UNITED STATES   

SECURITIES AND EXCHANGE COMMISSION   

Washington, D.C. 20549

 

FORM 8-K/A

 

CURRENT REPORT   

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): December 10, 2018 (November 14, 2018)

 

B. RILEY FINANCIAL, INC.   

(Exact name of registrant as specified in its charter)

         
Delaware   001-37503   27-0223495
         

(State or other jurisdiction

of incorporation)

  (Commission File Number)   (IRS Employer Identification No.)
     

21255 Burbank Boulevard, Suite 400  

Woodland Hills, California  

  91367
     
(Address of principal executive offices)   (Zip Code)
             

Registrant’s telephone number, including area code: (818) 884-3737

 

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
     
  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
     
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
     
  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

EXPLANATORY NOTE

 

On November 20, 2018, B. Riley Financial, Inc. (the “ Company ”) filed a Current Report on Form 8-K (the “ Original Filing ”) disclosing the completion of the previously announced acquisition of magicJack VocalTec Ltd., an Israeli corporation (the “ MJ Acquisition ”).

 

The Company is filing this Current Report on Form 8-K/A (“ Amendment ”) solely to amend and supplement Item 9.01 of the Original Filing to provide the audited financial statements and unaudited pro forma financial statements required by Item 9.01. No other modifications to the Original Filing are being made by this Amendment. This Amendment should be read in conjunction with the Original Filing, which provides a more complete description of the MJ Acquisition.

 

Item 9.01. Financial Statements and Exhibits.

 

(a) Financial Statements of Businesses Acquired.

 

The audited consolidated balance sheets of magicJack VocalTec Ltd. as of December 31, 2017 and December 31, 2016 and the consolidated statements of operations, consolidated statements of capital equity and consolidated statements of cash flows of magicJack VocalTec Ltd. for each of the three years in the period ended December 31, 2017, and the notes related thereto, are incorporated by reference as Exhibit 99.1 hereto and are incorporated by reference into this Item 9.01(a).

 

The Report of Independent Registered Public Accounting Firm, issued by BDO USA, LLP, dated March 16, 2018, relating to the magicJack VocalTec Ltd. financial statements are incorporated by reference as Exhibit 99.2 hereto and are incorporated by reference into this Item 9.01(a).

 

The unaudited condensed consolidated balance sheet of magicJack VocalTec Ltd. as of September 30, 2018 and the unaudited condensed consolidated statements of operations, unaudited condensed consolidated statements of capital equity and unaudited condensed consolidated statements of cash flows of magicJack VocalTec Ltd. for the nine months ended September 30, 2018 and 2017, and the notes related thereto, are incorporated by reference as Exhibit 99.3 hereto and are incorporated by reference into this Item 9.01(a).

 

(b) Pro Forma Financial Information.

 

Unaudited pro forma condensed combined financial statements and explanatory notes as of September 30, 2018, for the nine month period ended September 30, 2018 and for the year ended December 31, 2017 are incorporated by reference as Exhibit 99.4 hereto and are incorporated by reference into this Item 9.01(b). Such financial statements are presented for illustrative purposes only and do not necessarily indicate the financial results of the combined companies had the MJ Acquisition actually been consummated at the beginning of the period presented.

 

 

 

 

(d) Exhibits.

 

Exhibit   Description
     
23.1  

Consent of BDO USA, LLP, Independent Registered Public Accounting Firm for magicJack VocalTec Ltd.

 

99.1+  

The audited consolidated balance sheets of magicJack VocalTec Ltd. as of December 31, 2017 and December 31, 2016 and the consolidated statements of operations, consolidated statements of capital equity and consolidated statements of cash flows of magicJack VocalTec Ltd. for each of the three years in the period ended December 31, 2017, and the notes related thereto (incorporated by reference to Item 8 of magicJack VocalTec Ltd.’s Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 16, 2018 (SEC File No. 000-27648)).

 

99.2+  

The Report of Independent Registered Public Accounting Firm, issued by BDO USA, LLP, dated March 16, 2018, relating to the consolidated financial statements of magicJack VocalTec Ltd. (incorporated by reference to Item 8 of magicJack VocalTec Ltd.’s Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 16, 2018 (SEC File No. 000-27648)).

