common stock inclusive of 184,310 shares issued pursuant to the full exercise of the Underwriter’s option to purchase additional shares of common stock at a price of $46.00 per share for net proceeds of approximately $61,370 after underwriting fees and costs.

On November 30, 2020 we closed a recapitalization transaction with Lingo Management, LLC (“Lingo”), a global cloud/UC and managed service provider. Pursuant to the recapitalization, B. Riley purchased Lingo’s existing indebtedness held by affiliates of Garrison Investment Group and converted a portion of such indebtedness into a 40% equity interest in Lingo with the ability to acquire an additional 40% equity interest in consideration for the conversion of an additional portion of such indebtedness.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”).  In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.  Coming into 2021, the full impact of the COVID-19 outbreak continues to evolve, as countries across the world manage repeated waves of the pandemic and vaccines come to market.  The impact of the COVID-19 outbreak on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions and the success of vaccines in slowing or halting the pandemic.  These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted for an extended period, our results of operations, financial position and cash flows may be materially adversely affected.

Results of Operations

The following period to period comparisons of our financial results and our interim results are not necessarily indicative of future results.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Consolidated Statements of Income

(Dollars in thousands)

n/m - Not applicable or not meaningful.

Revenues

The table below and the discussion that follows are based on how we analyze our business.

Total revenues increased approximately $250.6 million to $902.7 million during the year ended December 31, 2020 from $652.1 million during the year ended December 31, 2019. The increase in revenues was primarily due to an increase in revenue from services and fees of $206.6 million, an increase in revenue from interest income — loans and securities lending of $25.3 million and increase in revenue from sale of goods of $21.2 million, partially offset by a decrease in revenue from trading income and fair value adjustments on loans of $2.4 million. The increase in revenue from services and fees of $206.6 million in 2020 was primarily due to an increase in revenue of $140.2 million in the Capital Markets segment, $7.3 million in the Wealth Management segment, $44.8 million in the Auction and Liquidation segment, $15.3 million in the Financial Consulting segment and $12.4 million in the Brands segment, partially offset by a decrease of $13.5 million in the Principal Investments - United Online and magicJack segment.

Revenues from services and fees in the Capital Markets segment increased approximately $140.2 million, to $339.9 million during the year ended December 31, 2020 from $199.6 million during the year ended December 31, 2019. The increase in revenues was primarily due to increases in revenue of $125.5 million from corporate finance, consulting and investment banking fees, in commissions of $5.9 million and in other income, including investment dividends of $19.8 million, partially offset by a decrease of $11.0 million in asset management fees.

Revenues from services and fees in the Wealth Management segment increased $7.3 million, to $72.3 million during the year ended December 31, 2020 from $65.1 million during the year ended December 31, 2019. The increase in revenues was primarily due to increases in revenue of $6.8 million in wealth and asset management fees and $0.4 million in other income.

Revenues from services and fees in the Auction and Liquidation segment increased $44.8 million, to $63.1 million during the year ended December 31, 2020 from $18.3 million during the year ended December 31, 2019. The increase in revenues in the Auction and Liquidation segment was primarily due to an increase in the number of fee related retail liquidation engagements in 2020 as compared to 2019. Revenues in 2019 were negatively impacted from a loss incurred for a retail liquidation contract that was entered into during the fourth quarter of 2019 to liquidate the assets of a retailer where the funds advanced exceeded the proceeds recovered from the liquidation of inventory. During the first half of 2020, the impact of COVID-19 resulted in delays and the temporary stoppage of certain retail liquidation engagements. In June 2020, these retail liquidation engagements resumed as a number of states allowed the reopening of retail stores.

Revenues from services and fees in the Financial Consulting segment increased $15.3 million, to $91.6 million during the year ended December 31, 2020 from $76.3 million during the year ended December 31, 2019. The increase in revenues was primarily due to increases in revenue of $16.6 million from consulting fees and in other income of $0.7 million, partially offset by a decrease of $2.0 million in valuation and appraisal fees.

Revenues from services and fees in the Principal Investments - United Online and magicJack segment decreased $13.5 million to $83.7 million year ended December 31, 2020 from $97.1 million during the year ended December 31, 2019. The decrease in revenues from services and fees is a result of a decrease in subscription services of $9.4 million and a decrease in advertising licensing and other of $4.3 million. Management expects revenues from the Principal Investments - United Online and magicJack segment to continue to decline year over year.

Revenues from services and fees in the Brands segment increased approximately $12.4 million, to $16.5 million during the year ended December 31, 2020 from $4.1 million for the year ended December 31, 2019. We established the Brands segment in 2019 following the acquisition of a majority interest in BR Brands on October 28, 2019. The primary source of revenue included in this segment is the licensing of trademarks.

Trading income and fair value adjustments on loans decreased $2.4 million to income of $104.0 million during the year ended December 31, 2020 from $106.5 million for the year ended December 31, 2019. Fair value adjustments on our loans receivable at fair value included unrealized losses of $22.0 million and gains of $12.3 million during the year ended December 31, 2020 and 2019, respectively. Realized and unrealized trading gains on investments made in our proprietary trading account were $126.1 million and $94.2 million during the year ended December 31, 2020 and 2019, respectively. Investments held in our proprietary trading account increased to $777.3 million at December 31, 2020 from $408.2 million at December 31, 2019.

Interest income – loans and securities lending increased $25.3 million, to $102.5 million during the year ended December 31, 2020 from $77.2 million during the year ended December 31, 2019. Interest income from securities lending was $51.3 million and $40.2 million during the year ended December 31, 2020 and 2019, respectively. Interest income from loans was $49.2 million and $34.6 million during the year ended December 31, 2020 and 2019, respectively. The increase in interest income on loans was primarily due to the increase in lending activities in our Capital Markets segment which included an increase in loans receivable to $390.7 million at December 31, 2020 from $269.2 million at December 31, 2019.

Sale of Goods, Cost of Goods Sold and Gross Margin

Revenues from the sale of goods increased $21.2 million, to $29.1 million during the year ended December 31, 2020 from $7.9 million during the year ended December 31, 2019. The increase in revenues from sale of goods was primarily attributable to the sale of goods for certain retail liquidation engagements where we acquired the title to inventory goods in Europe and operated the retail stores as part of a going-out-of-business sale. Cost of goods sold for the year ended December 31, 2020 was $12.5 million, resulting in a gross margin of 57.2%.

Operating Expenses

Direct Cost of Services. Direct cost of services and direct cost of services measured as a percentage of revenues – services and fees by segment during the year ended December 31, 2020 and 2019 are as follows:

Total direct costs increased $1.6 million, to $60.5 million during the year ended December 31, 2020 from $58.8 million during the year ended December 31, 2019. Direct costs of services increased by $7.4 million in the Auction and Liquidation segment partially offset by a decrease of $5.8 million in the Principal Investments - United Online and magicJack segment. The increase in direct costs in the Auction and Liquidation segment was primarily due to the costs incurred to operate the retail stores where we acquired title to inventory goods in Europe and operated a going-out-of-business sale. The decrease in direct costs in the Principal Investments — United Online and magicJack segment was primarily a result of the sale of a lower gross margin division of magicJack in May 2019, as well as the impact of cost reductions initiatives in 2020.

Auction and Liquidation

Gross margin in the Auction and Liquidation segment for services and fees increased to 35.5% of revenues during the year ended December 31, 2020, as compared to a loss of 82.0% of revenues during the year ended December 31, 2019. The margin in the Auction and Liquidation segment in 2020 is primarily the result of an increase in the number of fee related engagements during 2020 as compared to 2019. The margin in 2020 is higher than the loss in 2019 since the results in 2019 included a loss incurred for a retail liquidation contract that was entered into during the fourth quarter of 2019 to liquidate the assets of a retailer where the funds advanced exceeded the proceeds recovered from the liquidation of inventory.

Principal Investments - United Online and magicJack

Gross margins in the Principal Investments - United Online and magicJack segment increased to 76.4% of revenues year ended December 31, 2020 as compared to 73.7% of revenues during the year ended December 31, 2019. The increase in margin in the Principal Investments — United Online and magicJack segment is primarily due to the sale of a lower gross margin division of magicJack in May 2019, as well as the impact of cost reductions initiatives in 2020.

Selling, General and Administrative Expenses. Selling, general and administrative expenses during the year ended December 31, 2020 and 2019 were comprised of the following:

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased $43.3 million to $428.6 million during the year ended December 31, 2020 from $385.2 million for the year ended December 31, 2019. The increase of $43.3 million in selling, general and administrative expenses was due to increases of $23.2  million in the Capital Markets segment, $3.9 million in the Wealth Management segment, $1.6 million in the Auction and Liquidation segment, $10.1 million in the Financial Consulting segment, $4.4  million in the Brands segment and $5.8 million in the Corporate and Other segment, partially offset by a decrease of $5.6 million in the Principal Investments - United Online and magicJack segment.

Capital Markets

Selling, general and administrative expenses in the Capital Markets segment increased by $23.2 million to $200.3 million during the year ended December 31, 2020 from $178.2 million during the year ended December 31, 2019. The increase was primarily due to increases of $27.1 million in payroll and related expenses and $2.3 million in investment banking deal expenses; partially offset by decreases of $3.0 million in consulting expenses, $1.6 million in business development expenses and $1.6 million in travel and entertainment expenses.

Wealth Management

Selling, general and administrative expenses in the Wealth Management segment increased by $3.9 million to $70.2 million during the year ended December 31, 2020 from $66.4 million during the year ended December 31, 2019. The increase was primarily due to increases of $5.5 million in payroll and related expenses; partially offset by decreases of $0.8 million in clearing charges, $0.4 million in occupancy expenses and $0.5 million in travel and entertainment expenses.

