Company Quick10K Filing
Heritage Global
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 29 $20
10-Q 2019-11-08 Quarter: 2019-09-30
10-Q 2019-08-05 Quarter: 2019-06-30
10-Q 2019-05-06 Quarter: 2019-03-31
10-K 2019-03-11 Annual: 2018-12-31
10-Q 2018-11-05 Quarter: 2018-09-30
10-Q 2018-08-06 Quarter: 2018-06-30
10-Q 2018-05-07 Quarter: 2018-03-31
10-K 2018-03-13 Annual: 2017-12-31
10-Q 2017-11-06 Quarter: 2017-09-30
10-Q 2017-08-09 Quarter: 2017-06-30
10-Q 2017-05-08 Quarter: 2017-03-31
10-K 2017-03-07 Annual: 2016-12-31
10-Q 2016-11-07 Quarter: 2016-09-30
10-Q 2016-08-08 Quarter: 2016-06-30
10-Q 2016-05-09 Quarter: 2016-03-31
10-K 2016-03-17 Annual: 2015-12-31
10-Q 2015-11-12 Quarter: 2015-09-30
10-Q 2015-08-13 Quarter: 2015-06-30
10-Q 2015-05-14 Quarter: 2015-03-31
10-K 2015-03-31 Annual: 2014-12-31
10-Q 2014-11-13 Quarter: 2014-09-30
10-Q 2014-08-14 Quarter: 2014-06-30
10-Q 2014-05-14 Quarter: 2014-03-31
10-K 2014-03-31 Annual: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-Q 2013-05-14 Quarter: 2013-03-31
10-K 2013-03-28 Annual: 2012-12-31
10-Q 2012-11-13 Quarter: 2012-09-30
10-Q 2012-08-14 Quarter: 2012-06-30
10-Q 2012-05-14 Quarter: 2012-03-31
10-K 2012-03-22 Annual: 2011-12-31
10-Q 2011-11-14 Quarter: 2011-09-30
10-Q 2011-08-15 Quarter: 2011-06-30
10-Q 2011-05-16 Quarter: 2011-03-31
10-K 2011-03-31 Annual: 2010-12-31
10-Q 2010-11-15 Quarter: 2010-09-30
10-Q 2010-08-06 Quarter: 2010-06-30
10-Q 2010-05-10 Quarter: 2010-03-31
10-K 2010-03-31 Annual: 2009-12-31
8-K 2019-09-13 Enter Agreement, Officers, Regulation FD, Exhibits
8-K 2019-03-29 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-03-19 Sale of Shares, Exhibits
8-K 2018-09-27 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-04-18 Enter Agreement, Officers, Exhibits
8-K 2018-01-30 Enter Agreement, Off-BS Arrangement
HGBL 2019-09-30
Part I - Financial Information
Item 1 - Financial Statements.
Note 1 -Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Stock-Based Compensation
Note 4 - Lessor Arrangement
Note 5 - Equity Method Investments
Note 6 - Earnings per Share
Note 7 - Leases
Note 8 - Intangible Assets and Goodwill
Note 9 - Debt
Note 10 - Income Taxes
Note 11 - Related Party Transactions
Note 12 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 hgbl-ex101_165.htm
EX-31.1 hgbl-ex311_8.htm
EX-31.2 hgbl-ex312_7.htm
EX-32.1 hgbl-ex321_9.htm
EX-32.2 hgbl-ex322_6.htm

Heritage Global Earnings 2019-09-30

HGBL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
BBLS 20 14 5 1 0 -31 -31 21 0% -0.7 -224%
PEYE 20 7 4 7 2 -1 -1 18 31% -30.7 -8%
MEEC 20 9 17 13 4 -2 -1 19 27% -14.4 -18%
AQSP 20 6 0 0 0 -1 -1 15 -15.7 -17%
PTGEF 20 10 0 0 0 0 0 12 0%
HGBL 20 23 13 25 0 3 3 16 0% 4.8 13%
OPXS 19 14 6 24 5 -0 -0 19 23% -18,596.3 -2%
PWON 19 16 22 19 0 -17 -17 29 0% -1.7 -108%
BNET 19 0 15 0 0 -3 -2 19 -7.9 -5,438%
PROP 19 0 1 0 0 -1 -1 19 -18.8 -983%

10-Q 1 hgbl-10q_20190930.htm 10-Q hgbl-10q_20190930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to

Commission file number: 0-17973

Heritage Global Inc.

(Exact name of registrant as specified in its charter)

 

Florida

59-2291344

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer Identification No.)