 

99.3+  

The unaudited condensed consolidated balance sheet of magicJack VocalTec Ltd. as of September 30, 2018 and the unaudited condensed consolidated statements of operations, unaudited condensed consolidated statements of capital equity and unaudited condensed consolidated statements of cash flows of magicJack VocalTec Ltd. for the nine months ended September 30, 2018 and 2017, and the notes related thereto (incorporated by reference to Part I, Item 1 of the Quarterly Report on Form 10-Q of magicJack VocalTec Ltd. (File No. 000-27648), filed on November 9, 2018).

 

99.4

 

 

Unaudited pro forma condensed consolidated financial statements and explanatory notes relating to the MJ Acquisition and related transactions for the nine month period ended September 30, 2018 and for the year ended December 31, 2017.  

 

+Incorporated by reference. 
* Schedules omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby agrees to furnish supplementally a copy of any of the omitted schedules upon request by the SEC.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

December 10, 2018 B. RILEY FINANCIAL, INC.
   
  By: /s/ Phillip J. Ahn
    Name: Phillip J. Ahn
Title: Chief Financial Officer and Chief Operating Officer


 

Exhibit 23.1

 

 

Consent of Independent Registered Public Accounting Firm

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-221715) and on Form S-8 (No. 333-218457, 333-202876 and 333-226589) of B. Riley Financial, Inc. of our reports dated March 16, 2018, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting of magicJack VocalTec Ltd. and Subsidiaries which appear in the Annual Report on Form 10-K for the year ended December 31, 2017 of magicJack VocalTec Ltd., which is incorporated by reference in this Form 8-K/A.

 

 

/s/ BDO USA, LLP

 

West Palm Beach, Florida

December 10, 2018

 

 

 

Exhibit 99.4

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The unaudited pro forma condensed combined financial information and explanatory notes presented below, which we refer to as the pro forma financial statements, show the impact of the proposed merger of B. Riley Financial, Inc. (“ B. Riley ”) and magicJack VocalTec Ltd. (“ magicJack ”) on the historical financial position and results of operations of B. Riley and magicJack. The pro forma financial statements have been prepared to illustrate the effects of the merger involving B. Riley and magicJack under the acquisition method of accounting with B. Riley treated as the acquiror.

 

Under the acquisition method of accounting, the assets and liabilities of magicJack, as of the effective date of the merger, will be recorded by B. Riley at their respective fair values and the excess of the merger consideration over the fair value of magicJack’s net assets will be allocated to goodwill. The unaudited pro forma condensed combined balance sheet as of September 30, 2018 is presented as if the merger with magicJack had occurred on September 30, 2018. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2018  and for the year ended December 31, 2017 are presented as if B. Riley’s acquisitions of magicJack and FBR & Co. (“ FBR ”) had each occurred on January 1, 2017, the first day of B. Riley’s 2017 fiscal year. The historical combined financial information has been adjusted to reflect factually supportable items that are directly attributable to the merger and, with respect to the statement of operations only, expected to have a continuing impact on combined results of operations. 

 

The pro forma financial statements are presented for illustrative purposes only and do not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented. The adjustments included in these pro forma financial statements are preliminary and may be revised. The pro forma financial statements also do not consider any potential impacts of potential revenue enhancements, anticipated cost savings and expense efficiencies, or asset dispositions, among other factors.

 

The pro forma financial statements and accompanying notes should be read in conjunction with the separate historical financial statements and accompanying notes of B. Riley, magicJack, and FBR included in B. Riley’s and magicJack’s respective Annual Reports on Form 10-K for the year ended December 31, 2017, Quarterly Reports on Form 10-Q for the nine months ended September 30, 2018 and the Current Report on Form 8-K filed by B. Riley with the SEC on November 20, 2018 incorporated herein by reference.