Auction and Liquidation

Selling, general and administrative expenses in the Auction and Liquidation segment increased by $1.6 million to $12.4 million during the year ended December 31, 2020 from $10.7 million during the year ended December 31, 2019. The increase was primarily due to an increase of $1.5 million in other business development activities.

Financial Consulting

Selling, general and administrative expenses in the Financial Consulting segment increased by $10.1 million to $68.6 million during the year ended December 31, 2020 from $58.5 million during the year ended December 31, 2019. The increase was primarily due to increases of $11.2 million in payroll and related expenses and $1.5 million in other expenses, partially offset by a decrease of $2.5 million in travel and entertainment expenses.

Principal Investments - United Online and magicJack

Selling, general and administrative expenses in the Principal Investments - United Online and magicJack segment decreased by $5.6 million to $31.4 million for the year ended December 31, 2020 from $36.9 million for the year ended December 31, 2019. The decrease was primarily due to decreases of $1.5 million in payroll and related expenses, $2.1 million in legal expenses, $1.0 million in other expenses and $0.9 million in depreciation and amortization expense.

Brands

Selling, general and administrative expenses in the Brands segment increased by $4.4 million to $5.7 million during the year ended December 31, 2020 from $1.4 million for the year ended December 31, 2019. We established the Brands segment in 2019 following the acquisition of a majority equity interest in BR Brands on October 28, 2019.

Corporate and Other

Selling, general and administrative expenses for the Corporate and Other segment increased $5.8 million to $38.9 million during the year ended December 31, 2020 from $33.1 million for the year ended December 31, 2019. The increase of expenses in the Corporate and Other segment for the year ended December 31, 2020 was primarily due to increases in payroll and related expenses.

Restructuring Charge. Restructuring charges of $1.6 million during the year ended December 31, 2020 were primarily related to impairment of certain acquired tradename intangibles associated with the Company’s brand realignment across its subsidiary companies to provide greater external consistency and affiliation. The restructuring charges of $1.7 million for the year ended December 31, 2019 were primarily related to severance costs for magicJack employees from a reduction in workforce and lease termination costs in the Principal Investments – United Online and magicJack segment.

Impairment of tradenames. Due to the impact of the COVID-19 outbreak on economic activity and market volatility, we tested our intangible assets as of March 31, 2020 and June 30, 2020 and made the determination that the indefinite-lived tradenames in the Brands segment were impaired and the Company recognized impairment charges of $12.5 million.

Other Income (Expense). Other income included interest income of $0.6 million during the year ended December 31, 2020 compared to $1.6 million during the year ended December 31, 2019. Loss on equity investments was $0.6 million during the year ended December 31, 2020 compared to loss of $1.4 million during the year ended December 31, 2019. Interest expense was $65.2 million during the year ended December 31, 2020 compared to $50.2 million during the year ended December 31, 2019. The increase in interest expense during the year ended December 31, 2020 was primarily due to an increase in interest expense of $17.4 million from the issuance of senior notes, partially offset by a decrease in interest expense of $2.2 million from the term loan.

Income Before Income Taxes. Income before income taxes increased $162.9 million to income before income taxes of $279.5 million during the year ended December 31, 2020 from an income before income taxes of $116.6 million during the year ended December 31, 2019. The increase in income before income taxes was primarily due to an increase in revenues of approximately $250.6 million partially offset by an increase in operating expenses of $72.5 million, an increase in interest expense of $15.0 million and a decrease in loss from equity investments of $0.8 million.

Provision for Income Taxes. Provision for income taxes was $75.4 million during the year ended December 31, 2020 compared to provision for income taxes of $34.6 million during the year ended December 31, 2019. The effective income tax rate was a provision of 27.0% for the year ended December 31, 2020 as compared to a provision of 29.7% for the year ended December 31, 2019.

Net (Loss) Income Attributable to Noncontrolling Interest. Net income attributable to noncontrolling interests represents the proportionate share of net income generated by BR Brand, 20% of the membership interest of which we do not own and Great American Global Partners, LLC, 50% of the membership interest of which we do not own. The net loss attributable to noncontrolling interests was $1.1 million during the year ended December 31, 2020 compared to income of $0.3 million during the year ended December 31, 2019.

Net Income Attributable to the Company. Net income attributable to the Company for the year ended December 31, 2020 was $205.1 million, an increase of net income of $123.5 million, from net income attributable to the Company of $81.6 million for the year ended December 31, 2019. Increase in net income attributable to the Company during the year ended December 31, 2020 as compared to the same period in 2019 was primarily due to an increase in operating income of $178.1 million, offset by an increase in interest expense of approximately $15.0 million, a decrease in loss from equity investments of $0.8 million and an increase in provision for income taxes of $40.8 million.

Preferred Stock Dividends. On October 7, 2019, the Company closed its public offering of Depositary Shares, each representing 1/1000th of a share of 6.875% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share. Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends will be payable quarterly in arrears, on or about the last day of January, April, July and October. On January 9, 2020, the Company declared a cash dividend representing $0.4296875 per Depositary Share, which was paid on January 31, 2020 to holders of record as of the close of business on January 21, 2020. On April 13, 2020, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on April 30, 2020 to holders of record as of the close of business on April 23, 2020. On July 7, 2020, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on July 31, 2020 to holders of record as of the close of business on July 21, 2020. On October 8, 2020, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on October 31, 2020, to holders of record as of the close of business on October 21, 2020.

On September 4, 2020, the Company closed its public offering of Depositary Shares, each representing 1/1000th of a share of 7.375% Series B Cumulative Perpetual Preferred Stock (trading under the NASDAQ symbol “RILYL”), par value $0.0001 per share. Holders of Series B Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends will be payable quarterly in arrears, on or about the last day of January, April, July and October. On October 8, 2020, the Company declared a cash dividend $0.29193 per Depositary Share, which was paid on October 31, 2020, to holders of record as of the close of business on October 21, 2020.

Net Income Available to Common Shareholders. Net income available to common shareholders for the year ended December 31, 2020 was $200.4 million, an increase of $119.1 million, from net income available to common shareholders of $81.3 million for the year ended December 31, 2019. The increase in net income available to common shareholders during the year ended December 31, 2020 as compared to the same period in 2019 was primarily due to an increase in operating income of $178.1 million, offset by an increase in interest expense of approximately $15.0 million, an increase in preferred stock dividends of $4.4 million and an increase in provision for income taxes of $40.8 million.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Consolidated Statements of Income

(Dollars in thousands)

n/m - Not applicable or not meaningful.

Revenues

The table below and the discussion that follows are based on how we analyze our business.

Total revenues increased approximately $229.1 million to $652.1 million during the year ended December 31, 2019 from $423.0 million during the year ended December 31, 2018. The increase in revenues during the year ended December 31, 2019 was primarily due to an increase in revenue from services and fees of $68.4 million, an increase in revenue from interest income — loans and securities lending of $38.9 million, an increase in revenue from trading income (losses) and fair value adjustments on loans of $114.5 million and increase in revenue from sale of goods of $7.3 million. The increase in revenue from services and fees of $68.4 million in 2019 was primarily due to increases in revenue of $35.4 million in the Capital Markets segment, $24.9 million in the Financial Consulting segment, $43.5 million in the Principal Investments - United Online and magicJack segment and $4.1 million in the Brands segment, partially offset by decreases of $2.8 million in the Wealth Management segment and $36.6 million in the Auction and Liquidation segment.

Revenues from services and fees in the Capital Markets segment increased approximately $35.4 million, to $199.6 million during the year ended December 31, 2019 from $164.2 million during the year ended December 31, 2018. The increase in revenues was primarily due to increases in revenue of $24.2 million from corporate finance, consulting and investment banking fees and in asset management fees of $10.6 million, partially offset by a decrease in commission fees of $1.7 million.

Revenues from services and fees in the Wealth Management segment decreased $2.8 million, to $65.1 million during the year ended December 31, 2019 from $67.9 million during the year ended December 31, 2018. The decrease in revenues was primarily due to decreases in revenue of $2.3 million from wealth and asset management fees and $0.5 million in other income.

Revenues from services and fees in the Auction and Liquidation segment decreased $36.6 million, to $18.3 million during the year ended December 31, 2019 from $54.9 million during the year ended December 31, 2018. The decrease in revenues of $36.6 million was primarily due to a decrease in revenues of $31.8 million from services and fees related to retail liquidation engagements and a decrease in revenues of $2.5 million from services and fees in our wholesale and industrial auction division. The $31.8 million decrease in revenues from retail liquidation engagements was caused by a retail engagement loss incurred for a contract entered into during the fourth quarter of 2019 to liquidate the assets of a retailer where the funds advanced exceed the expected recovery.

Revenues from services and fees in the Financial Consulting segment increased $24.9 million, to $76.3 million during the year ended December 31, 2019 from $51.4 million during the year ended December 31, 2018. The increase in revenues was primarily due to an increase in revenue of $24.8 million from bankruptcy, financial advisory and forensic accounting services primarily as a result of the acquisition of GlassRatner on August 1, 2018.

Revenues from services and fees in the Principal Investments - United Online and magicJack segment increased $43.5 million to $97.1 million year ended December 31, 2019 from $53.7 million during the year ended December 31, 2018. The increase in revenues from services and fees is a result of the acquisition of magicJack on November 14, 2018 in the segment for the full year ended December 31, 2019 which increased revenue $53.3 million from the year ended December 31, 2018. This increase was partially offset by a decrease in services and fees revenue from UOL of $9.8 million. Management expects revenues from UOL continue to decline year over year. The primary source of revenue included in this segment is subscription services revenue and some advertising and other revenues.

Revenues from services and fees in the Brands segment were $4.1 million for the year ended December 31, 2019. We established the Brands segment in 2019 following the acquisition of a majority interest in BR Brands on October 28, 2019. The primary source of revenue included in this segment is the licensing of trademarks.

