| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( a)
Principles of Consolidation and Basis of Presentation The
condensed consolidated financial statements include the accounts of B. Riley Financial, Inc. and its wholly-owned and majority-owned
subsidiaries. The condensed consolidated financial statements also include the accounts of (a) Great American Global Partners,
LLC which is controlled by the Company as a result of its ownership of a 50% member interest, appointment of two of the three
executive officers and significant influence over the funding of operations, and (b) GA Retail Investments, L.P. which is controlled
by the Company as a result of its ownership of a 50% partnership interest, appointment of executive officers and significant influence
over the operations. The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant
to interim financial reporting guidelines and the rules and regulations of the Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to
such rules and regulations. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring
adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented
have been included. These condensed consolidated financial statements and the accompanying notes should be read in conjunction
with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2018, filed with the SEC on March 6, 2019. The results of operations for the nine months
ended September 30, 2019 are not necessarily indicative of the operating results to be expected for the full fiscal year or any
future periods. (b)
Use of Estimates The
preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements
and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items
such as valuation of securities, allowance for doubtful accounts, the fair value of intangible assets and goodwill, the fair value
of mandatorily redeemable noncontrolling interests, fair value of share based arrangements and accounting for income tax valuation
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. (c)
Revenue Recognition On
January 1, 2018, the Company 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 condensed consolidated
financial statements. The new revenue standard was applied prospectively in the Company’s condensed consolidated financial
statements from January 1, 2018 forward and reported financial information for historical comparable periods was 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 services is transferred to the Company’s customers, in an amount that
reflects the consideration the Company expects to be entitled to in exchange for the goods or services. There
have been no material changes to the Company’s revenue recognition accounting policy set forth in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2018. See Note 12 for information on revenue from contracts with customers. (d)
Direct Cost of Services Direct
cost of services relates to service and fee revenues. The costs consist of employee compensation and related payroll benefits,
travel expenses, the cost of consultants assigned to revenue-generating activities and direct expenses billable to clients in
the Valuation and Appraisal segment. Direct costs of services include participation in profits under collaborative arrangements
in which the Company is a majority participant. Direct costs of services also include the cost of consultants and other direct
expenses related to Auction and Liquidation contracts pursuant to commission and fee based arrangements in the Auction and Liquidation
segment. Direct cost of services in the Principal Investments — United Online and magicJack segment include cost of telecommunications
and data center costs, personnel and overhead-related costs associated with operating the Company’s networks, servers and
data centers, sales commissions associated with multi-year service plans, depreciation of network computers and equipment, amortization
expense, third party advertising sales commissions, license fees, costs related to providing customer support, costs related to
customer billing and processing of customer credit cards and associated bank fees. Direct cost of services does not include an
allocation of the Company’s overhead costs. (e)
Interest Expense — Securities Lending Activities and Loan Participations Sold Interest
expense from securities lending activities is included in operating expenses related to operations in the Capital Markets segment.
Interest expense from securities lending activities is incurred from equity and fixed income securities that are loaned to the
Company and totaled $9,721 and $6,425 for the three months ended September 30, 2019 and 2018, respectively, and $22,027 and $16,317
for the nine months ended September 30, 2019 and 2018, respectively. Loan participations sold as of September 30, 3019
totaled $28,872. Interest expense from loan participations sold totaled $552 for both the three and nine months ended September 30,
2019. (f)
Concentration of Risk Revenues
in the Capital Markets, Valuation and Appraisal and Principal Investments — United Online and magicJack segments are currently
primarily generated in the United States. Revenues in the Auction and Liquidation segment are primarily generated in the United
States, Australia, Canada and Europe. The
Company’s activities in the Auction and Liquidation segment are executed frequently with, and on behalf of, distressed customers
and secured creditors. Concentrations of credit risk can be affected by changes in economic, industry, or geographical factors.