 

 

 

 

Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2018

 

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
AS OF SEPTEMBER 30, 2018

                             
    B. RILEY FINANCIAL, INC. (a)     MAGICJACK VOCALTEC LTD.
  (b)
        PRO FORMA ADJUSTMENTS     PRO FORMA TOTAL  
    (Dollars in thousands, except par value)        
                             
Assets                                    
Cash and cash equivalents   $ 233,918     $ 62,108   (2 )   $ (143,115 )   $ 159,738  
                  (3 )     (4,057 )        
                  (4 )     10,884          
Restricted cash     468                       468  
Due from clearing brokers     54,891                       54,891  
Securities and other investments owned, at fair value     222,521       369   (4 )     (10,434 )     212,456  
Securities borrowed     1,042,295                       1,042,295  
Accounts receivable, net     38,958       2,240                 41,198  
Inventories           2,018                 2,018  
Contract costs           853                 853  
Due from related parties     9,921                       9,921  
Advances against customer contracts     21,405                       21,405  
Prepaid expenses and other assets     50,193       2,833                 53,026  
Loans receivable     37,147                       37,147  
Property and equipment, net     11,143       1,997                 13,140  
Goodwill     120,129       32,304   (1 )     85,357       205,486  
                  (5 )     (32,304 )        
Other intangible assets, net     51,011       8,284   (1 )     56,700       107,711  
                  (6 )     (8,284 )        
Deferred income taxes     26,901       31,270   (1 )     (15,494 )     42,677  
Total assets   $ 1,920,901     $ 144,276         $ (60,747 )   $ 2,004,430  
                                     
Liabilities                                    
Accounts payable   $ 2,278     $ 2,866         $     $ 5,144  
Accrued expenses and other liabilities     87,901       19,455   (7 )     4,225       111,581  
Deferred revenue and contract liabilities     3,205       72,744   (8 )     (7,929 )     68,020  
Due to partners     1,428                       1,428  
Securities sold not yet purchased     59,672                       59,672  
Securities loaned     1,035,408                       1,035,408  
Mandatorily redeemable noncontrolling interests     4,409                       4,409  
Notes payable     1,671                       1,671  
Senior notes payable     455,783                       455,783  
Total liabilities     1,651,755       95,065           (3,704 )     1,743,116  
                                     
Equity:                                    
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued                            
Common stock, $0.0001 par value; 100,000,000 shares authorized; 26,526,445 issued and outstanding at September 30, 2018     2       112,038   (1 )     (112,038 )     2  
Additional paid-in capital     255,236       15,836   (1 )     (15,836 )     255,686  
                  (1 )     137,035          
                  (2 )     (143,115 )        
                  (4 )     450          
                  (5 )     (32,304 )        
                  (6 )     (8,284 )        
                  (8 )     7,929          
                  (9 )     38,739          
Treasury stock             (117,402 ) (1 )     117,402        
Retained earnings     14,842       38,739   (3 )     (4,057 )     6,560  
                  (7 )     (4,225 )        
                  (9 )     (38,739 )        
Accumulated other comprehensive loss     (1,696 )                     (1,696 )
Total stockholders’ equity     268,384       49,211           (57,043 )     260,552  
Noncontrolling interests     762                       762  
Total equity     269,146       49,211           (57,043 )     261,314  
Total liabilities and equity   $ 1,920,901     $ 144,276         $ (60,747 )   $ 2,004,430  

 

  The accompanying notes are an integral part of this statement.

 

 

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2018

 

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

                             
    B. RILEY FINANCIAL, INC. (a)     MAGICJACK VOCALTEC LTD.
  (b)
        PRO FORMA ADJUSTMENTS     PRO FORMA TOTAL  
    (Dollars in thousands, except share data)        
                             
Revenues:                                    
Services and fees   $ 297,986     $ 59,509   (10 )   $ (2,025 )   $ 355,470  
Interest income - Securities lending     22,836                       22,836  
Sale of goods     138                       138  
Total revenues     320,960       59,509           (2,025 )     378,444  
Operating expenses:                                    
Direct cost of services     33,733       21,251   (11 )     (1,668 )     54,621  
                  (12 )     1,305          
Cost of goods sold     142                       142  
Selling, general and administrative expenses     216,603       26,374   (13 )     (123 )     244,103  
                  (14 )     3,600          
                  (15 )     (2,351 )        
Interest expense - Securities lending     16,317                       16,317  
Impairment of goodwill and intangible assets           131                 131  
Restructuring charge     2,247                       2,247  
Total operating expenses     269,042       47,756           763       317,561  
                                     
