B Riley Financial Inc

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. Based upon the foregoing evaluation, our Co-Chief Executive Officers and our Chief Financial Officer concluded that as of December 31, 2023 our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described in the Report of Management on Internal Control over Financial Reporting.

Report of Management on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Under the supervision and with the participation of management, including our Co-Chief Executive Officers and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2023.

In making our assessment of the Company’s internal control over financial reporting as of December 31, 2023, we excluded from our assessment the internal control over financial reporting at bebe stores, inc., in which a controlling financial interest was acquired on October 6, 2023, whose financial statements collectively constitute 2% of total assets and less than 1% of revenues as of and for the year ended December 31, 2023.

While management has concluded that the material weaknesses identified in 2022 are fully remediated, management has also identified additional material weaknesses for the year ended December 31, 2023, both as fully described below.

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

Remediation of Previously Reported Material Weaknesses

The material weaknesses in internal control over financial reporting that were reported in our Annual Report on Form 10-K for the year ended December 31, 2022, have been remediated as of December 31, 2023. The remediation of our internal control over financial reporting to address the underlying causes of the material weaknesses are summarized below:

•The Company identified a material weakness relating to the operating effectiveness of management's review controls over key assumptions that are utilized to determine the fair value of intangible assets for new acquisitions and the fair value of reporting units in the Company’s assessment of goodwill impairment. The Company enhanced the design and operation of management review controls that are utilized to determine the fair value of intangible assets and the fair value of reporting units by augmenting the review of certain attributes, specifically, (i) key inputs and (ii) appropriateness of assumptions and methodology used, to ensure sufficient evidence of an effective review is documented and maintained to support management’s conclusions.

•The Company identified a material weakness relating to the operating effectiveness of management's review controls over the income tax provision where management's review procedures were not operating at a level of precision to prevent or detect a potential material misstatement in the consolidated statements. The Company improved the design and operation of management review controls over income taxes, including the following: (i) documenting the steps taken by management to perform the review of the income tax provision, and applying the appropriate level of precision and defined criteria to review and investigative procedures and (ii) ensuring sufficient evidence of an effective review is documented and maintained to support management’s conclusions. Additionally, the Company hired additional personnel with the appropriate technical knowledge to support the accounting for income taxes.

•The Company identified a material weakness relating to the operating effectiveness of management’s review controls over the presentation and classification of dividend income and realized and unrealized gains (losses) on certain equity securities. The Company improved the design and operation of management review controls over financial statement presentation and classification by applying an appropriate level of review of our financial disclosure controls and ensuring that the review is documented and maintained to support management’s conclusions.

Material Weaknesses Identified during the Current Period

For the period ended December 31, 2023:

•The Company identified two separate material weaknesses in controls related to information technology general controls (ITGCs) at our Lingo Management, LLC and Tiger US Holdings, Inc. subsidiaries in the areas of user access, program change management, and information technology (IT) operations over IT systems and the reports generated from these systems used in the execution of controls that support the Company’s financial reporting processes. As a result, business-process automated and manual controls that were dependent on the affected ITGCs could have been adversely impacted.

•The Company identified a separate material weakness relating to ITGC issues in one of our B. Riley Advisory Holdings, LLC subsidiaries primarily related to ineffective controls over user access management over a certain business application. As a result, business-process automated and manual controls that were dependent on the affected ITGCs could have been adversely impacted.

•The Company was unable to rely on a System and Organization Controls (SOC) 1 Type 2 report associated with the utilization of a third-party service organization's hosted IT solution for the processing of customer sales and billing information in our Marconi Wireless subsidiary. As a result, the internal control processes performed by the third-party service organization were not designed or implemented to operate at a sufficient level of precision. As such, the Company could not rely on the information produced by the system. Business-process automated and manual controls that were dependent on these controls could have been adversely impacted.

•The Company identified a material weakness relating to the operating effectiveness of management's review controls over investment valuations such that management's review procedures were not operating at a level of precision sufficient to prevent or detect a potential material misstatement in the consolidated statements.

•The Company did not have adequate controls in place to properly identify and disclose material related party transactions in accordance with Accounting Standards Codification (“ASC”) 850, Related Party Disclosures, which resulted in a material weakness.

Prior to filing this Annual Report on Form 10-K, we completed significant additional procedures for the year ended December 31, 2023. Based on these procedures, management believes that our consolidated financial statements included in this Form 10-K have been prepared in accordance with U.S. GAAP. Our Co-CEOs and CFO have certified that, based on their knowledge, the financial statements, and other financial information included in this Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Form 10-K.

Remediation Plan for Current Period Material Weaknesses

Management has begun to implement and plans to continue implementing measures designed to ensure that the control deficiencies contributing to the material weaknesses, described above, are remediated, such that the controls are designed, implemented, and operating effectively. The remediation actions for the material weaknesses noted above include:

•Implementation and enhancement of its ITGCs and related policies. This includes providing training and support to process owners and reviewers with a specific focus on understanding the risks being addressed by the controls they are performing, as well as requirements for sufficient documentation and evidence in the execution of the controls.

•Updating of its IT policies and procedures to enhance user access, change management, and IT operations processes to ensure timely and accurate assignment of access rights and prompt removal of access for terminated employees, and to ensure appropriate restriction of access rights based on job responsibilities.

•Reaching an agreement with the third-party service organization supporting Marconi Wireless to provide a compliant SOC 1 Type 2 report in 2024 to allow for Management’s monitoring of controls related to the design and operating effectiveness of controls over customer sales and billing information. Management will (i) review the SOC 1 Type 2 compliance report to assess design and operating effectiveness of internal controls over the service organization’s processing of customer sales and billing information and (ii) ensure that the complementary user controls are identified and tested.

•Implementation of measures designed to ensure controls are appropriately designed, implemented, and operating effectively as it relates to the material weakness identified in investment valuations. The remediation actions include the improvement of the precision level of management review controls.

•Implementation and enhancement of its related party controls and policies. This includes providing training to process owners and reviewers with specific focus on understanding the risks being addressed by the controls they are performing.

While the foregoing measures are intended to effectively remediate the material weaknesses described in this Item 9A, it is possible that additional remediation steps will be necessary. As such, as we continue to evaluate and implement our plan to remediate the material weaknesses, our management may decide to take additional measures to address the material weaknesses or modify the remediation steps described above. The weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of these material weaknesses will be completed by the end of fiscal 2024.

Our independent registered public accounting firm, Marcum LLP, has audited the consolidated financial statements and has issued an adverse attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2023, as stated in their report which is included in the Financial Statements of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

Excluding the above remediation actions of prior disclosed material weaknesses and the identification of new current period material weaknesses as fully described above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to which this report relates that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.