Trading income (losses) and fair value adjustments on loans increased $114.5 million to income of $106.5 million for the year ended December 31, 2019 from a loss of $8.0 million during the year ended December 31, 2018. Investments made in our proprietary trading account increased to $408.2 million at December 31, 2019 from $273.6 million at December 31, 2018.

Interest income – loans and securities lending increased $38.9 million, to $77.2 million during the year ended December 31, 2019 from $38.3 million during the year ended December 31, 2018. Interest income from securities lending was $40.2 million and $31.8 million during the year ended December 31, 2019 and 2018, respectively. Interest income from loans was $34.6 million and $6.5 million during the year ended December 31, 2019 and 2018, respectively. The increase in interest income on loans was primarily due to the increase in lending activities in our Capital Markets segment which included an increase in loans receivable to $269.2 million at December 31, 2019 from $38.8 million at December 31, 2018.

Sale of Goods, Cost of Goods Sold and Gross Margin

Revenues from the sale of goods increased $7.3 million, to $7.9 million during the year ended December 31, 2019 from $0.6 million during the year ended December 31, 2018. The increase in revenues from sale of goods were primarily attributable to $4.2 million of goods sold as part of our retail liquidation engagements and $3.1 million of sales of magicJack devices that are sold in connection with VoIP services and, to a lesser extent, sale of mobile broadband devices from UOL that are sold in connection with the mobile broadband services. Cost of goods sold for the year ended December 31, 2019 was $7.6 million, resulting in a gross margin of 4.5%.

Operating Expenses

Direct Cost of Services. Direct cost of services and direct cost of services measured as a percentage of revenues – services and fees by segment during the year ended December 31, 2019 and 2018 are as follows:

Total direct costs increased $24.1 million, to $58.8 million during the year ended December 31, 2019 from $34.8 million during the year ended December 31, 2018. Direct costs of services increased by $13.7 million in the Auction and Liquidation segment and $10.4 million in the Principal Investments - United Online and magicJack segment. The increase in direct costs in the Auction and Liquidation segment was primarily due to mix of engagement types performed during the year ended December 31, 2019 as compared to the year ended December 31, 2018. The increase in direct costs in the Principal Investments - United Online and magicJack segment was primarily as a result of the acquisition of magicJack on November 14, 2018.

Auction and Liquidation

Gross margin in the Auction and Liquidation segment for services and fees decreased to a loss of 82.0% of revenues during the year ended December 31, 2019, as compared to 64.3% of revenues during the year ended December 31, 2018. The decrease in margin in the Auction and Liquidation segment is due to a retail engagement loss incurred for a contract entered into during the fourth quarter of 2019 to liquidate the assets of a retailer where the funds advanced exceed the expected recovery.

Principal Investments - United Online and magicJack

Gross margins in the Principal Investments - United Online and magicJack segment increased to 73.7% of revenues year ended December 31, 2019 as compared to 71.8% of revenues during the year ended December 31, 2018. The increase in margin in the Principal Investments - United Online and magicJack segment is primarily due to the mix of revenues of services and fees and as a result of the acquisition of magicJack on November 14, 2018.

Selling, General and Administrative Expenses. Selling, general and administrative expenses during the year ended December 31, 2019 and 2018 were comprised of the following:

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased $74.7 million to $385.2 million during the year ended December 31, 2019 from $310.5 million for the year ended December 31, 2018. The increase of $74.7 million in selling, general and administrative expenses was due to increases of approximately $22.2 million in the Capital Markets segment, $2.4 million in the Auction and Liquidation segment, $20.9 million in the Financial Consulting segment, $18.4 million in the Principal Investments - United Online and magicJack segment, $1.4 million in the Brands segment and $10.6 million in the Corporate and Other segment, partially offset by a decrease of $1.1 million in the Wealth Management segment.

Capital Markets

Selling, general and administrative expenses in the Capital Markets segment increased by approximately $22.2 million to $178.2 million during the year ended December 31, 2019 from $156.0 million during the year ended December 31, 2018. The increase was primarily due to increases of $11.2 million in professional advisory fees incurred in connection with the management of certain investments that are included in securities and other investments owned, $6.8 million in other expenses and $5.7 million in payroll and related expenses, partially offset by a decrease of $1.8 million in occupancy expenses.

Wealth Management

Selling, general and administrative expenses in the Wealth Management segment decreased by $1.1 million to $66.4 million during the year ended December 31, 2019 from $67.5 million during the year ended December 31, 2018. The decrease was primarily due to decreases of $2.7 million in payroll and related expenses and $0.8 million in depreciation and amortization expenses, partially offset by an increase of $2.5 million in other expenses.

Auction and Liquidation

Selling, general and administrative expenses in the Auction and Liquidation segment increased by $2.4 million to $10.7 million during the year ended December 31, 2019 from $8.3 million during the year ended December 31, 2018. The increase was primarily due to an increase of $2.0 million in payroll and related expenses.

Financial Consulting

Selling, general and administrative expenses in the Financial Consulting segment increased by $20.9 million to $58.5 million during the year ended December 31, 2019 from $37.6 million during the year ended December 31, 2018. The increase was primarily due to increases of $15.9 million in payroll and related expenses, $2.1 million in other expenses, $1.1 million in occupancy expenses and $0.8 million in travel and entertainment expenses. The increase in expenses was primarily as a result of the acquisition of GlassRatner on August 1, 2018.

Principal Investments - United Online and magicJack

Selling, general and administrative expenses in the Principal Investments - United Online and magicJack segment increased by $18.4 million to $36.9 million for the year ended December 31, 2019 from $18.6 million for the year ended December 31, 2018. The increase was due to the acquisition of magicJack on November 14, 2018. magicJack’s selling, general and administrative expenses included in the segment for the year ended December 31, 2019 was $22.3 million.

Brands

Selling, general and administrative expenses in the Brands segment was $1.4 million for the year ended December 31, 2019. We established the Brands segment in 2019 following the acquisition of a majority equity interest in BR Brands on October 28, 2019.

Corporate and Other

Selling, general and administrative expenses for the Corporate and Other segment increased $10.6 million to $33.1 million during the year ended December 31, 2019 from $22.5 million for the year ended December 31, 2018. The increase was primarily due to an increase of $9.2 million in payroll and related expenses.

Restructuring Charge. Restructuring charge decreased $6.8 million to $1.7 million for the year ended December 31, 2019. The restructuring charges during the year ended December 31, 2019 were primarily related to severance costs for magicJack employees from a reduction in workforce and lease termination costs in the Principal Investments – United Online and magicJack segment. The restructuring charge of $8.5 million during the year ended December 31, 2018 was primarily related to severance costs and lease loss accruals for the planned consolidation of office space related to operations in the Capital Markets and Wealth Management segments and the impairment of tradename for the rebranding of B. Riley Wealth Management.

Other Income (Expense). Other income included interest income of $1.6 million during the year ended December 31, 2019 compared to $1.3 million during the year ended December 31, 2018. Loss on equity investments was $1.4 million during the year ended December 31, 2019 compared to income of $8.0 million during the year ended December 31, 2018. Interest expense was $50.2 million during the year ended December 31, 2019 compared to $33.4 million during the year ended December 31, 2018. The increase in interest expense during the year ended December 31, 2019 was primarily due to an increase in interest expense of $18.4 million from the issuance of senior notes, and an increase in interest expense of $4.2 million from the term loan dated December 2018, offset by a decrease in interest expense on our asset based credit facility and other borrowings in connection with retail liquidation engagements of $6.4 million.

Income Before Income Taxes. Income before income taxes increased $95.3 million to income before income taxes of $116.6 million during the year ended December 31, 2019 from an income before income taxes of $21.3 million during the year ended December 31, 2018. The increase in income before income taxes was primarily due to an increase in revenues of approximately $229.1 million offset by an increase in operating expenses of $107.9 million, and a decrease in income from equity investments of $9.4 million and an increase in interest expense of $16.8 million.

Provision for Income Taxes. Provision for income taxes was $34.6 million during the year ended December 31, 2019 compared to provision for income taxes of $4.9 million during the year ended December 31, 2018. The effective income tax rate was a provision of 29.7% for the year ended December 31, 2019 as compared to a provision of 23.0% for the year ended December 31, 2018.

Net Income Attributable to Noncontrolling Interest. Net income attributable to noncontrolling interests represents the proportionate share of net income generated by BR Brand, 20% of the membership interest of which we do not own and Great American Global Partners, LLC, 50% of the membership interest of which we do not own. The net income attributable to noncontrolling interests was $0.3 million during the year ended December 31, 2019 compared to $0.9 million during the year ended December 31, 2018.

Net Income Attributable to the Company. Net income attributable to the Company for the year ended December 31, 2019 was $81.6 million, an increase of net income of $66.1 million, from net income attributable to the Company of $15.5 million for the year ended December 31, 2018. Increase in net income attributable to the Company during the year ended December 31, 2019 as compared to the same period in 2018 was primarily due to an increase in operating income of $121.3 million, offset by an increase in interest expense of approximately $16.8 million, a decrease in income from equity investments of $9.4 million and an increase in provision for income taxes of $29.7 million.

Preferred Stock Dividends. On October 7, 2019, the Company closed its public offering of Depositary Shares, each representing 1/1000th of a share of 6.875% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share. Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends will be payable quarterly in arrears, on or about the last day of January, April, July and October. On October 15, 2019, the Company declared a cash dividend of $0.3 million representing $0.11458333 per Depositary Share. The dividend was paid on October 31, 2019 to holders of record as of the close of business on October 21, 2019. On January 9, 2020, the Company declared a cash dividend representing $0.4296875 per Depositary Share, which was paid on January 31, 2019 to holders of record as of the close of business on January 21, 2019.