Operating income (loss)     51,918       11,753           (2,788 )     60,883  
                                     
Other income (expense):                                    
Interest and dividend income     736       495                 1,231  
Income from equity investments     5,049                       5,049  
Interest expense     (23,926 )                     (23,926 )
Other income, net           (1 )               (1 )
                                     
Income (loss) before income taxes     33,777       12,247           (2,788 )     43,236  
Provision (benefit) for income taxes     (8,412 )     (3,000 ) (16 )     399       (11,013 )
                                     
Net income (loss)     25,365       9,247           (2,389 )     32,223  
Net income attributable to noncontrolling interests     1,051                       1,051  
Net income (loss) attributable to common stockholders   $ 24,314     $ 9,247         $ (2,389 )   $ 31,172  
                                     
Cash dividends per share   $ 0.58                         $ 0.58  
                                     
Basic earnings per share   $ 0.94                         $ 1.21  
Diluted earnings per share   $ 0.91                         $ 1.16  
Weighted average basic shares outstanding     25,856,339                           25,856,339  
Weighted average diluted shares outstanding     26,776,133                           26,776,133  

 

The accompanying notes are an integral part of this statement.

 

 

 

 

Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2017

 

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2017

                                 
    B. RILEY FINANCIAL, INC. (a)     FBR & Co., INC.
  (b)
    MAGICJACK VOCALTEC LTD.
  (c)
      PRO FORMA ADJUSTMENTS     PRO FORMA TOTAL  
    (Dollars in thousands, except share data)        
       
Revenues:                                          
Services and fees   $ 304,841     $ 44,109     $ 87,993   (19) $ (2,701 )   $ 434,242  
Interest income - Securities lending     17,028       10,171                     27,199  
Sale of goods     307                           307  
Total revenues     322,176       54,280       87,993         (2,701 )     461,748  
Operating expenses:                                          
Direct cost of services     55,501             32,938   (21)     (3,042 )     87,137  
                          (22)     1,740          
Cost of goods sold     398                         398  
Selling, general and administrative expenses     213,008       59,371       52,603   (17)     (1,630 )     323,365  
                          (18)     298          
                          (20)     (5,037 )        
                          (23)     (48 )        
                          (24)     4,800          
Interest expense - Securities lending     12,051       6,924                     18,975  
Impairment of goodwill and intangible assets                 31,527               31,527  
Restructuring charge     12,374                           12,374  
Consideration adjustment                 (894 )             (894 )
Total operating expenses     293,332       66,295       116,174         (2,919 )     472,882  
                                           
Operating income (loss)     28,844       (12,015 )     (28,181 )       218       (11,134 )
                                           
Other income (expense):                                          
Interest and dividend income     420             123               543  
Loss from equity investment     (437 )                         (437 )
Interest expense     (8,382 )                         (8,382 )
Other income, net                 (34 )             (34 )
                                           
Income (loss) before income taxes     20,445       (12,015 )     (28,092 )       218       (19,444 )
Benefit (provision) for income taxes     (8,510 )     (52 )     3,129 (25)     12,879       7,446  
                                           
Net income (loss)     11,935       (12,067 )     (24,963 )       13,097       (11,998 )
Net income attributable to noncontrolling interests     379                           379  
Net income (loss) attributable to common stockholders   $ 11,556     $ (12,067 )   $ (24,963 )     $ 13,097     $ (12,377 )
                                           
                                           
Cash dividends per share   $ 0.67     $ 7.81                       $ 0.67  
                                           
Basic earnings per share   $ 0.50                               $ (0.47 )
Diluted earnings per share   $ 0.48                               $ (0.47 )
Weighted average basic shares outstanding     23,181,388                             (26)   26,150,502  
Weighted average diluted shares outstanding     24,290,904                             (26)   26,150,502  

 

The accompanying notes are an integral part of this statement.

 

 

 

Notes to Unaudited Pro Forma Condensed Combined Financial Information 

(Dollar amounts in thousands, except share data)

 

NOTE 1 - ACQUISITION

 

Subject to the terms and conditions of the merger agreement, at the effective time of the merger, each outstanding magicJack common share will be purchased for $8.71 per common share in cash. The total consideration paid by B. Riley is approximately $143,115, which includes $1,592 of consideration attributable to the accelerated vesting of magicJack stock options and restricted stock awards units.