12625 High Bluff Drive, Suite 305, San Diego, CA 92130

(Address of Principal Executive Offices)

(858) 847-0656
(Registrant’s Telephone Number)

N/A

(Registrant’s Former Name)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.01 par value

HGBL

Otcqb

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

Smaller reporting company

 

 

 

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.         

 


 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 1, 2019, there were 29,253,278 shares of common stock, $0.01 par value, outstanding.

 

 

 

 


 

TABLE OF CONTENTS

 

Part I.

Financial Information

4

 

 

 

Item 1.

Financial Statements

4

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018

4

 

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (unaudited)

5

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2019 and 2018 (unaudited)

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

Part II.

Other Information

26

 

 

 

Item 1.

Legal Proceedings

26

 

 

 

Item 1A.

Risk Factors

26

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

Item 3.

Defaults Upon Senior Securities

26

 

 

 

Item 4.

Mine Safety Disclosures

26

 

 

 

Item 5.

Other Information

26

 

 

 

Item 6.

Exhibits

27

 

 

3


 

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements.

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share and per share amounts)

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,901

 

 

$

4,268

 

Accounts receivable

 

 

1,722

 

 

 

400

 

Inventory – equipment

 

 

230

 

 

 

2,405

 

Other current assets

 

 

1,463

 

 

 

607

 

Total current assets

 

 

7,316

 

 

 

7,680

 

Property and equipment, net

 

 

196

 

 

 

175

 

Equity method investments

 

 

4,338

 

 

 

2,767

 

Right-of-use assets

 

 

865

 

 

 

 

Identifiable intangible assets, net

 

 

3,451

 

 

 

3,627

 

Goodwill

 

 

6,158

 

 

 

6,158

 

Other assets

 

 

224

 

 

 

224

 

Total assets

 

$

22,548

 

 

$

20,631

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

9,273

 

 

$

8,101

 

Current portion of debt

 

 

432

 

 

 

1,178

 

Current portion of lease liabilities

 

 

477

 

 

 

 

Other current liabilities

 

 

79

 

 

 

892

 

Total current liabilities

 

 

10,261

 

 

 

10,171

 

Non-current portion of debt

 

 

138

 

 

 

438

 

Non-current portion of lease liabilities

 

 

433

 

 

 

 

Other non-current liabilities

 

 

 

 

 

1,838

 

Deferred tax liabilities

 

 

584

 

 

 

584

 

Total liabilities

 

 

11,416

 

 

 

13,031

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and

   outstanding 569 Class N shares at September 30, 2019 and December 31, 2018

 

 

6

 

 

 

6

 

Common stock, $0.01 par value, authorized 300,000,000 shares; issued

   and outstanding 29,253,278 shares at September 30, 2019 and

   December 31, 2018

 

 

293

 

 

 

293

 

Additional paid-in capital

 

 

284,961

 

 

 

284,751

 

Accumulated deficit

 

 

(274,051

)

 

 

(277,373

)

Accumulated other comprehensive loss

 

 

(77

)

 

 

(77

)

Total stockholders’ equity

 

 

11,132

 

 

 

7,600

 

Total liabilities and stockholders’ equity

 

$

22,548

 

 

$

20,631

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

4


 

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(In thousands of US dollars, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services revenue

 

$

5,207

 

 

$

4,897

 

 

$

14,950

 

 

$

16,407

 

Asset sales

 

 

1,415

 

 

 

231

 

 

 

5,647

 

 

 

1,351

 

Total revenues

 

 

6,622

 

 

 

5,128

 

 

 

20,597

 

 

 

17,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services revenue

 

 

435

 

 

 

710

 

 

 

2,649

 

 

 

2,001

 

Cost of asset sales

 

 

926

 

 

 

189

 

 

 

3,952

 

 

 

752

 

Selling, general and administrative

 

 

3,928

 

 

 

3,734

 

 

 

11,551

 

 

 

11,315

 

Depreciation and amortization

 

 

74

 

 

 

79

 

 

 

226

 

 

 

239

 

Total operating costs and expenses

 

 

5,363

 

 

 

4,712

 

 

 

18,378

 

 

 

14,307

 

Earnings of equity method investments

 

 

8

 

 

 

 

 

 

1,277

 

 

 

 

Operating income

 

 

1,267

 

 

 

416

 

 

 

3,496

 

 

 

3,451

 

Fair value adjustment of contingent consideration

 

 

 

 

 

 

 

 

 

 

 

157

 

Interest and other expense, net

 

 

(12

)

 

 

(47

)

 

 

(57

)

 

 

(201

)

Income before income tax expense

 

 

1,255

 

 

 

369

 