The Company seeks to control its credit risk and potential risk concentration through risk management activities that limit the
Company’s exposure to losses on any one specific liquidation services contract or concentration within any one specific
industry. To mitigate the exposure to losses on any one specific liquidations services contract, the Company sometimes conducts
operations with third parties through collaborative arrangements. The
Company maintains cash in various federally insured banking institutions. The account balances at each institution periodically
exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insurance coverage, and as a result, there is a
concentration of credit risk related to amounts in excess of FDIC insurance coverage. The Company has not experienced any losses
in such accounts. The Company also has substantial cash balances from proceeds received from auctions and liquidation engagements
that are distributed to parties in accordance with the collaborative arrangements. (g)
Advertising Expenses The
Company expenses advertising costs, which consist primarily of costs for printed materials, as incurred. Advertising costs totaled
$437 and $371 for the three months ended September 30, 2019 and 2018, respectively, and $1,383 and $1,656 for the nine months
ended September 30, 2019 and 2018, respectively. Advertising expense is included as a component of selling, general and administrative
expenses in the accompanying condensed consolidated statements of income. (h)
Share-Based Compensation The
Company’s share-based payment awards principally consist of grants of restricted stock, restricted stock units and costs
associated with the Company’s employee stock purchase plan. In accordance with the applicable accounting guidance, share-based
payment awards are classified as either equity or liabilities. 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 condensed
consolidated statements of income over the requisite service or performance period the award is expected to vest. The fair value
of the liability-classified award will be subsequently remeasured at each reporting date through the settlement date. Change in
fair value during the requisite service period will be recognized as compensation cost over that period. 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 (i)
Income Taxes The
Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included
in the condensed consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on
the difference between the financial statement basis 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. 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 recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been
met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company accrues
interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component
of income tax expense. (j)
Cash and Cash Equivalents The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. (k)
Restricted Cash As
of September 30, 2019, restricted cash balance is $471 related to one of the Company’s telecommunication suppliers. As of
December 31, 2018, restricted cash balance of $838 included $469 cash collateral for one of the Company’s telecommunication
suppliers and $369 certificate of deposits collateral for certain letters of credit. (l)
Securities Borrowed and Securities Loaned Securities
borrowed and securities loaned are recorded based upon the amount of cash advanced or received. Securities borrowed transactions
facilitate the settlement process and require the Company to deposit cash or other collateral with the lender. With respect to
securities loaned, the Company receives collateral in the form of cash. The amount of collateral required to be deposited for
securities borrowed, or received for securities loaned, is an amount generally in excess of the market value of the applicable
securities borrowed or loaned. The Company monitors the market value of the securities borrowed and loaned on a daily basis, with
additional collateral obtained, or excess collateral recalled, when deemed appropriate. The
Company accounts for securities lending transactions in accordance with ASC “Topic 210: Balance Sheet,” which requires
companies to report disclosures of offsetting assets and liabilities. The Company does not net securities borrowed and securities
loaned and these items are presented on a gross basis in the condensed consolidated balance sheets. (m)
Due from/to Brokers, Dealers, and Clearing Organizations The
Company clears all of its proprietary and customer transactions through other broker-dealers on a fully disclosed basis. The amount
receivable from or payable to the clearing brokers represents the net of proceeds from unsettled securities sold, the Company’s
clearing deposits and amounts receivable for commissions less amounts payable for unsettled securities purchased by the Company
and amounts payable for clearing costs and other settlement charges. This amount also includes the cash collateral received for
securities loaned less cash collateral for securities borrowed. Any amounts payable would be fully collateralized by all of the
securities owned by the Company and held on deposit at the clearing broker. (n)
Accounts Receivable Accounts
receivable represents amounts due from the Company’s Auction and Liquidation, Valuation and Appraisal, Capital Markets and
Principal Investments — United Online and magicJack customers. The Company maintains an allowance for doubtful accounts
for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management utilizes
a specific customer identification methodology. Management also considers historical losses adjusted for current market conditions
and the customers’ financial condition 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 Company does not have any off-balance sheet credit exposure related to its customers. The Company’s bad debt
expense and changes in the allowance for doubtful accounts for the three and nine months ended September 30, 2019 and 2018 are
included in Note 6. (o)
Leases The
Company determines if an arrangement is, or contains, a lease at the inception date. Operating leases are included in right-of-use
assets, with the related liabilities included in operating lease liabilities in the condensed consolidated balance sheet. Operating
lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation
to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the lease commencement
date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate
in determining the present value of lease payments. Variable components of the lease payments such as fair market value adjustments,
utilities, and maintenance costs are expensed as incurred and not included in determining the present value. Our lease terms include
options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized
on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components which are accounted
for as a single lease component. See Note 8 for additional information on leases. (p)
Property and Equipment Property
and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated
useful lives of the assets. Property and equipment held under finance leases are amortized on a straight-line basis over the shorter
of the lease term or estimated useful life of the asset. Depreciation and amortization expense on property and equipment was $1,163
and $1,005 for the three months ended September 30, 2019 and 2018, respectively, and $4,186 and $3,369 for the nine months ended
September 30, 2019 and 2018, respectively. (q)
Loans Receivable Loans
receivable are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs,
unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts.
Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over
the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology.
At September 30, 2019 and December 31, 2018, loans receivable had a carrying value of $295,898 and $38,794, respectively,
with various maturity dates through June 2022. (r)
Securities and Other Investments Owned and Securities Sold Not Yet Purchased Securities
owned consist of marketable securities and investments in partnership interests and other securities recorded at fair value. Securities
sold, but not yet purchased represents obligations of the Company to deliver the specified security at the contracted price and
thereby create a liability to purchase the security in the market at prevailing prices. Changes in the value of these securities
are reflected currently in the results of operations. As
of September 30, 2019 and December 31, 2018, the Company’s securities and other investments owned and securities sold not
yet purchased at fair value consisted of the following securities:
September 30, December 31,
2019 2018
Securities and other
investments owned:
Common
and preferred stocks and warrants $ 244,556 $ 193,459
Corporate
bonds 21,580 18,825
Fixed
income securities 4,816 3,825
Loans
receivable at fair value 35,511 33,731
Partnership
interests and other 20,153 23,737
$ 326,616 $ 273,577
Securities
sold not yet purchased:
Common
stocks $ 6,684 $ 11,130
Corporate
bonds 18,630 16,338
Fixed
income securities 3,778 10,155
$ 29,092 $ 37,623 (s)
Fair Value Measurements The
Company’s 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. Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement
assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability
or, in the absence of a principal market, the most advantageous market. 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. The Company’s 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
Company’s securities and other investments owned and securities sold and not yet purchased are comprised of common and preferred
stocks and warrants, corporate bonds, loans receivable valued at fair value and investments in partnerships. Investments in common
stocks that are based on quoted prices in active markets are included in Level 1 of the fair value hierarchy. The Company also
holds nonpublic common and preferred stocks and warrants for which there is little or no public market and fair value is determined
by management on a consistent basis. For investments where little or no public market exists, management’s determination
of fair value is based on the best available information which may incorporate management’s own assumptions and involves
a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent
sales prices of the issuer’s securities and liquidity risks. These investments are included in Level 3 of the fair value
hierarchy. Investments in partnership interests include investments in private equity partnerships that primarily invest in equity
securities, bonds, and direct lending funds. The Company also invests 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
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. The
following tables present information on the financial assets and liabilities measured and recorded at fair value on a recurring
basis as of September 30, 2019 and December 31, 2018.