Net Income Available to Common Shareholders. Net income available to common shareholders for the year ended December 31, 2019 was $81.3 million, an increase of $65.8 million, from net income available to common shareholders of $15.5 million for the year ended December 31, 2018. The increase in net income available to common shareholders during the year ended December 31, 2019 as compared to the same period in 2018 was primarily due to an increase in operating income of $121.3 million, offset by an increase in interest expense of approximately $16.8 million, a decrease in income from equity investments of $9.4 million and an increase in provision for income taxes of $29.7 million.

Liquidity and Capital Resources

Our operations are funded through a combination of existing cash on hand, cash generated from operations, borrowings under our senior notes payable, term loan and credit facility, issuances of common and preferred stock and special purposes financing arrangements.

During the years ended December 31, 2020 and 2019, we generated net income attributable to the Company of $205.2 million and $81.6 million, respectively. Our cash flows and profitability are impacted by the number and size of retail liquidation and capital markets engagements performed on a quarterly and annual basis.

As of December 31, 2020, we had $103.6 million of unrestricted cash and cash equivalents, $1.2 million of restricted cash, $777.3 million of securities and other investments held at fair value, $390.7 million of loans receivable, held at fair value, and $1,000.3 million of borrowings outstanding. The borrowings outstanding of $1,000.3 million at December 31, 2020 included (a) $870.8 million of borrowings from the issuance of the series of Senior Notes that are due at various dates ranging from May 31, 2023 to December 31, 2027 with interest rates ranging from 6.375% to 7.5%, (b) $74.2 million term loan borrowed pursuant to the BRPAC Credit Agreement discussed below, (c) $38.0 million of notes payable, and (d) $17.3 million of loan participations sold.

We believe that our current cash and cash equivalents, securities and other investments owned, funds available under our asset based credit facility, and cash expected to be generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months from issuance date of the accompanying financial statements. We continue to monitor our financial performance to ensure sufficient liquidity to fund operations and execute on our business plan.

Cash Flow Summary

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Cash provided by operating activities was $57.7 million during the year ended December 31, 2020 compared to cash used in operating activities of $27.2 million during the year ended December 31, 2019. Cash provided by operating activities for the year ended December 31, 2020 included net income of $204.0 million adjusted for noncash items of $123.4 million and changes in operating assets and liabilities of $269.7 million. Noncash items of $123.4 million include (a) deferred income taxes of $61.6 million, (b) noncash fair value adjustments of $22.0 million, (c) depreciation and amortization of $19.4 million, (d) share-based compensation of $18.6 million, (e) other noncash interest and other of $16.8 million, (f) impairment of leaseholds, intangibles and lease loss accrual and gain on disposal of fixed assets of $14.1 million, (g) provision for doubtful accounts of $3.4 million, (h) gain on extinguishment of debt of $1.6 million, (i) dividends from equity investments of $1.3 million, (j) income allocated for mandatorily redeemable noncontrolling interests of $1.2 million, and (k) loss on equity investments of $0.6 million.

Cash used in investing activities was $128.4 million during the year ended December 31, 2020 compared to cash used in investing activities of $298.6 million for the year ended December 31, 2019. During the year ended December 31, 2020, cash used in investing activities consisted of cash used for purchases of loans receivable of $207.5 million, cash used for purchases of equity investments of $14.0 million, repayments of loan participations sold of $2.2 million, cash used for acquisition of businesses of $1.5 million and cash used for purchases of property and equipment and intangible assets of $2.0 million, offset by cash received from loans receivable repayment of $90.1 million, loan participations sold of $6.9 million and proceeds from sale of loans receivable to related party of $1.8 million. During the year ended December 31, 2019, cash used in investing activities consisted of cash used for loans receivable of $343.8 million, cash used for purchases of equity investments of $33.4 million, repayments of loan participations sold of $18.9 million, cash used for purchase of a majority equity interest in BR Brands, net of cash acquired of $114.9 million and cash used for purchases of property and equipment and intangible assets of $3.5 million, offset by proceeds from sale of division of magicJack of $6.2 million, cash received from loans receivable repayment of $159.2 million, loan participations sold of $31.8 million, distributions from equity investments of $18.2 million and proceeds from sale of property, equipment and intangible assets of $0.5 million.

Cash provided by financing activities was $69.5 million during the year ended December 31, 2020 compared to cash provided by financing activities of $250.2 million during the year ended December 31, 2019. During the year ended December 31, 2020, cash provided by financing activities primarily consisted of $75.0 million proceeds from our term loan, $186.8 million proceeds from issuance of senior notes, $0.6 million contributions from noncontrolling interests, $39.5 million proceeds from our offering of preferred stock, offset by (a) $37.1 million used for repayment of our asset based credit facility, (b) $38.8 million used to pay dividends on our common shares, (c) $67.3 million used for repayment on our term loan, (d) $48.2 million used to repurchase our common stock, (e) $1.8 million used to repurchase our senior notes; (f) $3.4 million used to pay debt issuance costs, (g) $22.6 million used for payment of employment taxes on vesting of restricted stock, (h) $3.8 million distribution to noncontrolling interests, (i) $0.4 million used to repay our other notes payable, (j) $4.7 million used to pay dividends on our preferred shares and (k) $4.3 million used for payment of participating note payable and contingent consideration. During the year ended December 31, 2019, cash provided by financing activities primarily consisted of $10.0 million proceeds from our term loan, $281.9 million proceeds from issuance of senior notes, $140.4 million proceeds from our asset based credit facility $56.6 million proceeds from our offering of preferred stock, offset by (a) $103.3 million used for repayment of our asset based credit facility, (b) $41.1 million used to pay dividends on our common shares, (c) $22.7 million used for repayment on our term loan, (d) $7.1 million used to repurchase our common stock and warrants, (e) $4.3 million used for payment of participating note payable and contingent consideration, (f) $3.4 million used to pay debt issuance costs, (g) $2.0 million used for payment of employment taxes on vesting of restricted stock, (h) $2.0 million distribution to noncontrolling interests, and (i) $0.5 million used to repay our other notes payable.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Cash used in operating activities was $27.2 million during the year ended December 31, 2019 compared to cash used in operating activities of $102.2 million during the year ended December 31, 2018. Cash used in operating activities for the year ended December 31, 2019 included net income of $81.9 million adjusted for noncash items of $53.4 million and changes in operating assets and liabilities of $162.6 million. Noncash items of $53.4 million include (a) depreciation and amortization of $19.0 million, (b) share-based compensation of $15.9 million, (c) loss on equity investments of $1.4 million, (d) provision for doubtful accounts of $2.1 million, (e) income allocated and fair value adjustment for mandatorily redeemable noncontrolling interests of $1.2 million, (f) other noncash interest and other of $12.3 million, (g) deferred income taxes of $10.9 million, (h) impairment of leaseholds, intangibles and lease loss accrual and gain on disposal of fixed assets of $0.3 million, (i) dividends from equity investments of $3.2 million and (j) noncash interest and other of $12.3 million.

Cash used in investing activities was $298.6 million during the year ended December 31, 2019 compared to cash used in investing activities of $154.1 million for the year ended December 31, 2018. During the year ended December 31, 2019, cash used in investing activities consisted of cash used for loans receivable of $343.8 million, cash used for purchases of equity investments of $33.4 million, repayments of loan participations sold of $18.9 million, cash used for purchase of a majority equity interest in BR Brands, net of cash acquired of $114.9 million and cash used for purchases of property and equipment and intangible assets of $3.5 million, offset by proceeds from sale of division of magicJack of $6.2 million, cash received from loans receivable repayment of $159.2 million, loan participations sold of $31.8 million, distributions from equity investments of $18.2 million and proceeds from sale of property, equipment and intangible assets of $0.5 million. During the year ended December 31, 2018, cash used in investing activities consisted of cash used to purchase loans receivable of $38.8 million, cash used for the acquisition of magicJack, net of cash acquired of $89.2 million, cash used for purchases of equity investments of $16.6 million, cash used of $4.0 million to acquire a business and cash use of $5.4 million for purchases of property and equipment.

Cash provided by financing activities was $250.2 million during the year ended December 31, 2019 compared to cash provided by financing activities of $284.9 million during the year ended December 31, 2018. During the year ended December 31, 2019, cash provided by financing activities primarily consisted of $10.0 million proceeds from our term loan, $281.9 million proceeds from issuance of senior notes, $140.4 million proceeds from our asset based credit facility $56.6 million proceeds from our offering of preferred stock, offset by (a) $103.3 million used for repayment of our asset based credit facility, (b) $41.1 million used to pay dividends on our common shares, (c) $22.7 million used for repayment on our term loan, (d) $7.1 million used to repurchase our common stock and warrants, (e) $4.3 million used for payment of participating note payable and contingent consideration, (f) $3.4 million used to pay debt issuance costs, (g) $2.0 million used for payment of employment taxes on vesting of restricted stock, (h) $2.0 million distribution to noncontrolling interests, and (i) $0.5 million used to repay our other notes payable. During the year ended December 31, 2018, cash provided by financing activities primarily consisted of (a) $300.0 million proceeds from asset based credit facility, (b) $259.0 million proceeds from issuance of senior notes, (c) $80.0 million proceeds from our term loan and (d) $51.0 million in proceeds from notes payable, offset by (a) $300.0 million used to repay the asset based credit facility, (b) $22.7 million used to pay cash dividends, (c) $51.7 million used to repay other notes payable, (d) $1.1 million distributions to noncontrolling interests, (e) $7.3 million used for debt issuance costs, (f) $18.7 million used to repurchase common stock, and (g) $3.7 million used for the payment of employment taxes on vesting of restricted stock.

