| 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) National Asset Management, Inc. (“NAM”), a federally-registered
investment adviser providing asset management advisory services to retail clients for a fee based upon a percentage of assets managed.
NAM has a majority voting interest in Innovation X Management, LLC (“Innovation X”), which together serve as the investment
manager of an investment fund (see Variable Interest Entities below). Because NAM has the majority voting interest in Innovation X, the
results of operations of Innovation X are included in the Company’s consolidated financial statements, and the amount attributable
to the other investor is recorded as a non-controlling interest. 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, 2020, filed with the SEC on March 4, 2021. The results of operations for the three months ended March
31, 2021 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 and loan receivables, 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, accounting for income tax valuation allowances,
recovery of contract assets, sales returns and allowances and contingencies. 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)
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
$18,721 and $7,921 for the three months ended March 31, 2021 and 2020, respectively. Loan participations sold as of March 31, 2021 and
2020 totaled $11,230 and $12,405, respectively. Interest expense from loan participations sold totaled $468 and $552 for the three months
ended March 31, 2021 and 2020, respectively. (d)
Concentration of Risk Revenues
in the Capital Markets, Financial Consulting, Wealth Management, Brands 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. (e)
Advertising Expenses The
Company expenses advertising costs, which consist primarily of costs for printed materials, as incurred. Advertising costs totaled $578
and $841 for the three months ended March 31, 2021 and 2020, respectively. Advertising expense is included as a component of selling,
general and administrative expenses in the accompanying condensed consolidated statements of operations. (f)
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 operations 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 (g)
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. (h)
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. (i) Restricted Cash As
of March 31, 2021, restricted cash included $1,508 of cash collateral for foreign exchange contracts and leases, $471 related to
one of the Company’s telecommunication suppliers and $6,553 related to a loan taken out by National under the Paycheck Protection
Program Loan (“PPP”). Upon completion of the acquisition of National, in accordance with the provisions of the Small Business
Administration regarding changes of ownership of an entity that has received PPP funds, the Company was required to place $6,553 of cash
in a restricted cash account with the PPP lender. As of December 31, 2020, restricted cash included $764 of cash collateral for
foreign exchange contracts and $471 related to one of the Company’s telecommunication suppliers. (j)
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. (k)
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 $873 and $932 for
the three months ended March 31, 2021 and 2020, respectively. (l)
Loans Receivable The
Company adopted the new credit loss standard effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05, the Company
elected the irrevocable fair value option for all outstanding loans receivable that were previously measured at amortized cost. Under
the fair value option, loans receivable are measured at each reporting period based upon their exit value in an orderly transaction and
unrealized gains or losses from changes in fair value are recorded in the consolidated statements of operations. These loans are no longer
subject to evaluation for impairment through an allowance for loan loss as such losses will be captured through fair value changes. The
impact of adopting ASC 326 was immaterial to the consolidated financial statements. Loans
receivable, at fair value totaled $294,085 and $390,689 at March 31, 2021 and December 31, 2020, respectively. The loans have
various maturities through March 2027. As of March 31, 2021 and December 31, 2020, the historical cost of loans receivable
accounted for under the fair value option was $297,786 and $405,064, respectively, which included principal balances of $306,967 and
$416,401, respectively, and unamortized costs, origination fees, premiums and discounts, totaling $9,181 and $11,337, respectively.
During the three months ended March 31, 2021 and 2020, the Company recorded unrealized gains (losses) of $10,726 and ($17,926),
respectively, on the loans receivable, at fair value, which is included in trading income (losses) and fair value adjustments
on loans on the consolidated statements of operations. The
Company may periodically provide limited guarantees to third parties for loans that are made to investment banking and lending
clients. At March 31, 2021, the Company has outstanding limited guarantees with respect to Babcock & Wilcox Enterprises, Inc.
