Power To The Elbow

In an earlier post I briefly described some of the reasons RILY has found itself in its current predicament. I have sold puts and my trade will go bad if RILY is delisted, goes bankrupt, or is taken private. This article is focused on the risks tied to the company being delisted from the NASDAQ.

B. Riley Financial has neglected to file their official second quarter 10-Q financial statements and disclosures. On August 21, 2024 they received an official delinquency notification letter from NASDAQ. There are many investors with short positions pointing to this letter as proof that the company will be delisted. They believe this will happen before they can fix many of the problems linked to their balance sheet.

The letter was for non-compliance with NASDAQ Listing Rule 5250(c)(1). It doesn’t immediately affect the company’s listing status. RILY has 60 days to submit a compliance plan to Nasdaq. Then, Nasdaq may grant up to 180 days (until February 10, 2025) to regain compliance.

Thus, the big question is, what is the likelihood that RILY will fail to file their 10-Q? Alternatively, will they fail to file an acceptable plan by October 21?

In an August 12th press release the company gave this reason for not filing the 10-Q.

It was “due to delays experienced in finalizing the valuations of certain of the Company’s loans and investments for the quarter ended June 30, 2024. The Company is working diligently to file the Quarterly Report as promptly as practical.” 

I believe the “delays experienced in finalizing the valuations of certain of the Company’s loans and investments” is referencing RILY’s relationship with Franchise Group, Inc (“FRG”) and the Vintage Capital loan receivable. Both of these investment’s debt structures are now being renegotiated. RILY’s subsequent asset write-offs could vary greatly depending on the outcome of those negotiations. Waiting until you know the appropriate numbers appears reasonable and should not drag out until February 10, 2025.

Negotiations are hard sometimes and they could drag on for a long time. If this happens, RILY must produce an acceptable plan that will resolve the disclosure issues by February. My investment should be wrapped up before the end of the year so this risk should not affect my outcome.

I think it is unlikely that management will not deliver a 10-Q or at least an acceptable plan. It isn’t a slam dunk though. If management is as incompetent as the shorts suggest, I think it is reasonable to think they screw this up 5% of the time.

RISK OF DELISTING BEFORE THE END OF YEAR = 5%.

What did I miss? When do you think we will see the 10-Q? Let me know in the comments and subscribe to get part three of this series.