 

 

3,439

 

 

 

3,407

 

Income tax expense

 

 

39

 

 

 

 

 

 

117

 

 

 

64

 

Net income

 

$

1,216

 

 

$

369

 

 

$

3,322

 

 

$

3,343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic

 

 

28,653,278

 

 

 

28,653,278

 

 

 

28,653,278

 

 

 

28,557,517

 

Weighted average common shares outstanding – diluted

 

 

29,352,812

 

 

 

28,823,918

 

 

 

28,911,488

 

 

 

28,902,499

 

Net income per share – basic

 

$

0.04

 

 

$

0.01

 

 

$

0.12

 

 

$

0.12

 

Net income per share – diluted

 

$

0.04

 

 

$

0.01

 

 

$

0.11

 

 

$

0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,216

 

 

$

369

 

 

$

3,322

 

 

$

3,343

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

(6

)

 

 

 

 

 

(2

)

Comprehensive income

 

$

1,216

 

 

$

363

 

 

$

3,322

 

 

$

3,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

5


 

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands of US dollars, except share amounts)
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated

other

 

 

 

 

 

 

 

Preferred stock

 

 

Common stock

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

loss

 

 

Total

 

Balance at December 31, 2018

 

 

569

 

 

$

6

 

 

 

29,253,278

 

 

$

293

 

 

$

284,751

 

 

$

(277,373

)

 

$

(77

)

 

$

7,600

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

71

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

612

 

 

 

 

 

 

612

 

Balance at March 31, 2019

 

 

569

 

 

 

6

 

 

 

29,253,278

 

 

 

293

 

 

 

284,822

 

 

 

(276,761

)

 

 

(77

)

 

 

8,283

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

 

 

 

 

 

 

 

 

76

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,494

 

 

 

 

 

 

1,494

 

Balance at June 30, 2019

 

 

569

 

 

 

6

 

 

 

29,253,278

 

 

 

293

 

 

 

284,898

 

 

 

(275,267

)

 

 

(77

)

 

 

9,853

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63

 

 

 

 

 

 

 

 

 

63

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,216

 

 

 

 

 

 

1,216

 

Balance at September 30, 2019

 

 

569

 

 

$

6

 

 

 

29,253,278

 

 

$

293

 

 

$

284,961

 

 

$

(274,051

)

 

$

(77

)

 

$

11,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated

other

 

 

 

 

 

 

 

Preferred stock

 

 

Common stock

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

loss

 

 

Total

 

Balance at December 31, 2017

 

 

569

 

 

$

6

 

 

 

28,480,148

 

 

$

285

 

 

$

284,396

 

 

$

(281,124

)

 

$

(75

)

 

$

3,488

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

61

 

 

 

 

 

 

 

 

 

61

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,289

 

 

 

 

 

 

1,289

 

Balance at March 31, 2018

 

 

569

 

 

 

6

 

 

 

28,480,148

 

 

 

285

 

 

 

284,457

 

 

 

(279,835

)

 

 

(75

)

 

 

4,838

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85

 

 

 

 

 

 

 

 

 

85

 

Issuance of restricted common stock

 

 

 

 

 

 

 

 

600,000

 

 

 

6

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

Issuance of common stock from exercise of stock options

 

 

 

 

 

 

 

 

173,130

 

 

 

2

 

 

 

72

 

 

 

 

 

 

 

 

 

74

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,685

 

 

 

 

 

 

1,685

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

Balance at June 30, 2018

 

 

569

 

 

 

6

 

 

 

29,253,278

 

 

 

293

 

 

 

284,608

 

 

 

(278,150

)

 

 

(71

)

 

 

6,686

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

 

 

 

 

 

 

73

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

369

 

 

 

 

 

 

369

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

(6

)

Balance at September 30, 2018

 

 

569

 

 

$

6

 

 

 

29,253,278

 

 

$

293

 

 

$

284,681

 

 

$

(277,781

)

 

$

(77

)

 

$

7,122

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

6


 

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows provided by operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

3,322

 

 

$

3,343

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Fair value adjustment of contingent consideration

 

 

 

 

 

(157

)

Stock-based compensation expense

 

 

210

 

 

 

219

 

Noncash lease expense

 

 

356

 

 

 

 

Depreciation and amortization

 

 

226

 

 

 

239

 

Earnings of equity method investments

 

 

(1,277

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,322

)

 

 

(336

)

Inventory

 

 

2,175

 

 

 

56

 

Other assets

 

 

(856

)

 

 

(337

)

Lease liabilities

 

 

(374

)

 

 

 