 

NOTE 2 – PRO FORMA ADJUSTMENTS AND ASSUMPTIONS

 

The pro forma adjustments to the condensed combined balance sheet give effect to the acquisition of magicJack as if the transaction had occurred on September 30, 2018. The pro forma adjustments to the condensed combined statement of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017 give effect to the acquisitions of magicJack and FBR as if the transactions had been completed as of January 1, 2017. The pro forma financial statements were based on, and should be read in conjunction with, the financial statements indicated below. The pro forma financial statements have been presented for informational purposes only and are not necessarily indicative of what the combined company’s results of operations and financial position would have been had the acquisition of magicJack and FBR been completed on the dates indicated. The pro forma financial statements do not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities or corporate overhead that will not be duplicated. In addition, the pro forma financial statements do not purport to project the future results of operations or financial position of the combined company. 

 

The pro forma condensed combined statement of operations for the nine months ended September 30, 2018 excludes $2,351 of nonrecurring charges which resulted directly from the pending acquisition of magicJack. The pro forma condensed combined statement of operations for the year ended December 31, 2017 exclude $5,037 of nonrecurring charges which resulted directly from the pending acquisition of magicJack and $1,630 of nonrecurring charges which resulted directly from the acquisition of FBR on June 1, 2017. These expenses primarily relate to professional fees directly related to the transactions.

 

Balance Sheet – September 30, 2018

 

  a. Derived from the unaudited balance sheet of B. Riley as of September 30, 2018 contained in the Form 10-Q filed with the SEC on November 6, 2018.
     
  b. Derived from the unaudited balance sheet of magicJack as of September 30, 2018 contained in the Form 10-Q filed with the SEC on November 9, 2018.
     
(1)   Reflects the acquisition of magicJack based on preliminary cash consideration of $143,115, comprising purchase of all of the outstanding common shares of magicJack and consideration attributable to the accelerated vesting of magicJack stock options and restricted stock awards units, as more fully described in Note 2 – Pro Forma Adjustments and Assumptions. The preliminary consideration was determined using the outstanding common shares of magicJack as of September 30, 2018 and the estimated consideration attributable to the accelerated vesting of magicJack stock options and restricted stock awards units and is subject to change based on the final number of outstanding magicJack common shares, stock options and restricted stock awards outstanding on the closing date.  The pro forma purchase price adjustments are based on B. Riley management’s estimate of the fair value of the assets and liabilities acquired, and are subject to change and future adjustment upon completion of a final valuation and to the extent that additional information is obtained about the facts and circumstances that will exist on the closing date, and have been made solely for the purpose of providing the unaudited pro forma combined financial information presented herewith. Differences between these provisional estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying pro forma financial statements and B. Riley’s future results of operations and financial position.

 

 

 

 

The following table summarizes the consideration paid by B. Riley and the estimated fair values of the assets acquired.

       
Consideration paid by B. Riley:        
Number of magicJack common shares outstanding at September 30, 2018     16,248,299  
Cash purchase price per common share   $ 8.71  
Total cash consideration for common shares of magicJack   $ 141,523  
Cash consideration for fair value magicJack stock options and restricted stock awards from acceleration of vesting (a)     1,592  
Total cash consideration   $ 143,115  

 

(a) The fair value of magicJack stock options and restricted stock awards were adjusted to give effect to the acquisition of magicJack as if the transaction had occurred on September 30, 2018   .

 

Tangible assets acquired and assumed:        
Cash and cash equivalents   $ 62,108  
Investments     369  
Accounts receivable     2,240  
Inventories     2,018  
Contract costs     853  
Prepaid expenses and other assets     2,833  
Property and equipment     1,997  
Accounts payable     (2,866 )
Accounts expenses and other liabilities     (19,455 )
Deferred revenue and contract liabilities     (64,815 )
Deferred tax assets     15,776  
Customer relationships     46,000  
Other intangible assets     8,700  
Tradename     2,000  
Goodwill     85,357  
Total   $ 143,115  

 

The total consideration for the merger has been reflected as $143,115. Total consideration paid was allocated to the tangible and intangible assets and liabilities assumed based on B. Riley management’s estimate of their respective fair values at the date of the merger with the remaining unallocated purchase price in the amount of $85,357 recorded as goodwill. The deferred tax asset is the result of tax attributes  acquired from magicJack (primarily net operating loss carryforwards) and the tax effect of the customer list and tradename which is not expected to be deductible for income tax purposes.