Credit Agreements

On April 21, 2017, we amended the asset based credit facility agreement (as amended, the “Credit Agreement”) with Wells Fargo Bank to increase the maximum borrowing limit from $100.0 million to $200.0 million. Such amendment, among other things, also extended the expiration date of the credit facility from July 15, 2018 to April 21, 2022. The Credit Agreement continues to allow for borrowings under a separate credit agreement (a “UK Credit Agreement”) dated March 19, 2015 with an affiliate of Wells Fargo Bank which provides for the financing of transactions in the United Kingdom with borrowings up to 50.0 million British Pounds. Any borrowing on the UK Credit Agreement reduces the availability of the asset based $200.0 million credit facility. The UK Credit Agreement is cross collateralized and integrated in certain respects with the Credit Agreement. The Credit Agreement continues to include the addition of our Canadian subsidiary, from the October 5, 2016 amendment to the Credit Agreement, to facilitate borrowings to fund retail liquidation transactions in Canada. From time to time, we utilize this credit facility to fund costs and expenses incurred in connection with liquidation engagements. We also utilize this credit facility in order to issue letters of credit in connection with liquidation engagements conducted on a guaranteed basis. Subject to certain limitations and offsets, we are permitted to borrow up to $200.0 million under the credit facility, less the aggregate principal amount borrowed under the UK Credit Agreement (if in effect). Borrowings under the credit facility are only made at the discretion of the lender and are generally required to be repaid within 180 days. The interest rate for each revolving credit advance under the related credit agreement is, subject to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility is secured by the proceeds received for services rendered in connection with the liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract, if any. The credit facility also provides for success fees in the amount of 2.5% to 17.5% of the net profits, if any, earned on liquidation engagements that are financed under the credit facility as set forth in the related credit agreement. We typically seek borrowings on an engagement-by-engagement basis. The Credit Agreement contains certain covenants, including covenants that limit or restrict our ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge or consolidate and enter into certain transactions with affiliates. There was no outstanding balance on this credit facility at December 31, 2020. The outstanding balance on this credit facility was $37.1 million at December 31, 2019. At December 31, 2020, there were no open letters of credit outstanding. We are in compliance with all financial covenants in the asset based credit facility at December 31, 2020.

On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of the Company, in the capacity of borrowers, entered into a credit agreement with Banc of California, N.A. in the capacity as agent and lender and with the other lenders party thereto (the “BRPAC Credit Agreement”). Under the BRPAC Credit Agreement, we borrowed $80.0 million due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement, we may request additional optional term loans in an aggregate principal amount of up to $10.0 million at any time prior to the first anniversary of the agreement date. On February 1, 2019, the Borrowers entered into the First Amendment to Credit Agreement and Joinder with City National Bank as a new lender in which the new lender extended to Borrowers the additional $10.0 million.

On December 31, 2020, the Borrowers, the Secured Guarantors, the Agent and the Lenders, entered into the Second Amendment to Credit Agreement (the “Second Amendment”) pursuant to which, among other things, (i) the Lenders agreed to make a new $75.0 million term loan to the Borrowers, the proceeds of which the Borrowers’ will use to repay the outstanding principal amount of the existing Terms Loans and Optional Loans and for other general corporate purposes, (ii) the Borrowers were permitted to make a one-time Permitted Distribution (as defined in the Second Amendment) in the amount of $30.0 million on the date of the Second Amendment, (iii) the maturity date of the new Term Loans is five (5) years from the date of the Second Amendment, (iv) the interest rate margin was increased by 25 basis points as set forth in the Second Amendment, (v) the Borrowers agreed to make mandatory prepayments of the Term Loans from a portion of the Consolidated Excess Cash Flow (as defined in the Credit Agreement), (vi) the maximum Consolidated Total Funded Debt Ratio (as defined in the Credit Agreement) was increased as set forth in the Second Amendment and (vii) the Company and B. Riley Principal Investments, LLC entered into a reaffirmation of their guarantees of the Borrowers’ obligations under the Credit Agreement. Additionally, the Borrowers paid a commitment fee and an arrangement fee, each based on a percentage of the aggregate commitments, in each case upon the closing of the Second Amendment, as further discussed in Note 11 to the accompanying financial statements. The borrowings under the amended BRPAC Credit Agreement bear interest equal to the LIBOR plus a margin of 2.75% to 3.25% depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC Credit Agreement. At December 31, 2020, the interest rate on the BRPAC Credit Agreement was at 3.40%.

Amounts outstanding under the Amended BRPAC Credit Agreement are due in quarterly installments commencing on March 31, 2021. Quarterly installments from March 31, 2021 to December 31, 2021 are in the amount of $4.8 million per quarter, from March 31, 2022 to December 31, 2022 are in the amount of $4.3 million per quarter, from March 31, 2023 to December 31, 2023 are in the amount of $3.8 million per quarter, from March 31, 2024 to December 31, 2024 are in the amount of $3.3 million per quarter, and from March 31, 2025 to December 31, 2025 are $2.8 million per quarter.

As of December 31, 2020, and 2019, the outstanding balance on the term loan was $74.2 million (net of unamortized debt issuance costs of $0.8 million) and $66.7 million (net of unamortized debt issuance costs of $0.6 million), respectively.

We are in compliance with all financial covenants in the BRPAC Credit Agreement at December 31, 2020.

Preferred Stock Offering

On October 7, 2019, the Company closed its public offering of depositary shares, each representing 1/1000^th of a share of Series A Preferred Stock. The liquidation preference of each share of Series A Preferred Stock is $25,000 ($25.00 per Depositary Share). At the closing, the Company issued 2,000 shares of Series A Preferred Stock represented by 2,000,000 Depositary Shares issued. On October 11, 2019, the Company completed the sale of an additional 300,000 Depositary Shares, pursuant to the underwriters’ full exercise of their over-allotment option to purchase additional Depositary Shares. The offering of the 2,300,000 Depository Shares generated $57,500 of gross proceeds.

On September 4, 2020, the Company closed its public offering of Depositary Shares, each representing 1/1000th of a share of 7.375% Series B Cumulative Perpetual Preferred Stock. The liquidation preference of each share of Series A Preferred Stock is $25,000 ($25.00 per Depositary Share). As a result of the offering the Company issued 1,300 shares of Series B Preferred Stock represented by 1,300,000 depositary shares. The offering resulted in gross proceeds of approximately $32.5 million.

Senior Note Offerings

During the year ended December 31, 2020, we issued $54.5 million of senior notes due with maturities dates ranging from May 2023 to December 2027 pursuant to At the Market Issuance Sales Agreements with B. Riley Securities, which governs the program of at-the-market sales of our senior notes. We filed a series of prospectus supplements with the SEC which allowed us to sell these senior notes.

On February 12, 2020, we issued $132.3 million of senior notes due in February 2025 (“6.375% 2025 Notes”) pursuant to the prospectus supplement dated February 10, 2020. Interest on the 6.375% 2025 Notes is payable quarterly at 6.375%. The 6.375% 2025 Notes are unsecured and due and payable in full on February 28, 2025. In connection with the issuance of the 6.375% 2025 Notes, we received net proceeds of $129.2 million (after underwriting commissions, fees and other issuance costs of $3.0 million). We currently anticipate using the net proceeds from the 6.375% 2025 notes for general corporate purposes, including funding future acquisitions and investments, repaying indebtedness, making capital expenditures and funding working capital.

During March 2020, we repurchased bonds with an aggregate face value of $3.4 million for $1.8 million resulting in a gain net of expenses of $1.6 million as of December 31, 2020. As part of the repurchase, we paid $30 thousand in interest accrued through the date of each respective repurchase. 

At December 31, 2020 and December 31, 2019, the total senior notes outstanding was $870.8 million (net of unamortized debt issue costs of $9.6 million) and $688.1 million (net of unamortized debt issue costs of $8.9 million) with a weighted average interest rate of 6.95% and 7.05%, respectively. Interest on senior notes is payable on a quarterly basis.  Interest expense on senior notes totaled $61.2 million, $43.8 million and $25.4 million for the three years ended December 31, 2020, 2019 and 2018, respectively.

On January 25, 2021, the Company issued $230.0 million of senior notes due in January 2028 (“6.0% 2028 Notes”) pursuant to the prospectus supplement dated February 12, 2020. Interest on the 6.0% 2028 Notes is payable quarterly at 6.0%. The 6.0% 2028 Notes are unsecured and due and payable in full on January 31, 2028. In connection with the issuance of the 6.0% 2028 Notes, the Company received net proceeds of $225.7 million (after underwriting commissions, fees and other issuance costs of $4.2 million). The Notes bear interest at the rate of 6.0% per annum.

On March 1, 2021, the Company announced its intention to redeem at par, and at its option, $128.2 million of senior notes due in February 2027 (“7.50% 2027 Notes”) on March 31, 2021 pursuant to the second supplemental indenture dated May 31, 2017. The total redemption payment will include approximately $1.6 million in accrued interest.

On February 14, 2020, we entered into a new At Market Issuance Sales Agreement (the “February 2020 Sales Agreement”) with B. Riley Securities governing a program of at-the-market sales of certain of our senior notes. The most recent sales agreement prospectus was filed by us with the SEC on January 28, 2021 (the “January 2021 Sales Agreement Prospectus”). The Sales Agreement Prospectus allows us to sell up to $150.0 million of certain of our senior notes pursuant to an effective Registration Statement on Form S-3. As of December 31, 2020, we had $132.7 million remaining availability under the February 2020 Sales Agreement.

Off Balance Sheet Arrangements

As part of our investment banking and financial services activities, from time to time we enter into guaranties of debt, commitments of other entities, and similar transactions that may be considered off-balance sheet arrangements.