Accounts payable and accrued liabilities

 

 

(1,413

)

 

 

1,345

 

Net cash provided by operating activities

 

 

1,047

 

 

 

4,372

 

 

 

 

 

 

 

 

 

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(73

)

 

 

(85

)

Investment in equity method investments

 

 

(566

)

 

 

 

Cash distributions from equity method investments

 

 

271

 

 

 

 

Net cash used in investing activities

 

 

(368

)

 

 

(85

)

 

 

 

 

 

 

 

 

 

Cash flows used in financing activities:

 

 

 

 

 

 

 

 

Proceeds from debt payable to third party

 

 

500

 

 

 

 

Repayment of debt payable to third party

 

 

(1,546

)

 

 

(235

)

Payment of contingent consideration

 

 

 

 

 

(2,617

)

Repayment of debt payable to related party

 

 

 

 

 

(390

)

Proceeds from exercise of options to purchase common shares

 

 

 

 

 

74

 

Net cash used in financing activities

 

 

(1,046

)

 

 

(3,168

)

Net (decrease) increase in cash and cash equivalents

 

 

(367

)

 

 

1,119

 

Cash and cash equivalents at beginning of period

 

 

4,268

 

 

 

2,109

 

Cash and cash equivalents at end of period

 

$

3,901

 

 

$

3,228

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

248

 

 

$

86

 

Cash paid for interest

 

 

47

 

 

 

92

 

Noncash change in right-of-use assets

 

 

1,220

 

 

 

 

Noncash change in deferred rent

 

 

(64

)

 

 

 

Noncash change in lease liabilities

 

 

1,284

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

7


 

HERITAGE GLOBAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Note 1 –Basis of Presentation

These unaudited condensed consolidated interim financial statements include the accounts of Heritage Global Inc. (“HGI”) together with its subsidiaries, including Heritage Global Partners, Inc. (“HGP”), Heritage Global LLC (“HG LLC”), Equity Partners HG LLC (“Equity Partners”) and National Loan Exchange, Inc. (“NLEX”). These entities, collectively, are referred to as the “Company” in these financial statements. The Company’s unaudited condensed consolidated interim financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), as outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and include the assets, liabilities, revenues, and expenses of all subsidiaries over which HGI exercises control. All significant intercompany accounts and transactions have been eliminated upon consolidation. The Company’s sole operating segment is its asset liquidation business. The Company provides an array of value-added capital and financial asset solutions:  auction and appraisal services, traditional asset disposition sales, and financial solutions for businesses and properties in transition.  

The Company has prepared the condensed consolidated interim financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In the opinion of management, these financial statements reflect all adjustments that are necessary to present fairly the results for the interim periods included herein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are appropriate. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 11, 2019 (the “Form 10-K”).

The results of operations for the nine month period ended September 30, 2019 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2019. The accompanying condensed consolidated balance sheet at December 31, 2018 has been derived from the audited consolidated balance sheet at December 31, 2018, contained in the Company’s Form 10-K.  

 

 

Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, other assets, right-of-use assets, goodwill and intangible assets, liabilities, deferred income tax assets and liabilities, and stock-based compensation. These estimates have the potential to significantly impact the Company’s consolidated financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Foreign Currency

The functional currency of foreign operations is deemed to be the local country’s currency. Assets and liabilities of operations outside of the United States are generally translated into U.S. dollars, and the effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income.

Reclassifications

Certain prior year balances within the condensed consolidated financial statements have been reclassified to conform to the current year presentation.

 

8


 

Revenue Recognition

Services revenue generally consists of commissions and fees from providing auction services, appraisals, brokering of sales transactions and providing merger and acquisition advisory services. Asset sales revenue generally consists of proceeds obtained through sales of purchased assets. Revenue is recognized for both services revenue and asset sales revenue based on the ASC 606 standard recognition model, which consists of the following: (1) an agreement exists between two or more parties that creates enforceable rights and obligations, (2) the performance obligations are clearly identified, (3) the transaction price has been determined, (4) the transaction price has been properly allocated to each performance obligation, and (5) the entity satisfies a performance obligation by transferring a promised good or service to a customer for each of the entities.