 

Management is responsible for the valuation of net assets and considered a number of factors when estimating the fair values and estimated useful lives of acquired assets and liabilities.

 

(2) Reflects the reduction in cash of $143,115 which includes: (a) $141,523 as if the magicJack shareholders were paid $8.71 per share on September 30, 2018 based upon 16,248,299 magicJack common shares outstanding as of September 30, 2018 and (b) $1,592 of estimated consideration attributable to the accelerated vesting magicJack stock options and restricted stock awards units as if the transaction had occurred on September 30, 2018.
(3) Reflects estimated expenses of $4,057 to be incurred by B. Riley and magicJack in connection with the acquisition of magicJack by B. Riley.  
(4) Reflects the reduction in securities owned by B. Riley (common stock of magicJack which will be cancelled upon closing the acquisition) which had a fair value of $10,434 at September 30, 2018 and the corresponding estimated impact on cash of $10,884 and additional paid in capital of $450.  

 

 

 

 

(5) Reflects the elimination of historical goodwill of magicJack in the amount of $32,304.  
(6) Reflects the elimination of historical other intangible assets of magicJack in the amount of $8,284.  
(7) Reflects contractual transaction bonuses and severance to magicJack senior management in the amount of $4,225 that is payable in accordance with their employment agreements, as a result of change in control provisions.
(8) Reflects fair value adjustment to decrease contract liabilities in the amount of $7,929.
(9) Reflects the elimination of the historical retained earnings of magicJack in the amount of $38,739.

Statement of Operations – Nine Months Ended September 30, 2018

 

  a. Derived from the unaudited statement of income of B. Riley for the nine months ended September 30, 2018 contained in the Form 10-Q filed with the SEC on November 6, 2018.
  b. Derived from the unaudited statement of operations of magicJack for the nine months ended September 30, 2018 contained in the Form 10-Q filed with the SEC on November 9, 2018.  

magicJack Pro Forma Adjustments

 

(10) Reflects the estimated reduction in revenues of $2,025 for the fair value adjustment for deferred revenue related to the acquisition of magicJack. Upon completion of the final valuation of magicJack the fair value of deferred revenue for the purchase accounting and the estimated impact on revenues may change.
   
(11) Reflects the elimination of the historical amortization expense of magicJack of $1,668 related to technology, intellectual property rights, in-process development and customer relationships.
   
(12) Reflects the estimated amortization expense of $1,305 for intangible assets related to technology, intellectual property rights and in-process development acquired as a result of the acquisition of magicJack using the straight-line method. The estimated useful life of the amortizable intangible assets is estimated to be 5 years. Upon completion of the final valuation of magicJack the fair value of intangible assets for the purchase accounting and the estimated useful life of the intangible assets may change.
   
(13) Reflects the elimination of the historical amortization expense of magicJack of $123 related to covenants not-to-compete and process know how.
   
(14) Reflects the estimated amortization expense of $3,600 for intangible assets related to customer relationships and tradenames acquired as a result of the acquisition of magicJack using the straight-line method. The estimated useful life of the amortizable intangible is 10 years. Upon completion of the final valuation of magicJack the fair value of intangible assets for the purchase accounting and the estimated useful life of the intangible assets may change.
   

(15)

 

Reflects the elimination of nonrecurring charges in the amount of $2,351 included in the historical results of operations of B. Riley and magicJack which resulted directly from the acquisition of magicJack by B. Riley.  These amounts primarily related to legal and other professional fees.
B Riley Forma Adjustments

(16)

 

Reflects pro forma adjustment for the provision for income taxes of $399 for the nine months ended September 30, 2018 based on the impact of a combined federal and state statutory tax rate of 25.5% on the pro forma income and pro forma adjustments that is subject to income tax expense for magicJack.   

 

 

 

 

Statement of Operations – Year Ended December 31, 2017

 

  a. Derived from the audited statement of operations of B. Riley for the year ended December 31, 2017 contained in the Form 10-K filed with the SEC on March 14, 2018.
  b. Derived from the unaudited operating results of FBR for the period from January 1, 2017 to June 1, 2017 contained in the Current Report on Form 8-K/A filed by B. Riley with the SEC on June 28, 2017. FBR was acquired by B. Riley on June 1, 2017 and the results of operations of FBR prior to the acquisition date of June 1, 2017 are not included in the historical statement of operations of B. Riley in a. above for the year ended December 31, 2017.  
  c. Derived from the audited statement of operations of magicJack for the year ended December 31, 2017 contained in the Form 10-K filed with the SEC on March 16, 2018.

FBR Pro Forma Adjustments

 

(17) Reflects the elimination of nonrecurring charges in the amount of $1,630 included in the historical results of operations of B. Riley and FBR which resulted directly from the acquisition of FBR by B. Riley.  These amounts primarily related to legal and other professional fees.
   
(18) Reflects the estimated amortization expense of $298 for intangible assets related to customer relationships acquired as a result of the acquisition of FBR using the straight-line method.  The estimated useful life of the customer list is 7 years.  
   
magicJack Pro Forma Adjustments
   
(19) Reflects the estimated reduction in revenues of $2,701 for the fair value adjustment for deferred revenue related to the acquisition of magicJack. Upon completion of the final valuation of magicJack the fair value of deferred revenue for the purchase accounting and the estimated impact on revenues may change.
   
(20) Reflects the elimination of nonrecurring charges in the amount of $5,037 included in the historical results of operations of B. Riley and magicJack which resulted directly from the acquisition of magicJack by B. Riley.  These amounts primarily related to legal and other professional fees.
   
(21) Reflects the elimination of the historical amortization expense of magicJack of $3,042 related to technology, intellectual property rights, in-process development and customer relationships.
   
(22) Reflects the estimated amortization expense of $1,740 for intangible assets related to technology, intellectual property rights and in-process development acquired as a result of the acquisition of magicJack using the straight-line method.  The estimated useful life of the amortizable intangible assets is estimated to be 5 years.  Upon completion of the final valuation of magicJack the fair value of intangible assets for the purchase accounting and the estimated useful life of the intangible assets may change.
   
(23) Reflects the elimination of the historical amortization expense of magicJack of $48 related to covenants not-to-compete and process know how.
   
(24) Reflects the estimated amortization expense of $4,800 for intangible assets related to customer relationships and tradenames acquired as a result of the acquisition of magicJack using the straight-line method.  The estimated useful life of the amortizable intangible is 10 years.  Upon completion of the final valuation of magicJack the fair value of intangible assets for the purchase accounting and the estimated useful life of the intangible assets may change.

 

 

 

 

B Riley Pro Forma Adjustments

 

(25) Reflects pro forma adjustment for the benefit for income taxes of $12,879 for the year ended December 31, 2017 based on the impact of a combined federal and state statutory tax rate of 40.0% on the pro forma income and pro forma adjustments that is subject to income tax expense for FBR and magicJack.   
   
(26) Pro forma earnings per share, basic and diluted, are based on the weighted average number of B. Riley common shares as if the shares issued in connection with the acquisition of FBR occurred on January 1, 2017.  Pro forma earnings per share is computed by dividing pro forma net income by the pro forma weighted-average number of B. Riley common shares outstanding during the year as follows:
       
B. Riley Weighted Average Basic Shares outstanding     23,181,388  
Incremental B. Riley Weighted Average Basic Shares outstanding as if the shares issued in connection with the acquisitions had occurred on January 1, 2017     2,969,114  
Pro Forma Weighted Average Basic Shares outstanding     26,150,502  
         
B. Riley Weighted Average Diluted Shares outstanding     24,290,904  
Reduction in B. Riley Weighted Average Diluted Shares outstanding which are anti-dilutive     (1,109,516 )
Incremental B. Riley Weighted Average Diluted Shares outstanding as if the shares issued in connection with the acquisitions had occurred on January 1, 2017     2,969,114  
Pro Forma Weighted Average Diluted Shares outstanding     26,150,502