(“B&W”) as further described in Note 13. In accordance with the new credit loss standard, the Company
evaluates the need to record an allowance for credit losses for these loan guarantees since they have off-balance sheet credit
exposures. At March 31, 2021, the Company has not recorded any provision for credit losses on the B&W guarantees since the
underlying guaranteed loans are senior to most of the outstanding debt of B&W and the Company believes that there is sufficient
collateral to protect the Company from any credit loss exposure. The maximum amount of credit exposure related to these
limited guarantees is approximately $80,000. Interest
income on loans receivable is recognized based on the stated interest rate of the loan on the unpaid principal balance plus the amortization
of any costs, origination fees, premiums and discounts and is included in interest income - loans and securities lending on the consolidated
statements of operations. 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. (m)
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 March 31, 2021 and December 31, 2020, the Company’s securities and other investments owned and securities sold not yet purchased
at fair value consisted of the following securities:
March 31, December 31,
Securities and other investments owned:
Equity securities $ 1,006,019 $ 697,288
Corporate bonds 41,754 3,195
Other fixed income securities 5,165 1,913
Partnership interests and other 113,766 74,923
$ 1,166,704 $ 777,319
Securities sold not yet purchased:
Equity securities $ 285,898 $ 4,575
Corporate bonds 1,236 4,288
Other fixed income securities 924 1,242
$ 288,058 $ 10,105 (n)
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, 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 loans receivable valued at fair value, 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.” Securities
and other investments owned also include investments in nonpublic entities that do not have a readily determinable fair value and do
not report NAV per share. These investments are accounted for using a measurement alternative under which they are measured at cost and
adjusted for observable price changes and impairments. Observable price changes result from, among other things, equity transactions
for the same issuer executed during the reporting period, including subsequent equity offerings or other reported equity transactions
related to the same issuer. For these transactions to be considered observable price changes of the same issuer, we evaluate whether
these transactions have similar rights and obligations, including voting rights, distribution preferences, conversion rights, and other
factors, to the investments we hold. Any investments adjusted to their fair value by applying the measurement alternative are disclosed
as nonrecurring fair value measurements, including the level in the fair value hierarchy that was used. We had no investments measured
at fair value on a nonrecurring basis for the three months ended March 31, 2021 and 2020. As of March 31, 2021 and December 31, 2020,
investments in nonpublic entities valued using a measurement alternative of $37,348 and $26,948, respectively, are included in securities
and other investments owned in the accompanying consolidated balance sheets. 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 March 31, 2021 and December 31, 2020.
Financial
Assets and Liabilities Measured at Fair Value
Fair value at Quoted
prices in Other Significant
Assets:
Securities and other investments owned:
Equity securities $ 968,671 $ 796,701 $ — $ 171,970
Corporate bonds 41,754 — 41,754 —
Other fixed income securities 5,165 — 5,165 —
Total securities and other investments owned 1,015,590 796,701 46,919 171,970
Loans receivable, at fair value 294,085 — — 294,085
Total assets measured at fair value $ 1,309,675 $ 796,701 $ 46,919 $ 466,055
Liabilities:
Securities sold not yet purchased:
Equity securities $ 285,898 $ 285,898 $ — $ —
Corporate bonds 1,236 — 1,236 —
Other fixed income securities 924 — 924 —
Total securities sold not yet purchased 288,058 285,898 2,160 —
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003 4,514 — — 4,514
Total liabilities measured at fair value $ 292,572 $ 285,898 $ 2,160 $ 4,514
Financial Assets and Liabilities
Measured at Fair Value
Fair value at Quoted prices in Other Significant
Assets:
Securities and other investments owned:
Equity securities $ 670,340 $ 521,048 $ — $ 149,292
Corporate bonds 3,195 — 3,195 —
Other fixed income securities 1,913 — 1,913 —
Total securities and other investments owned 675,448 521,048 5,108 149,292
Loans receivable, at fair value 390,689 — — 390,689
Total assets measured at fair value $ 1,066,137 $ 521,048 $ 5,108 $ 539,981
Liabilities:
Securities sold not yet purchased:
Equity securities $ 4,575 $ 4,575 $ — $ —
Corporate bonds 4,288 — 4,288 —
Other fixed income securities 1,242 — 1,242 —
Total securities sold not yet purchased 10,105 4,575 5,530 —
Mandatorily
redeemable noncontrolling interests issued after November 5, 2003 4,700 — — 4,700
Total liabilities measured at fair value $ 14,805 $ 4,575 $ 5,530 $ 4,700 As
of March 31, 2021 and December 31, 2020, financial assets measured and reported at fair value on a recurring basis and classified within
Level 3 were $466,055 and $539,981, respectively, or 11.3% and 20.3%, 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 March 31, 2021:
Fair value at Valuation Technique Unobservable Input Range Weighted
Assets:
Equity securities $ 171,970 Market approach Multiple of EBITDA 5.75x - 15.00x 8.00x
Multiple of PV-10 0.62x 0.62x
Multiple of Sales 1.40x 1.40x
Market price of related security $0.83 - $4.00 $ 3.72
Option pricing model Annualized volatility 0.05 - 1.23 0.83
Loans receivable at fair value 294,085 Discounted cash flow Market interest rate 4.9% - 37.5% 14.9%
Total level 3 assets measured at fair
value $ 466,055
Liabilities:
Mandatorily redeemable noncontrolling interests issued after November 5, 2003 $ 4,514 Market approach Operating income multiple 6.0x 6.0x The
changes in Level 3 fair value hierarchy during the three months ended March 31, 2021 and 2020 are as follows:
Level 3 Level 3 Changes During the Period Level 3
Balance at Fair Value Adjustments Relating to Purchases, Transfer in Balance at
Three Months Ended March 31, 2021
Equity securities $ 149,292 $ 21,600 $ — $ 6,473 $ (5,395 ) $ 171,970
Loans receivable at fair value 390,689 10,726 2,082 (109,412 ) — 294,085