All services and asset sales revenue from contracts with customers is considered to be one reporting segment – the asset liquidation business. Although the Company provides various services within the asset liquidation business, it does not disaggregate revenue streams further than that in its statement of income, services revenue and asset sales. Generally, revenue is recognized in the asset liquidation business at the point in time in which the performance obligation has been satisfied and full consideration is received. The exception to recognition at a point in time occurs when certain contracts provide for advance payments recognized over a period of time. Services revenue recognized over a period of time is not material in comparison to total revenues (1% of total revenues for the nine month period ended September 30, 2019) and, therefore, not reported on a disaggregated basis. Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and the Company’s “contract liability.” As of September 30, 2019, the deferred revenue balance was approximately $79,000. The Company records receivables in certain situations based on timing of payments for asset liquidation transactions held at the end of the reporting period; however, revenue is generally recognized in the period that the Company satisfies the performance obligation and cash is collected. The Company does not record a “contract asset” for partially satisfied performance obligations. To the extent the transaction price includes variable consideration subsequent to the Company satisfying its performance obligations and beyond the Company’s control, such as contingent obligations between the buyer and seller of auctioned assets, we apply judgment in determining the amount of revenue to record based on the contingent nature of the transaction and the probability of possible outcomes. We evaluate the effect of circumstances of each transaction based on our historical and projected experience with similar customer contracts.

We evaluate revenue from asset liquidation transactions in accordance with the accounting guidance to determine whether to report such revenue on a gross or net basis.  We have determined that we act as an agent for our fee based asset liquidation transactions, and, therefore, we report the revenue from transactions in which we act as an agent on a net basis.  

The Company also earns asset liquidation income through asset liquidation transactions that involve the Company acting jointly with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company (“LLC”) agreement (collectively, “Joint Ventures”). For these transactions, the Company does not record asset liquidation revenue or expense. Instead, the Company’s proportionate share of the net income (loss) is reported as earnings of equity method investments. In general, the Joint Ventures apply the same revenue recognition and other accounting policies as the Company.

Leases

The Company is obligated to make future payments under existing lease agreements which (1) specifically identify the asset, and (2) convey the right to control the use of the identified asset in exchange for consideration for a period of time. The Company determines whether a contract is a lease at the inception of the arrangement. We evaluate leasing arrangements in accordance with the accounting guidance to determine whether the contract is operating or financing in nature. Leases with an initial term of 12 months or less, or under predefined thresholds, are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The critical accounting policies used in the preparation of the Company’s audited consolidated financial statements are discussed in the Form 10-K. There have been no changes to these policies in the nine months ended September 30, 2019, except for the changes to lease accounting standards noted below.

Recent Accounting Pronouncements

In 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases, (“ASU 2016-02”). ASU 2016-02 changes the accounting for leases previously classified as operating leases under GAAP by, among other things, requiring a Company to recognize the lease on the balance sheet with a right-of-use asset and a lease liability. Effective January 1, 2019, the Company adopted ASU 2016-02. This ASU requires substantially all leases be recorded on the balance sheet as right of use assets and lease obligations.

 

9


 

The Company adopted the ASU using a modified retrospective adoption method at January 1, 2019. Under this method of adoption, there is no impact to the comparative condensed consolidated statement of income and condensed consolidated balance sheet. The Company determined that there was no cumulative-effect adjustment to beginning retained earnings on the condensed consolidated balance sheet. The Company will continue to report periods prior to January 1, 2019 in its financial statements under prior guidance as outlined in ASC Topic 840, “Leases. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carry forward of historical lease classifications.

In 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (“ASU 2018-07”), which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 became effective January 1, 2019 and did not have a material impact on the Company’s consolidated financial statements.  

In 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (“ASU 2017-04”), which simplifies the test for goodwill impairment. The main provisions of ASU 2017-04 eliminate the second step of the goodwill impairment test which previously was performed to determine the goodwill impairment loss for an entity by calculating the difference between the implied fair value of the entity’s goodwill and its carrying value. Under ASU 2017-04, if a reporting unit’s carrying value exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill which is allocated to that reporting unit. ASU 2017-04 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company anticipates that the impact will not be material to its consolidated financial statements.

 

 

Note 3 – Stock-based Compensation

Options

At September 30, 2019 the Company had four stock-based compensation plans, which are described more fully in Note 15 to the audited consolidated financial statements for the year ended December 31, 2018, contained in the Company’s Form 10-K.

During the nine months ended September 30, 2019, the Company issued options to purchase 345,350 shares of common stock to the Company’s employees and options to purchase 60,000 shares of common stock to the Company’s non-employee directors as part of their annual compensation. During the same period, the Company cancelled options to purchase 1,233,900 shares of common stock as a result of employee resignations and natural expiration.

The following summarizes the changes in common stock options for the nine months ended September 30, 2019:

 

 

 

Options

 

 

Weighted

Average

Exercise

Price

 

Outstanding at December 31, 2018

 

 

4,303,900

 

 

$

0.75

 

Granted

 

 

405,350

 

 

$