B&W Credit Agreement and Backstop

On January 31, 2020, the Company provided Babcock & Wilcox Enterprises, Inc. (“B&W”) $30.0 million of additional Tranche A-4 last out term loans pursuant to Amendment No. 20 (“Amendment No. 20”) to the Credit Agreement, dated May 11, 2015 (as amended to date, the “B&W Credit Agreement”) with Bank of America, N.A., as administrative agent and lender, and the other lenders party thereto. The Company is a lender with respect to B&W’s existing last out term loans under the Credit Agreement. Kenneth Young, our President, is the Chief Executive Officer of B&W. Pursuant to Amendment No. 20, B&W and the lenders, including the Company, also agreed upon a term sheet pursuant to which B&W would undertake a refinancing transaction on or prior to May 11, 2020 (the “Refinancing”) and B&W and the lenders, including the Company, would amend and restate the Credit Agreement on the terms specified therein. On January 31, 2020, B&W also entered into a letter agreement with the Company (the “Backstop Commitment Letter”) pursuant to which the Company agreed to fund any shortfall in the $200.0 million of new debt or equity financing required as part of the terms of the Refinancing to the extent such amounts have not been raised from third parties on the same terms contemplated by the Refinancing.  On May 14, 2020, the Company provided B&W with another $30.0 million of last-out term loans pursuant to a further amendments to B&W’s credit agreement, which also included future commitments for the Company to loan B&W $40.0 million on various dates starting in November 2020 and a limited guaranty by the Company of B&W’s obligations under the amended credit facility.

On August 10, 2020, the Company entered into a project specific indemnity rider (the “Indemnity Rider”) in favor of Berkley Insurance Company and/or Berkley Regional Insurance Company (collectively, “Berkley”) to a general agreement of indemnity made by B&W in favor of Berkley (the Indemnity Agreement”). Pursuant to the Indemnity Rider, the Company agreed to indemnify Berkley in connection with a default by B&W under the Indemnity Agreement relating to a $30.0 million payment and performance bond issued by Berkley in connection with a construction project undertaken by B&W. In consideration for providing the Indemnity Rider, B&W paid the Company $0.6 million on August 26, 2020.

Franchise Group Commitments and Loan Participant Guaranty

PSP Commitment

On January 23, 2021, we committed up to $400.0 million aggregate principal amount of unsecured debt financing, consisting of $100.0 million of secured debt financing, and $300.0 million of unsecured debt financing, to affiliates of Franchise Group, Inc. (collectively, “FRG”) in connection with FRG’s acquisition of Pet Supplies Plus (“PSP”). We are in the process of arranging financing for FRG’s PSP acquisition and to the extent needed we will fund any shortfall in the debt financing up to the $400.0 million commitment.

 The Loan Participant Guaranty

On February 14, 2020, FRG, the lenders from time to time party thereto and GACP Finance as administrative agent, entered into a Credit Agreement (the “Term Loan Credit Agreement”), pursuant to which the lenders provided a term loan facility to FRG in an aggregate principal amount of $575.0 million.

On February 19, 2020, the Company entered into a limited guaranty (the “Loan Participant Guaranty”) to one of the lenders under the Term Loan Credit Agreement (the “Loan Participant”) pursuant to which the Company guaranteed the payment when due of certain obligations, including principal, interest, and other amounts payable to the Loan Participant under the Term Loan Credit Agreement in an amount not to exceed $50.0 million plus certain expenses of the Loan Participant and certain protective advances related to such guaranteed obligations (the “Loan Participant Guaranteed Obligations”). The Loan Participant may require payment of the Loan Participant Guaranteed Obligations by the Company upon the occurrence of certain guarantor events of default, including payment or bankruptcy events of default, in each case pursuant to the Term Loan Credit Agreement. The Loan Participant Guaranty remains in effect until the date that the Loan Participant Guaranteed Obligations have been paid in full.

The Loan Participant Guaranteed Obligations are unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future unsecured and unsubordinated indebtedness. The Loan Participant Guaranteed Obligations are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables.

B. Riley Principal Merger Corp. II LOI Backstop Commitment

B. Riley Principal Merger Corp. II (“BRPM II”) was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. BRPM II entered into an agreement and plan of merger (the “Merger Agreement”) to acquire Eos Energy Storage LLC, a Delaware limited liability company, a privately held company that is not related to the Company (the “Acquisition”). In order to help meet the condition under the Merger Agreement that BRPM II maintain a certain level of cash available upon the closing (before taking into account certain transaction expenses), the Company entered into an Equity Commitment Letter with BRPM II and B. Riley Principal Sponsor Co. II, LLC, pursuant to which the Company committed to provide up to $40.0 million in equity financing at closing, less the number of shares of BRPM II’s common stock already issued pursuant to subscription agreements entered into with investors prior to the closing. The Acquisition closed on November 17, 2020 and the Company’s equity commitment thereby terminated.

Except as disclosed above, we have no material obligations, assets or liabilities which would be considered off-balance sheet arrangements and do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, established for the purpose of facilitating off-balance sheet arrangements.

Other Commitment

On June 19, 2020, the Company participated in a loan facility agreement to provide a total loan commitment up to 33,000 EUROS to a retailer in Europe.  The Company made an initial funding of 6,600 EUROS in July 2020. No additional borrowings have been made since the initial funding, leaving unused future commitments available of up to 26,400 EUROS as of December 31, 2020. 

Dividends

From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations. On February 25, 2021, the Board of Directors announced an increase to the regular quarterly dividend from $0.375 per share to $0.50 per share. On February 25, 2021, the Company declared a regular quarterly dividend of $0.50 per share and a special dividend of $3.00 per share, which will be paid on or about March 24, 2021 to stockholders of record as of March 10, 2021. During the years ended December 31, 2020 and 2019, we paid cash dividends on our common stock of $38.8 million and $41.1 million, respectively. On October 28, 2020, the Board of Directors announced an increase to the regular quarterly dividend from $0.30 per share to $0.375 per share. On October 28, 2020, the Company declared a regular quarterly dividend of $0.375 per share, which was paid on November 24, 2020 to stockholders of record as of November 10, 2020. On July 30, 2020, the Board of Directors announced an increase to the regular quarterly dividend from $0.25 per share to $0.30 per share. On July 30, 2020, the Company declared a regular quarterly dividend of $0.30 per share and a special dividend of $0.05 per share which was paid on August 28, 2020 to stockholders of record as of August 14, 2020. On May 8, 2020, we declared a quarterly dividend of $0.25 per share which was paid on June 10, 2020 to stockholders of record as of June 1, 2020. On March 3, 2020, the Board of Directors announced an increase to the regular quarterly dividend from $0.175 per share to $0.25 per share. While it is the Board’s current intention to make regular dividend payments of $0.50 per share each quarter and special dividend payments dependent upon exceptional circumstances from time to time, our Board of Directors may reduce or discontinue the payment of dividends at any time for any reason it deems relevant. The declaration and payment of any future dividends or repurchases of our common stock will be made at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, cash flows, capital expenditures, and other factors that may be deemed relevant by our Board of Directors.

A summary of our common stock dividend activity for the years ended December 31, 2020 and 2019 was as follows:

Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends will be payable quarterly in arrears, on or about the last day of January, April, July and October. On January 9, 2020, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on January 31, 2020 to holders of record as of the close of business on January 21, 2020. On April 13, 2020, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on April 30, 2020 to holders of record as of the close of business on April 23, 2020. On July 7, 2020, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on July 31, 2020 to holders of record as of the close of business on July 21, 2020. On October 8, 2020, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on October 31, 2020 to holders of record as of the close of business on October 21, 2020. On January 11, 2021, the Company declared a cash dividend of $0.4296875 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. 

Holders of Series B Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 7.375% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,843.75 or $1.84375 per Depositary Share). Dividends will be payable quarterly in arrears, on or about the last day of January, April, July and October.  On October 8, 2020, the Company declared a cash dividend of $0.29193 per Depositary Share, which was paid on October 31, 2020 to holders of record as of the close of business on October 21, 2020. On January 11, 2021, the Company declared a cash dividend of $0.4609375 per Depositary Share, which was paid on January 29, 2021 to holders of record as of the close of business on January 21, 2021. 

Contractual Obligations

The following table sets forth aggregate information about our contractual obligations as of December 31, 2020 and the periods in which payments are due:

We anticipate that cash generated from operations and existing borrowing arrangements under our credit facility to fund costs and expenses incurred in connection with liquidation engagements should be sufficient to meet our cash requirements for at least the next twelve months. However, our future capital requirements will depend on many factors, including the success of our businesses in generating cash from operations, continued compliance with financial covenants contained in our credit facility, the timing of principal payments on our long-term debt and the Capital Markets in general, among other factors.

Critical Accounting Policies

Our financial statements and the notes thereto contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, management’s estimates are adjusted accordingly. Actual results may vary from these estimates and assumptions under different and/or future circumstances. Management considers an accounting estimate to be critical if:

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used when accounting for certain items such as valuation of securities, reserves for accounts receivable, the carrying value of intangible assets and goodwill, the fair value of mandatorily redeemable noncontrolling interests and accounting for income tax valuation allowances, recovery of contract assets and sales returns and allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. Coming into 2021, the full impact of the COVID-19 outbreak continues to evolve, as countries across the world manage repeated waves of the pandemic and vaccines come to market. The impact of the COVID-19 outbreak on the Company’s results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions and the success of vaccines in slowing or halting the pandemic. These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy continue to be highly uncertain and cannot be predicted. If the financial markets and/or the overall economy continue to be impacted, the Company’s results of operations, financial position and cash flows may be materially adversely affected.

Our significant accounting policies are described in Note 2 to the consolidated financial statements included elsewhere in this Annual Report. Management believes that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our financial statements.

Revenue Recognition. On January 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606 – Revenue from Contracts with Customers using the modified retrospective method and the impact was determined to be immaterial on our consolidated financial statements. The new revenue standard was applied prospectively in our consolidated financial statements from January 1, 2018 forward and reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods.

Revenues are recognized when control of the promised goods or performance obligations for services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for the goods or services.