Mandatorily redeemable noncontrolling interests issued after November 5, 2003 4,700 — (186 ) — — 4,514
Three Months Ended March 31, 2020
Equity securities $ 109,251 $ (15,135 ) $ — $ 1,000 $ — $ 95,116
Loans receivable at fair value 43,338 (17,926 ) 1,289 73,750 225,848 326,299
Mandatorily redeemable noncontrolling interests issued after November 5, 2003 4,616 — (108 ) — — 4,508 The
Company adopted ASU 2016-13 and its amendment ASU 2019-05 effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05,
the Company elected the irrevocable fair value option for all outstanding loans receivable that were measured at amortized cost as of
December 31, 2019. The loans receivable, at fair value are included in transfers into level 3 fair value assets in the above table. The
amount reported in the table above for the three months ended March 31, 2021 and 2020 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. As
of March 31, 2021 and December 31, 2020, the senior notes payable had a carrying amount of $1,139,100 and $870,783, respectively,
and fair value of $1,190,847 and $898,606, respectively. The carrying amount of the term loan approximates fair value because the effective
yield of such instrument is consistent with current market rates of interest for instruments of comparable credit risk. During
the three months ended March 31, 2021 and 2020, except for the impact of the intangible impairment charge in 2020 as described in Note
6 - Goodwill and Intangible Assets, there were no assets or liabilities measured at fair value on a non-recurring basis. (o)
Derivative and Foreign Currency Translation The
Company periodically uses derivative instruments, which primarily consist of the purchase of forward exchange contracts, for certain
loans receivable and Auction and Liquidation engagements with operations outside the United States. As of March 31, 2021 and December
31, 2020, forward exchange contracts in the amount of 6,000 Euros were outstanding. The
forward exchange contracts were entered into to improve the predictability of cash flows related to a retail store liquidation engagement
and a loan receivable. The net gain from forward exchange contracts was $310 during the three months ended March 31, 2021. There
was no forward exchange contract activity during the three months ended March 31, 2020. This amount is reported as a component of selling,
general and administrative expenses in the consolidated statements of operations. 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
loss in the accompanying condensed consolidated balance sheets. Transaction gains were $555 and $949 during the three months ended March
31, 2021 and 2020, respectively. These amounts are included in selling, general and administrative expenses in the Company’s condensed
consolidated statements of operations. (p)
Equity Investment At
March 31, 2021 and December 31, 2020, equity investments of $44,221 and $54,953, respectively, are included in prepaid expenses and other
assets in the accompanying condensed consolidated balance sheets. bebe
stores, inc. At
March 31, 2021 and December 31, 2020, the Company had a 39.5% ownership interest in bebe stores, inc. (“bebe”). On November
10, 2020, the Company purchased an additional 1,500,000 shares of newly issued common stock of bebe for $7,500 and increased
its’ ownership interest increased from 31.5% to 39.5%. 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. As of March 31, 2021, the carrying value of the Company’s equity
investment in bebe exceeded the fair value based on the quoted market prices. In consideration of these facts, the Company evaluated its
investment for impairment. The Company did not utilize bright-line tests in the evaluation. Based on the available facts and information
regarding the operating results of bebe, the Company’s ability and intent to hold the investments until recovery, the relative amount
of the declines, and the length of time that the fair values were less than the carrying values, the Company concluded that recognition
of impairment losses in earnings was not required. However, the Company will continue to monitor the investment and it is possible that
impairment losses will be recorded in earnings in future periods based on changes in facts and circumstances or intentions. National
Holdings Corporation As
of December 31, 2020, the Company owned approximately 45% of the commons stock of National which is included in prepaid expenses and
other assets in the condensed consolidated balance sheets. The equity ownership in National is accounted for under the equity method
of accounting for periods prior to February 25, 2021. On February 25, 2021, the Company completed the acquisition of National
by acquiring the 55% of common stock not previously owned by the Company 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. The cash consideration for the purchase
of the 55% of common stock not previously owned by the Company and settlement of outstanding share based awards was $35,184. National’s
operating results subsequent to February 25, 2021 are included in the Company’s condensed consolidated financial statements. Other
Equity Investments The
Company has other equity investments, the largest being a 40% ownership interest in Lingo Management, LLC (“Lingo”)
which was purchased in November 2020. The equity ownership in these other investments is accounted for under the equity method of accounting
and is included in prepaid expenses and other assets in the condensed consolidated balance sheets. (q)
Loan Participations Sold As
of March 31, 2021, the Company has sold investments (“Loan Participations Sold”) to third parties (“Participants”)
that are accounted for as secured borrowings under ASC Topic 860, Transfers and Servicing. Under ASC Topic 860, a partial loan transfer
does not qualify for sale accounting in order for sale treatment to be allowed. A participation or other partial loan transfer that meets
the definition of a participating interest is classified as loan receivable and the portion transferred is recorded as a secured borrowing
under loan participations sold in the condensed consolidated balance sheet. The Participants are entitled to payments made by the borrower
of the related loan equal to the current Loan Participations Sold outstanding at the interest rates for the respective investment. In
the event that the borrower defaults, the Participants have rights to payments from such borrower, but do not have recourse to the Company.
The terms of the Loan Participations Sold are c |