Financial
Assets and Liabilities Measured at Fair Value
on
a Recurring Basis at September 30, 2019 Using
Quoted
prices in
Fair
value at active
markets for identical Other
observable Significant
unobservable
September 30, assets inputs inputs
2019 (Level
1) (Level
2) (Level
3)
Assets:
Securities
and other investments owned:
Common
and preferred stocks and warrants $ 244,556 $ 193,625 $ — $ 50,931
Corporate
bonds 21,580 — 21,580 —
Fixed
income securities 4,816 — 4,816 —
Loans
receivable at fair value 35,511 — — 35,511
Total 306,463 $ 193,625 $ 26,396 $ 86,442
Investment
funds valued at net asset value (1) 20,153
Total
assets measured at fair value $ 326,616
Liabilities:
Securities
sold not yet purchased:
Common
stocks $ 6,684 $ 6,684 $ — $ —
Corporate
bonds 18,630 — 18,630 —
Fixed
income securities 3,778 — 3,778 —
Total
securities sold not yet purchased 29,092 6,684 22,408 —
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003 4,395 — — 4,395
Total
liabilities measured at fair value $ 33,487 $ 6,684 $ 22,408 $ 4,395
Financial
Assets and Liabilities Measured at Fair Value
on
a Recurring Basis at December 31, 2018 Using
Quoted
prices in
Fair
value at active
markets for identical Other
observable Significant
unobservable
December 31 assets inputs inputs
2018 (Level
1) (Level
2) (Level
3)
Assets:
Securities
and other investments owned:
Common
and preferred stocks and warrants $ 193,459 $ 168,882 $ — $ 24,577
Corporate
bonds 18,825 — 18,825 —
Fixed
income securities 3,825 — 3,825 —
Loans
receivable at fair value 33,731 — — 33,731
Total 249,840 $ 168,882 $ 22,650 $ 58,308
Investment
funds valued at net asset value (1) 23,737
Total
assets measured at fair value $ 273,577
Liabilities:
Securities
sold not yet purchased:
Common
stocks $ 11,130 $ 11,130 $ — $ —
Corporate
bonds 16,338 — 16,338 —
Fixed
income securities 10,155 — 10,155 —
Total
securities sold not yet purchased 37,623 11,130 26,493 —
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003 4,633 — — 4,633
Total
liabilities measured at fair value $ 42,256 $ 11,130 $ 26,493 $ 4,633
(1) Certain investments
that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been
classified in the fair value hierarchy in accordance with ASC “Topic 820 Fair Value Measurements.” The fair value
amounts presented in the tables above for investment funds valued at net asset value are intended to permit reconciliation
of the fair value hierarchy to the amounts presented in the condensed consolidated balance sheets. As
of September 30, 2019 and December 31, 2018, financial assets measured and reported at fair value on a recurring basis and
classified within Level 3 were $86,442 and $58,308, respectively, or 4.1% and 3.0%, respectively, of the Company’s total
assets. In determining the fair value for these Level 3 financial assets, the Company analyzes various financial, performance
and market factors to estimate the value, including where applicable, over-the-counter market trading activity. The
following table summarizes the significant unobservable inputs in the fair value measurement of level 3 financial assets and liabilities
by category of investment and valuation technique as of September 30, 2019:
Fair
value at
September 30, Valuation Unobservable Weighted
2019 Technique Input Range Average
Assets:
Common
and preferred stocks and warrants $ 50,931 Market
approach Over-the-counter
trading activity $8.00/share $ 8.00
Market price of related security $4.79/share $ 4.79
Recent transaction $210.02/share $ 210.02
Multiple of EBITDA 10.1x 10.1 x
Yield analysis Cost of capital 13.2% 13.2 %
Option pricing model Annualized volatility 50% - 100% 68 %
Loans
receivable at fair value 35,511 Discounted cash flow Market interest rate 15.1% -15.3% 15.3 %
Market
approach Market price of
related security $2,100.21/share $ 2,100.21
Total
level 3 assets measured at fair value $ 86,442
Liabilities:
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003 $ 4,395 Market approach Operating income multiple 6.0x 6.0 x The
changes in Level 3 fair value hierarchy during the nine months ended September 30, 2019 and 2018 are as follows:
Level
3 Level
3 Changes During the Period Level
3
Balance
at Fair Relating
to Purchases, Transfer in Balance
at
Beginning of Value Undistributed Sales
and and/or
out End
of
Year Adjustments Earnings Settlements of
Level 3 Period
Nine
Months Ended September 30, 2019
Common
and preferred stocks and warrants $ 24,577 $ 715 $ 1,424 $ 24,215 $ — $ 50,931
Loans
receivable at fair value 33,731 11,648 1,621 (11,489 ) — 35,511
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003 4,633 — (238 ) — — 4,395
Nine
Months Ended September 30, 2018
Common
stocks and warrants $ 28,346 $ (3,247 ) $ 578 $ 4,250 $ (20,970 ) $ 8,957
Loans
receivable at fair value 33,713 (11 ) 100 2,785 — 36,587
Partnership
interests and other 26,104 1,411 (2,735 ) 28,044 — 52,824
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003 4,478 — (69 ) — — 4,409 The
amount reported in the table above for the nine months ended September 30, 2019 and 2018 includes the amount of undistributed
earnings attributable to the noncontrolling interests that is distributed on a quarterly basis. The carrying amounts reported
in the condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts
payable and accrued expenses and other liabilities approximate fair value based on the short-term maturity of these instruments. The
carrying amount of the senior notes payable and term loan 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. During
the nine months ended September 30, 2019 and 2018, there were no assets or liabilities measured at fair value on a non-recurring
basis. (t)
Derivative and Foreign Currency Translation The
Company periodically uses derivative instruments, which primarily consist of the purchase of forward exchange contracts, for certain
Auction and Liquidation engagements with operations outside the United States. The Company did not use any derivative contracts
during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, the Company’s use of derivatives
consisted of the purchase of forward exchange contracts (a) in the amount of $54,406 Canadian dollars, that were settled during
the first and second quarter of 2018 and (b) $1,500 Euro’s that settled in March 2018. The
net loss from forward exchange contracts was $91 during the nine months ended September 30, 2018.
This amount is reported as a component of selling, general and administrative expenses in the condensed consolidated statements
of income. The
Company transacts business in various foreign currencies. In countries where the functional currency of the underlying
operations has been determined to be the local country’s currency, revenues and expenses of operations outside the
United States are translated into United States dollars using average exchange rates while assets and liabilities of
operations outside the United States are translated into United States dollars using period-end exchange rates. The effects
of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other
comprehensive income in the accompanying condensed consolidated balance sheets. Transaction gains (loss) were $446 and ($51)
during the three months ended September 30, 2019 and 2018, respectively, and $121 and $843 during the nine months ended
September 30, 2019 and 2018, respectively. These amounts are included in selling, general and administrative expenses in
the Company’s condensed consolidated statements of income. (u)
Common Stock Warrants The
common stock warrants entitle the holders of the warrants to acquire shares of the Company’s common stock from the Company
at a price of $17.50 per share (the “Exercise Price”), subject to, among other matters, the proper completion of an
exercise notice and payment. The Exercise Price and the number of shares of Company common stock issuable upon exercise are subject
to customary anti-dilution and adjustment provisions, which include stock splits, subdivisions or reclassifications of the Company’s
common stock. The common stock warrants expire on July 3, 2022. As of December 31, 2018, warrants to purchase 821,816 shares of
common stock were outstanding. On May 16, 2019, the Company repurchased 638,311 warrants for $2,777 ($4.35 per warrant) which
is included in common stock warrants repurchased in the condensed consolidated statements of equity. As of September 30, 2019,
warrants to purchase 183,505 shares of common stock were outstanding. (v)
Equity Investment bebe
stores, inc. At
September 30, 2019, the Company had a 30.5% ownership interest in bebe stores, inc. (“bebe”). The equity ownership
in bebe is accounted for under the equity method of accounting, and is included in prepaid expenses and other assets in the condensed
consolidated balance sheets. National
Holdings Corporation On
November 14, 2018, the Company entered into an agreement to acquire shares of National Holdings Corporation (“National Holdings”),
a Nasdaq-listed issuer, from Fortress Biotech, Inc. for an aggregate purchase price totaling approximately $22.9 million. The
transaction was completed in two tranches. In the first tranche, which was completed in the fourth quarter of 2018, the Company
acquired shares representing 24% of the total outstanding shares of National Holdings. The second tranche was completed in the
first quarter of 2019. As of September 30, 2019, the Company had purchased 6,159,550 shares of National Holdings’ common
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