Revenues from contracts with customers in the Capital Markets segment, Wealth Management segment, Auction and Liquidation segment, Financial Consulting segment, Principal Investments – United Online and magicJack segment and Brands segment are primarily comprised of the following:

Capital Markets Segment - Fees earned from corporate finance and investment banking services are derived from debt, equity and convertible securities offerings in which the Company acted as an underwriter or placement agent. Fees from underwriting activities are recognized as revenues when the performance obligation for the services related to the underwriting transaction is satisfied under the terms of the engagement and is not subject to any other contingencies. Fees are also earned from financial advisory and consulting services rendered in connection with client mergers, acquisitions, restructurings, recapitalizations and other strategic transactions. The performance obligation for financial advisory services is satisfied over time as work progresses on the engagement and services are delivered to the client. The performance obligation for financial advisory services may also include success and performance based fees which are recognized as revenue when the performance obligation is no longer constrained and it is not probable that the revenue recognized would be subject to significant reversal in a future period. Generally, it is probable that the revenue recognized is no longer subject to significant reversal upon the closing of the investment banking transaction.

Fees from asset management services are recognized over the period the performance obligation for the services are provided. Asset management fees are primarily comprised of fees for asset management services and are generally based on the dollar amount of the assets being managed.

Revenues from sales and trading are recognized when the performance obligation is satisfied and include commissions resulting from equity securities transactions executed as agent or principal and are recorded on a trade date basis and fees paid for equity research.

Revenues from other sources in the Capital Markets segment is primarily comprised of (i) interest income from loans receivable and securities lending activities, (ii) related net trading gains and losses from market making activities, the commitment of capital to facilitate customer orders, (iii) trading activities from our Principal Investments in equity and other securities for the Company’s account, and (iv) other income.

Interest income from securities lending activities consists of interest income from equity and fixed income securities that are borrowed from one party and loaned to another. The Company maintains relationships with a broad group of banks and broker-dealers to facilitate the sourcing, borrowing and lending of equity and fixed income securities in a “matched book” to limit the Company’s exposure to fluctuations in the market value or securities borrowed and securities loaned.

Other revenues include (i) net trading gains and losses from market making activities in our fixed income group, (ii) carried interest from our asset management recognized as earnings from financial assets within the scope of ASC 323 - Investments - Equity Method and Joint Ventures, and therefore will not be in the scope of ASC 606 - Revenue from Contracts with Customers. In accordance with ASC 323 - Investments - Equity Method and Joint Ventures, the Company will record equity method income (losses) as a component of investment income based on the change in our proportionate claim on net assets of the investment fund, including performance-based capital allocations, assuming the investment fund was liquidated as of each reporting date pursuant to each fund's governing agreements, and (iii) other miscellaneous income.

Wealth Management segment - Fees from wealth management asset advisory services consist primarily of investment advisory fees that are recognized over the period the performance obligation for the services provided. Investment advisory and asset management fees are primarily comprised of fees for investment services and are generally based on the dollar amount of the assets being managed. Investment advisory fee revenues as a principal registered investment advisor (RIA) are recognized on a gross basis. Asset management fee revenues as an agent are recognized on a net basis.

Revenues from sales and trading are recognized when the performance obligation is satisfied and include commissions resulting from equity securities transactions executed as agent and are recorded on a trade date basis.

Auction and Liquidation segment - Commission and fees earned on the sale of goods at Auction and Liquidation sales are recognized when evidence of a contract or arrangement exists, the transaction price has been determined, and the performance obligation has been satisfied when control of the product and risks of ownership has been transferred to the buyer. The commission and fees earned for these services are included in revenues in the accompanying consolidated statements of income. Under these types of arrangements, revenues also include contractual reimbursable costs.

Revenues earned from Auction and Liquidation services contracts where the Company guarantees a minimum recovery value for goods being sold at auction or liquidation are recognized over time when the performance obligation is satisfied. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of services to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Costs to fulfill the contract include labor and other direct costs incurred by the Company related to the contract. Due to the nature of the guarantees and performance obligations under these contracts, the estimation of revenue that is ultimately earned is complex and subject to many variables and requires significant judgment. It is common for these contracts to contain provisions that can either increase or decrease the transaction price upon completion of our performance obligations under the contract. Estimated amounts are included in the transaction price at the most likely amount it is probable that a significant reversal of revenue will not occur. Our estimates of variable consideration and determination of whether or not to include estimated amounts in the transaction price are based on an assessment of our anticipated performance under the contract taking into consideration all historical, current and forecasted information that is reasonably available to us. Costs that directly relate to the contract and expected to be recoverable are capitalized as an asset and included in advances against customer contracts in the accompanying consolidated balance sheets. These costs are amortized as the services are transferred to the customer over the contract period, which generally does not exceed six months, and the expense is recognized as a component of direct cost of services. If, during the auction or liquidation sale, the Company determines that the total costs to be incurred on a performance obligation under a contract exceeds the total estimated revenues to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

If the Company determines that the variable consideration used in the initial determination of the transaction price for the contract is such that the total recoveries from the auction or liquidation will not exceed the guaranteed recovery values or advances made in accordance with the contract, the transaction price will be reduced and a loss or negative revenue could result from the performance obligation. A provision for the entire loss as negative revenue on the performance obligation is recognized in the period the loss is determined.

Financial Consulting Segment - Revenues in the Financial Consulting segment are primarily comprised of fees earned from providing bankruptcy, financial advisory, forensic accounting, real estate consulting and valuation and appraisal services. Fees earned from bankruptcy, financial advisory, forensic accounting and real estate consulting services are rendered to clients over time as work progresses on the engagement and services are delivered to the client. Fees may also include success and performance based fees which are recognized as revenue when the performance obligation is no longer constrained and it is not probable that the revenue recognized would be subject to significant reversal in a future period. Revenues for valuation and appraisal services are recognized when the performance obligation is completed and is generally at the point in time upon delivery of the report to the customer. Revenues in the Financial Consulting segment also include contractual reimbursable costs.

Principal Investments – United Online and magicJack Segment –Revenues in the Principal Investments - United Online and magicJack segment are primarily comprised of services revenue from fees charged to United Online pay accounts; sales revenue from the sale of the magicJack and related devices and access rights; revenues from access rights renewals and mobile apps; prepaid minutes revenues; revenues from access and wholesale charges; service revenue from UCaaS hosting services; advertising and other revenues; and products revenues from the sale of magicJack and mobile broadband service devices, including the related shipping and handling and installation fees, if applicable.

Service revenues from fees charged to United Online pay accounts are recognized in the period in which fees are fixed or determinable and the related services are provided to the customer. The Company’s pay accounts generally pay in advance for their services by credit card, PayPal, automated clearinghouse or check, and revenues are then recognized ratably over the service period. Advance payments from pay accounts are recorded in the consolidated balance sheets as deferred revenue. In circumstances where payment is not received in advance, revenues are only recognized if collectability is probably.

Revenues from sales of the magicJack devices and access rights represent revenues recognized from sales of the magicJack devices to retailers, wholesalers, or direct to customers, net of returns, and rights to access the Company’s servers over the period associated with the access right period. The transaction price for magicJack devices is allocated between equipment and service based on stand-alone selling prices. Revenues allocated to equipment are recognized upon delivery (when control transfers to the customer), and service revenue is recognized ratably over the access rights’ service term. The Company estimates the return of direct sales as part of the transaction price using a six month rolling average of historical returns. Revenues for hardware and shipping are recognized at the time of delivery and revenues for services are recognized ratably over the service. The Company recognizes revenue for hardware based on delivery terms to the retailer and revenue for service is deferred for the delay period and recognized ratably over the remaining access right period.

Revenues from access rights renewals and mobile apps represents revenues from customers purchasing rights to access our servers beyond the access right period included in a magicJack device or magicJack service. The extended access right ranges from one to five years. These fees charged to customers are initially deferred and recognized as revenue ratably over the extended access right period. Revenues from access rights granted to users of the magicJack Apps are recognized ratably over the access right period.

Revenues from the sale of other magicJack related products are revenues recognized from the sale of other items related to the magicJack devices and access right renewals the Company offers its customers, including porting fees charged to customers to port their existing phone number to a magicJack device or services, fees charged for customer to select a custom, vanity or Canadian phone number and fees charged to customers to change their existing number. These revenues are recognized at the time of sale.

Prepaid minutes revenues are primarily from the usage and expiration of international prepaid minutes, net of chargebacks. Revenues from prepaid minutes are recognized as minutes are used.

Revenues from access and wholesale charges are generated from access fees charged to other telecommunication carriers or providers for Interexchange Carriers (“IXC”) calls terminated to the Company’s end-users, and other fees charged to telecommunication carriers or providers for origination of calls to their 800-numbers. These revenues are recorded based on rates set forth in the respective state and federal tariffs or negotiated contract rates, less provisions for billing adjustments. Revenues from access and wholesale charges are recognized as calls are terminated to the network.

UCaaS revenues are recurring monthly service revenue from sales of its hosted services. Customers are billed monthly in advance for these recurring services and in arrears for one time service charges and other certain usage charges. UCaaS revenues also includes non-recurring revenue from the sale of hardware and network equipment. Revenues for recurring monthly service are recorded in the period the services are provided over the term of the respective customer agreements and revenue from the sale of hardware and network equipment is recognized in the period that the equipment is delivered and put into service.

Advertising revenues consist primarily of amounts from the Company’s Internet search partner that are generated as a result of users utilizing the partner’s Internet search services and amounts generated from display advertisements. The Company recognizes such advertising revenues in the period in which the advertisement is displayed or, for performance-based arrangements, when the related performance criteria are met. In determining whether an arrangement exists, the Company ensures that a written contract is in place, such as a standard insertion order or a customer-specific agreement. The Company assesses whether performance criteria have been met and whether the fees are fixed or determinable based on a reconciliation of the performance criteria and the payment terms associated with the transaction. The reconciliation of the performance criteria generally includes a comparison of customer-provided performance data to the contractual performance obligation and to internal or third-party performance data in circumstances where that data is available.

Brands Segment– Licensing revenue results from various license agreements that provide revenue based on guaranteed minimum royalty amounts and advertising/marketing fees with additional royalty revenue based on a percentage of defined sales. Guaranteed minimum royalty amounts are recognized as revenue on a straight-line basis over the full contract term. Royalty payments exceeding the guaranteed minimum amounts in a specific contract year are recognized only subsequent to when the guaranteed minimum amount has been achieved.  Other licensing fees are recognized at a point in time once the performance obligations have been satisfied.  

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

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses inherent in our accounts receivable portfolio. In establishing the required allowance, management utilizes the expected loss model. Management also considers historical losses adjusted for current market conditions and the customers’ financial condition, the amount of receivables in dispute, and the current receivables aging and current payment patterns. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The bad debt expense is included as a component of selling, general and administrative expenses in the accompanying consolidated statements of income.

Goodwill and Other Intangible Assets. We account for goodwill and intangible assets in accordance with the accounting guidance which requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.

Goodwill includes the excess of the purchase price over the fair value of net assets acquired in business combinations and the acquisition of noncontrolling interests. The Codification requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment). Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. The Company operates five reporting units, which are the same as its reporting segments described in Note 22 to the consolidated financial statements. Significant judgment is required to estimate the fair value of reporting units which includes estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.

When testing goodwill for impairment, in accordance with ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, the Company made a qualitative assessment of the impact of the COVID-19 outbreak on goodwill and other intangible assets. Based on the Company’s qualitative assessments during 2020, the Company concluded that a positive assertion can be made from the qualitative assessment that it is more likely than not that the fair value of the reporting units exceeded their carrying values and no impairments were identified.

The Company reviews the carrying value of its amortizable intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the asset or asset group to the undiscounted cash flows that the asset or asset group is expected to generate. If the undiscounted cash flows of such assets are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group, if any, exceeds its fair market value. During the year ended December 31, 2020, the Company determined that the COVID-19 outbreak was a triggering event for testing the indefinite-lived tradenames in the Brands segment during the first quarter and again in the second quarter and determined that the indefinite-lived tradenames in the Brands segment were impaired. As a result, the Company recognized impairment charges of $12,500, during the year ended December 31, 2020, which are included in restructuring charge in the Company’s consolidated statements of income. During the year ended December 31, 2019, the Company recognized no impairment of intangibles.

Fair Value Measurements. The Company records securities and other investments owned, securities sold not yet purchased, and mandatorily redeemable noncontrolling interests that were issued after November 5, 2003 at fair value with fair value determined in accordance with the Codification. Our mandatorily redeemable noncontrolling interests are measured at fair value on a recurring basis and are categorized using the three levels of fair value hierarchy. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The fair value of mandatorily redeemable noncontrolling interests is determined based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models.

Investments in partnership interests include investments in private equity partnerships that primarily invest in equity securities, bonds, and direct lending funds. We also invest in priority investment funds and the underlying securities held by these funds are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. The Company’s partnership and investment fund interests are valued based on the Company’s proportionate share of the net assets of the partnerships and funds; the value for these investments are derived from the most recent statements received from the general partner or fund administrator. These partnership and investment fund interests are valued at net asset value (“NAV”) in accordance with ASC “Topic 820: Fair Value Measurements.”

The carrying amounts reported in the consolidated financial statements for cash, restricted cash, accounts receivable, accounts payable and accrued expenses and other current liabilities approximate fair value based on the short-term maturity of these instruments. The carrying amounts of the notes payable (including credit lines used to finance liquidation engagements), long-term debt and capital lease obligations approximate fair value because the contractual interest rates or effective yields of such instruments are consistent with current market rates of interest for instruments of comparable credit risk.

Share-Based Compensation. The Company’s share based payment awards principally consist of grants of restricted stock and restricted stock units. Share based payment awards also include grants of membership interests in the Company’s majority owned subsidiaries. The grants of membership interests consist of percentage interests in the Company’s majority owned subsidiaries as determined at the date of grant. In accordance with the accounting guidance share based payment awards are classified as either equity or a liability. For equity-classified awards, the Company measures compensation cost for the grant of membership interests at fair value on the date of grant and recognizes compensation expense in the consolidated statement of income over the requisite service or performance period the award is expected to vest.

In June 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“Purchase Plan”) which allows eligible employees to purchase common stock through payroll deductions at a price that is 85% of the market value of the common stock on the last day of the offering period.  In accordance with the provisions of ASC 718, “Compensation – Stock Compensation” (“ASC 718”), the Company is required to recognize compensation expense relating to shares offered under the Purchase Plan.

Income Taxes. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction, the eligible carryforward period, and other circumstances. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.

The Company establishes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. As a result of the common stock offering that was completed on June 5, 2014, the Company had a more than 50% ownership shift in accordance with Internal Revenue Code Section 382. Accordingly, the Company is limited to the amount of net operating loss that may be utilized in future taxable years depending on the Company’s actual taxable income. As of December 31, 2020, the Company believes that the net operating loss that existed as of the more than 50% ownership shift will be utilized in future tax periods and it is more-likely-than-not that future taxable earnings will be sufficient to realize its deferred tax assets and has not provided an allowance.

Recent Accounting Standards

See Note 2(ab) to the accompanying financial statements for recent accounting standards we have not yet adopted and recently adopted.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is submitted as a separate section beginning on page F-1 of this Annual Report on Form 10-K (the “Financial Statements”).

B. RILEY FINANCIAL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

B. Riley Financial, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of B. Riley Financial, Inc. and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 3, 2021, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of Brands Indefinite-lived Tradenames

Description of the Matter

At December 31, 2020, the Company’s tradenames were valued at $125 million. Indefinite-lived intangible assets are tested for impairment at least annually or when events occur that indicate impairment could exist. As more fully described in Note 8 to the consolidated financial statements, during the first and second quarters of fiscal 2020, the Company identified the market effects of the COVID-19 pandemic as an economic indicator requiring interim assessments. As a result of these assessments, the Company recognized an impairment charge of $12.5 million on the indefinite-lived tradenames in the Brands segment for the year ended December 31, 2020.

Subjective and challenging judgment is required by management in determining the assumptions and the valuation methodology in estimating the fair value of the Brands segment indefinite-lived tradenames. Auditing management’s impairment model for indefinite-lived tradenames was complex and required judgment due to the significant assumptions such as the revenue growth rates, long-term growth rate, effective tax rate, projected EBITDA margin, and discount rates. These assumptions are affected by expectations about future economic and industry factors.

How We Addressed the Matter in Our Audit 

Procedures performed to address this critical audit matter included the following. We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to evaluate indefinite-lived intangible assets for impairment. For example, we tested management’s review controls over the significant assumptions described above as well as over the data used in the valuation analyses. We also obtained an understanding, evaluated the test of design effectiveness, and tested the operating effectiveness of controls over the Company’s process of developing expectations for Brands and comparing recorded amounts to those expectations.

With assistance from our valuation specialists, we evaluated the reasonableness of the valuation methodology and significant assumptions, including pre-tax required rate of debt, effective tax rate, beta, WACC, and long-term growth rate used in the model. In addition, the valuation specialists assisted in testing certain inputs utilized by comparing them to similar companies in the industry. We also performed a sensitivity analysis of the significant assumptions to evaluate the changes in the fair value of the tradename intangible assets that would result from changes in the assumptions; compared the revenue growth rates used in the valuation to current industry and economic trends; developed an independent expectation for comparison to management’s estimated revenue and expenses; and evaluated audit evidence from events or transactions occurring after the measurement date for comparison to management’s estimate.

Valuation of Certain Level 3 Investments

Description of the Matter

The Company estimates the fair value of certain investments and loans receivable utilizing valuation models with unobservable inputs. Unlike Level 1 and 2 inputs, Level 3 inputs are unobservable, supported by little or no market activity, and are significant to the fair value of certain investments and loans receivable. At December 31, 2020, the Company had investments of $539,981,000 utilizing Level 3 inputs.

Subjective and challenging judgment is required by management to determine the assumptions and valuation methodology to record financial assets at their fair value using Level 3 inputs. Auditing management’s models to determine the fair value of certain investments and loans receivable was complex and required judgment, particularly when evaluating inputs such as discount rates, projected EBITDA, multiples of EBITDA, projected revenue, multiples of revenue, and expected annualized volatility rates. These assumptions are affected by expectations about future economic and industry factors as well as estimates of the investee’s future growth.

How We Addressed the Matter in Our Audit 

Procedures performed to address this critical audit matter included obtaining an understanding of the control environment, evaluating the design effectiveness, and testing the operating effectiveness of controls over the Company’s process to establish a valuation methodology and determine assumptions used in valuation models to record financial assets at their fair value. For example, we tested management’s review controls over the significant assumptions described above as well as over the data used in the valuation models.

With assistance from our valuation specialists, we evaluated the reasonableness of the valuation methodology and significant assumptions; tested inputs for reasonableness, including discount rates, projected EBITDA, multiples of EBITDA, projected revenue, multiples of revenue, and expected annualized volatility rates; and corroborated with audit evidence from external sources or comparisons to other companies in the industry. We tested the Company's process used to develop the revenue and EBITDA projections and evaluated audit evidence from events or transactions occurring after the measurement date for comparison to management’s estimate.

/s/ Marcum llp

Marcum llp

We have served as the Company’s auditor since 2009.

New York, NY

March 3, 2021, except for effects of the revised segments disclosed in Note 22 as to which the date is June 25, 2021.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING