Financial Data and Key Metrics Changes - The company reported operating income of $3.5 million for Q3 2022, a significant increase from $533,000 in Q3 2021 [8] - Net income was $2.3 million or $0.06 per share, compared to $474,000 or $0.01 per share in Q3 2021 [9] - EBITDA improved to $3.6 million from $638,000 in Q3 2021, with adjusted EBITDA growing to $3.8 million from $740,000 [9][10] - Stockholders' equity increased to $38.3 million as of September 30, 2022, from $32.6 million as of December 31, 2021 [10] Business Line Data and Key Metrics Changes - The Industrial Assets division reported operating income of $3.1 million in Q3 2022, up from $765,000 in Q3 2021, reflecting a substantial increase [8] - The Financial Assets division saw a 249% growth in operating income to $1.6 million compared to $449,000 in Q3 2021 [8] Market Data and Key Metrics Changes - The company experienced a more than 350% increase in asset sales in the Industrial Assets division compared to Q3 2021, with one-third of this growth attributed to the acquisition of American Laboratory Trading [6][8] - Services revenue grew significantly due to increased consumer spending and a rise in charge-off loans available in the market [7] Company Strategy and Development Direction - The company is optimistic about future growth across all five revenue streams, particularly in the Industrial and Financial Assets divisions [13][19] - The auction business has secured new five-year contracts with major clients in the pharmaceutical sector, ensuring revenue growth [14] - The company anticipates growth in the valuation market due to predictions of a recession, which typically increases demand for asset-based loans [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on the anticipated increase in nonperforming loans as COVID-driven aid ends [7] - The company is positioned to meet increased opportunities with a strong balance sheet, including a $10 million untapped credit line [7][10] - Management remains conservative in guidance due to the transactional nature of a significant part of the business, but is bullish on exceeding expectations [23] Other Important Information - The company has repurchased approximately 184,000 shares of common stock for an aggregate cost of $296,000 as of September 30, 2022 [11] Q&A Session Summary Question: Follow-up on guidance for net operating income - Management acknowledged a conservative approach to guidance due to the transactional nature of the business but expressed confidence in exceeding it [23] Question: Size of net operating losses (NOLs) - NOLs are approximately $78 million, with adjustments expected in the next quarter [24] Question: Breakdown of revenue by functional group - Management provided insights on the significant increase in asset sales, attributing one-third to acquisition and over 50% to organic growth [25] Question: Ratio of net operating income from industrials and financials - Management indicated that the contributions from both divisions can fluctuate based on market conditions, with potential for equal participation in revenue generation [30][31] Question: Deployment of the expanded $200 million line of credit - Management indicated that they have deployed $80 million to date and anticipate deploying the new line within 36 months [33] Question: Sourcing and demand for loans in the lending group - Management detailed the niche focus on servicing a limited number of clients in the charge-off loan market, emphasizing their expertise in underwriting [39][40] Question: Impact of interest rates on lending margins - Management confirmed that they negotiated a fixed rate for the new funding facility, which will not increase even if traditional rates rise, potentially improving lending margins [44][45]

Financial Performance - Total revenues for the nine months ended September 30, 2022, were $33.1 million, up 81.5% from $18.3 million in the same period in 2021[143]. - Revenues for the three months ended September 30, 2022, were $12.7 million, a 111.7% increase from $6.0 million in the same period in 2021[140]. - Gross profit for the nine months ended September 30, 2022, was $17.3 million, an increase of approximately $4.2 million or 32% compared to $13.2 million in the same period in 2021[143]. - Gross profit for the three months ended September 30, 2022, was $7.6 million, reflecting an increase of approximately $3.4 million or 80% compared to $4.2 million in the same period in 2021[140]. - Net income for the nine months ended September 30, 2022, was $5.5 million, a 164% increase from $2.1 million in the same period in 2021[136]. - Net income for the three months ended September 30, 2022, was $2.3 million, compared to $474,000 in the same period in 2021[149]. - Adjusted EBITDA for the nine months ended September 30, 2022, was $8.757 million, significantly higher than $2.459 million in the same period in 2021[149]. Assets and Capital - As of September 30, 2022, the company reported working capital of $13.0 million, an increase from $9.1 million as of December 31, 2021[115]. - As of September 30, 2022, current assets increased to $26.5 million from $23.3 million as of December 31, 2021, primarily due to cash generated from operating activities[117]. - Cash and cash equivalents rose to $17.5 million as of September 30, 2022, compared to $13.6 million as of December 31, 2021, marking an increase of approximately $3.9 million[124]. - Stockholders' equity increased to $38.3 million from $32.6 million as of December 31, 2021[122]. Operational Highlights - The company has issued a total of $63.2 million in loans to investors through Heritage Global Capital LLC since its inception in 2019, with the company's portion being $21.5 million[104]. - The acquisition of American Laboratory Trading in 2021 has strengthened the company's service offerings in the biotech and pharma sectors[106]. - The company anticipates increased activity in its Financial Assets Division due to rising delinquency and charge-off rates, as well as expanding volumes of nonperforming consumer loans[93]. - The company plans to expand NLEX's services into the FinTech lenders, peer-to-peer lending, and Buy Now Pay Later sectors, indicating potential for significant growth[103]. - The company has multiple revenue streams across its brokerage, auction services, advisory services, and secured lending services, which are expected to drive growth[97]. - The company aims to leverage its competitive advantages to grow within each service line and across platforms, maintaining high incremental margins and improving earnings predictability[94]. Expenses - Selling, general and administrative expenses for the nine months ended September 30, 2022, were $14.9 million, a 34% increase from $11.1 million in the same period in 2021[144]. - Selling, general and administrative expenses for the three months ended September 30, 2022, were $5.7 million, a 63% increase from $3.5 million in the same period in 2021[141]. - The increase in selling, general and administrative expenses was primarily due to increased compensation and operational expenses related to the acquisition of ALT[144]. - Travel and entertainment expenses increased due to the lift in travel restrictions related to the COVID-19 pandemic[142]. Cash Flow - Cash provided by operating activities was $2.6 million during the nine months ended September 30, 2022, a significant improvement from cash used in operating activities of $4.1 million during the same period in 2021, reflecting a change of approximately $6.7 million[125]. - Cash used in financing activities was approximately $2.6 million during the nine months ended September 30, 2022, compared to cash provided by financing activities of $1.2 million for the same period in 2021[131]. - The company expects to fund operations and debt service obligations for at least 12 months from the date of filing through cash flows from ongoing asset liquidation operations and proceeds from the 2020 Public Offering[119]. Management and Expertise - The company has a strong management team with deep domain expertise, including its President and CEO, who has over thirty years of experience in the auction business[100].

Company Overview - Heritage Global Inc (HGBL) values and monetizes industrial & financial assets through valuation, acquisition, disposition, and lending services[6] - The company operates through two divisions: Industrial Assets and Financial Assets[7] - HGBL facilitates the circular economy by diverting useful industrial assets from landfills and overseeing post-sale account activity of financial assets[8] Financial Performance - The company has a proven track record of profitability and an attractive margin profile[16] - As of June 30, 2022, HGBL had $16.1 million in cash and cash equivalents, $10.5 million in working capital, and $36.0 million in total shareholders' equity[18] - The Annual Return on Capital Employed (ROCE) for H1 2022 was 24%[18] - For the six months ended June 30, 2022, the company's operating income was $4.499 million and net income was $3.223 million, or $0.09 per diluted share[17] - Adjusted EBITDA for the six months ended June 30, 2022, was $4.979 million[17] - The company has $78 million in Net Operating Loss (NOL) carryforwards as of December 31, 2021[16] Growth Drivers - Post-pandemic industrial manufacturing landscape will increase surplus asset flows[13] - Rising consumer spending and accelerating defaults and charge-offs will increase available volume of financial assets to sell[13]

Heritage Global Inc. (NASDAQ:HGBL) Q2 2022 Earnings Conference Call August 10, 2022 5:00 PM ET Company Participants John Nesbett – Investor Relations Ross Dove – Chief Executive Officer Brian Cobb – Chief Financial Officer Conference Call Participants Mark Argento – Lake Street Michael Diana – Maxim Group Operator Good afternoon and welcome to the Heritage Global Second Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note, this event is ...

Financial Data and Key Metrics Changes - The company reported net operating income of $875,000 for Q1 2022, a decrease from $1 million in Q1 2021 [8] - Adjusted EBITDA for Q1 2022 was $1.1 million, down from $1.5 million in Q1 2021 [8] - Net income for Q1 2022 was $645,000 or $0.02 per diluted share, compared to $1 million or $0.03 per diluted share in Q1 2021 [8] Business Line Data and Key Metrics Changes - In the industrial assets division, net operating income was $846,000 in Q1 2022, down from $1.3 million in Q1 2021 [7] - The financial assets division saw net operating income of $731,000, a 59% increase from $461,000 in Q1 2021 [7] Market Data and Key Metrics Changes - The company anticipates closing two remaining Huntsville real estate transactions in Q2 or Q3, expected to contribute over $2.5 million in combined net profit [9] - The company has aggregate tax net operating loss carry forwards of approximately $78 million, which could be valuable as it generates positive results [10] Company Strategy and Development Direction - The company is optimistic about growth across all five revenue streams and expects Q2 to be a record quarter [13] - The focus is on capitalizing on anticipated market conditions and increasing demand for both financial and industrial assets [6][13] - A $4 million stock repurchase plan has been instituted, indicating confidence in the company's future [19] Management's Comments on Operating Environment and Future Outlook - Management noted a significant rise in consumer spending, which is expected to lead to increased defaults and charge-offs, benefiting the company's operations [14] - The company is seeing an increase in supply from sellers who are now monetizing surplus assets due to stronger ESG metrics [26][27] - Management expressed confidence that 2022 will be the most profitable year since the company's founding [41] Other Important Information - The balance sheet remains strong with stockholders' equity of $33.4 million as of March 31, 2022, compared to $32.6 million at the end of 2021 [11] - The company has renewed a $100 million partnership line with a New York hedge fund, enhancing its lending capabilities [29] Q&A Session Summary Question: Can you break down the revenue contribution from financial assets versus industrial assets? - Financial assets contributed $746,000 in net operating income, while industrial assets contributed $846,000 for the quarter [22][23] Question: Are you seeing more portfolios come to market? - Management noted a tremendous amount of growth and expects sequential growth for the next couple of years due to rising consumer spending [24] Question: How does the current economic environment affect industrial assets? - An increase in layoffs is producing surplus assets, and companies are now pressured to monetize these assets due to ESG metrics [26][27] Question: What is the company's position regarding capital deployment? - The company is comfortable deploying capital and is underwriting more deals than in the past, indicating a solid position for future opportunities [29][30] Question: Can you provide more details about the St. Louis acquisition? - The St. Louis acquisition involves two facilities with high-end processing equipment, and the company plans to monetize these assets similarly to the Huntsville transactions [36]

ERITAGE An Asset Services company specializing in financial and industrial asset transactions Investor Presentation March 2022 FORWARD LOOKING STATEMENTS This communication includes forward-looking statements based on our current expectations and projections about future events. All statements contained in this communication other than statements of historical fact, including any statements regarding our future operating results and financial position, our business strategy and plans, potential acquisitions ...

Heritage Global, Inc. (NASDAQ:HGBL) Q4 2021 Earnings Conference Call March 17, 2022 5:00 PM ET Company Participants John Nesbett - Institutional Marketing Services Ross Dove - CEO Brian Cobb - VP, Finance & Interim Principal Financial Officer Conference Call Participants Michael Diana - Maxim Group Operator Good day, and welcome to the Heritage Global Inc. Fourth Quarter and Year-end Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the co ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) Heritage Global Inc. is an asset services company operating through Financial and Industrial Assets Divisions, enhanced by the 2021 ALT acquisition and expecting future growth from nonperforming loans - The company provides a full suite of asset services, including market making, acquisitions, dispositions, valuations, and secured lending across over twenty-five global sectors[11](index=11&type=chunk) - On August 23, 2021, the Company acquired American Laboratory Trading (ALT), a supplier of refurbished lab equipment, to strengthen its service offerings in the life sciences sector[14](index=14&type=chunk)[38](index=38&type=chunk) - The Financial Assets division includes National Loan Exchange, Inc. (NLEX), a major broker of charged-off receivables, and Heritage Global Capital LLC (HGC), which provides specialty financing[13](index=13&type=chunk)[14](index=14&type=chunk)[32](index=32&type=chunk) - The COVID-19 pandemic negatively impacted 2021 performance but is expected to create positive impacts going forward, such as increased activity for NLEX and HGC due to expanding volumes of nonperforming consumer loans[19](index=19&type=chunk)[21](index=21&type=chunk) - The company operates in a highly fragmented market and competes with other liquidators, auction companies, dealers, and brokers, some of whom have greater financial resources[24](index=24&type=chunk) [Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant competitive, operational, and financial risks, including intense competition, fluctuating operating results, dependence on key personnel, and potential goodwill impairment - The company faces significant competition from numerous other organizations, some of which are larger and better-capitalized[45](index=45&type=chunk) - Operating results are subject to significant fluctuation due to the unpredictable nature and timing of discrete asset liquidation deals[47](index=47&type=chunk) - Operations are substantially dependent on key executive officers, and the loss of their services could have a material adverse effect on the business[52](index=52&type=chunk) - As of December 31, 2021, goodwill represented approximately **15% of total assets**, and an impairment of this goodwill would result in a reduction in net income[73](index=73&type=chunk) - The company's ability to utilize approximately **$77.8 million** in income tax loss carryforwards may be restricted due to 'change in ownership' tax rules[74](index=74&type=chunk)[320](index=320&type=chunk) - The company's common stock is listed on Nasdaq, and failure to meet listing criteria could result in delisting, harming liquidity and the ability to raise capital[80](index=80&type=chunk) [Unresolved Staff Comments](index=15&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[87](index=87&type=chunk) [Properties](index=15&type=section&id=Item%202.%20Properties) The company leases office spaces in San Diego, Hayward, and Edwardsville, and acquired warehouse and office space in East Lyme, CT, with the ALT acquisition - The company leases principal office locations in San Diego, CA, Hayward, CA, and Edwardsville, IL, with the Edwardsville office leased from a related party[88](index=88&type=chunk) - On August 23, 2021, the company acquired the warehouse and office space used by ALT's business in East Lyme, CT[88](index=88&type=chunk) [Legal Proceedings](index=15&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal matters in the normal course of business, none of which are expected to have a material adverse effect on its operations or financial results - There are no legal matters expected to have a material adverse effect on the company's business and results of operations[89](index=89&type=chunk) [Mine Safety Disclosures](index=15&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[90](index=90&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=16&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under '**HGBL**', with approximately **340** record holders as of March 2022, and no dividends have been paid or are anticipated - Common stock is traded on the Nasdaq Stock Market under the symbol '**HGBL**'[93](index=93&type=chunk) - As of March 1, 2022, there were approximately **340 holders** of common stock of record[94](index=94&type=chunk) - The company has not paid dividends to date and does not anticipate paying them in the foreseeable future[95](index=95&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) [Liquidity and Capital Resources](index=17&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital and cash decreased in 2021 due to operational and investing activities, including the ALT acquisition, though management believes current resources and a **$10.0 million** credit line are sufficient for 2022 Working Capital and Cash Position (in millions) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Working Capital | $9.1 | $13.0 | | Cash and cash equivalents | $13.6 | $23.4 | Cash Flow Summary (in millions) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating Activities | ($2.6) | $9.1 | | Investing Activities | ($10.2) | $4.5 | | Financing Activities | $3.1 | $7.0 | - The company has a **$10.0 million** revolving line of credit with C3bank, with an outstanding balance of **$1.9 million** as of December 31, 2021[107](index=107&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) In 2021, total revenues slightly decreased to **$25.8 million**, while gross profit increased, but operating income and net income significantly declined, primarily due to a non-recurring 2020 tax benefit, with Adjusted EBITDA also decreasing Consolidated Results of Operations (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total revenues | $25,792 | $26,183 | | Operating income | $3,014 | $6,059 | | Income tax benefit | ($61) | ($3,644) | | Net income | $3,053 | $9,658 | Segment Net Operating Income (in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Industrial Assets Division | $3,393 | $5,764 | | Financial Assets Division | $2,024 | $2,637 | Adjusted EBITDA Reconciliation (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net income | $3,053 | $9,658 | | EBITDA | $3,474 | $6,421 | | Adjusted EBITDA | $4,082 | $6,774 | - Selling, general and administrative expense increased by **3%** to **$14.8 million** in 2021, driven by expenses related to the ALT acquisition and a separation agreement, partially offset by an employee retention credit[126](index=126&type=chunk) [Critical Accounting Policies](index=22&type=section&id=Critical%20Accounting%20Policies) The company's financial statements rely on critical accounting policies requiring significant estimates, including revenue recognition, annual goodwill and intangible asset impairment testing, deferred tax asset valuation, and the 2021 recognition of a **$0.6 million** Employee Retention Credit - Significant estimates are required for valuing accounts receivable, inventory, goodwill, intangible assets, and deferred tax assets[136](index=136&type=chunk) - Revenue is recognized based on the ASC 606 standard, where the company acts as an agent for fee-based transactions and reports this revenue on a net basis[139](index=139&type=chunk)[141](index=141&type=chunk) - Goodwill is not amortized but is tested for impairment annually on October 1 using a qualitative approach initially[160](index=160&type=chunk) - The company recognized a **$0.6 million** receivable for the Employee Retention Credit (ERC) in 2021, which reduced payroll tax expense[155](index=155&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a Smaller Reporting Company, Heritage Global Inc. is not required to provide the information for this item - The company has elected scaled reporting obligations and is not required to provide this information[165](index=165&type=chunk) [Financial Statements and Supplementary Data](index=27&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) [Consolidated Balance Sheets](index=39&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2021, total assets increased to **$50.5 million**, driven by the ALT acquisition's impact on goodwill and intangibles, while total liabilities rose to **$17.8 million** and stockholders' equity increased to **$32.6 million** Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $13,622 | $23,385 | | Goodwill | $7,446 | $5,585 | | Total assets | $50,464 | $44,555 | | Total liabilities | $17,825 | $14,612 | | Total stockholders' equity | $32,639 | $29,943 | [Consolidated Statements of Income](index=40&type=section&id=Consolidated%20Statements%20of%20Income) For 2021, net income significantly decreased to **$3.1 million** (**$0.08** per diluted share) from **$9.7 million** in 2020, primarily due to a non-recurring **$3.6 million** income tax benefit in the prior year Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total revenues | $25,792 | $26,183 | | Operating income | $3,014 | $6,059 | | Net income | $3,053 | $9,658 | | Net income per share – diluted | $0.08 | $0.30 | [Consolidated Statements of Cash Flows](index=42&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In 2021, cash and cash equivalents decreased by **$9.8 million**, with **$2.6 million** used in operations and **$10.2 million** in investing activities, primarily for the ALT acquisition, partially offset by **$3.1 million** from financing activities Consolidated Cash Flow Summary (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($2,631) | $9,148 | | Net cash (used in) provided by investing activities | ($10,197) | $4,508 | | Net cash provided by financing activities | $3,065 | $7,001 | | Net (decrease) increase in cash | ($9,763) | $20,657 | [Changes In and Disagreements With Accountants on Accounting and Financial Disclosure](index=27&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no disagreements with its auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure during the fiscal years 2021 and 2020 - During 2021 and 2020, the company had no disagreements with its auditors and no reportable events[168](index=168&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes in the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[169](index=169&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[173](index=173&type=chunk) - No changes in internal control over financial reporting occurred during the fourth fiscal quarter of 2021 that materially affected, or are reasonably likely to materially affect, internal controls[175](index=175&type=chunk) [Other Information](index=28&type=section&id=Item%209B.%20Other%20Information) The company reported no other information for this item - None[176](index=176&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=29&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement, and the company has adopted a code of ethics - The required information for this item is incorporated by reference from the definitive proxy materials for the 2022 Annual Meeting of Stockholders[178](index=178&type=chunk) - The company has adopted a code of ethics (the HGI Code of Conduct) applicable to its employees and principal officers, which is available on its website[181](index=181&type=chunk) [Executive Compensation](index=29&type=section&id=Item%2011.%20Executive%20Compensation) Information required by this item concerning executive compensation is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - The required information is incorporated by reference from the definitive proxy materials for the 2022 Annual Meeting of Stockholders[182](index=182&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=29&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information required by this item concerning security ownership of certain beneficial owners and management is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - The required information is incorporated by reference from the definitive proxy materials for the 2022 Annual Meeting of Stockholders[183](index=183&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=29&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information required by this item concerning certain relationships, related party transactions, and director independence is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - The required information is incorporated by reference from the definitive proxy materials for the 2022 Annual Meeting of Stockholders[184](index=184&type=chunk) [Principal Accountant Fees and Services](index=30&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information required by this item concerning principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders - The required information is incorporated by reference from the definitive proxy materials for the 2022 Annual Meeting of Stockholders[186](index=186&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=30&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including consolidated financial statements and various agreements - This item lists the financial statements and exhibits filed with the report, including the Report of Baker Tilly US, LLP and consolidated financial statements[188](index=188&type=chunk)[189](index=189&type=chunk) [Form 10-K Summary](index=34&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary was provided - None[194](index=194&type=chunk)

Financial Data and Key Metrics Changes - The company achieved operating income of $533,000 for Q3 2021, down from $1.6 million in Q3 2020, primarily due to low asset flow volumes [5] - Net income was $474,000 or $0.01 per diluted share for Q3 2021, compared to $1.3 million or $0.04 per diluted share in Q3 2020 [6] - EBITDA for Q3 2021 was $638,000, down from $1.7 million in Q3 2020, with adjusted EBITDA at $740,000 for the quarter [7] Business Line Data and Key Metrics Changes - The company noted strong progress in developing customer relationships despite low asset supply, with expectations for improved performance in revenue streams due to increased asset supply [4] - The financial segment has not grown in the last 18 months due to low consumer spending, but there are signs of recovery with increased consumer activity anticipated [15] - The industrial auction division and valuation division have held solid during the pandemic, with expectations for Q4 to potentially be one of the largest quarters ever for industrial asset auctions [16] Market Data and Key Metrics Changes - The company reported a strong balance sheet with stockholders' equity of $32 million as of September 30, 2021, up from $30 million at the end of 2020 [10] - Aggregate tax net operating loss carryforwards were approximately $78 million, with most expiring between 2024 and 2037 [9] Company Strategy and Development Direction - The company is focused on growth across its five revenue streams, with a bullish outlook for the next two years [14] - The acquisition of American Lab Trading (ALT) is seen as a strategic move to enhance capabilities in the biopharma sector, aligning with increasing focus on ESG practices [17][32] - The company aims to repurpose and reposition assets in the biopharma sector, leveraging ALT's expertise to drive premium prices through warranties on refurbished assets [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in future growth, citing a dynamic business environment and the potential for increased asset supply [11] - The CEO highlighted the correlation between rising consumer spending and increased charge-offs, suggesting a positive outlook for the financial segment in the coming year [24] - The company anticipates a surge in asset dispositions from plant closings earlier in the year, contributing to increased market activity [25] Other Important Information - Cash used in investing activities during the nine-month period was $7.3 million, primarily for the acquisition of ALT and related real estate purchases [10] Q&A Session Summary Question: What is the status of financial assets on the balance sheet? - Management explained that different types of financial institutions have varying regulations on charge-offs, but rising consumer spending is expected to correlate with increased charge-offs in the future [24] Question: What is driving the demand in the industrial side of the business? - The CEO noted that plant closings earlier in the year are now leading to asset dispositions as companies rationalize their decisions [25] Question: How is the integration of ALT being handled? - The company is leaving ALT as a stand-alone business while integrating its services, with ongoing collaboration on auctions of surplus assets [27]

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements show a significant cash decrease due to the ALT acquisition and operations [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew slightly as the ALT acquisition's goodwill offset a significant decrease in cash Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $13,234 | $23,385 | | Goodwill | $7,262 | $5,585 | | Total assets | $45,352 | $44,555 | | **Liabilities & Equity** | | | | Total current liabilities | $9,931 | $13,989 | | Total liabilities | $13,768 | $14,612 | | Total stockholders' equity | $31,584 | $29,943 | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q3 2021 revenue and net income declined, while nine-month revenue grew slightly but net income fell Financial Performance (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $5,991 | $7,566 | $18,268 | $17,927 | | Operating income | $533 | $1,612 | $1,652 | $2,730 | | Net income | $474 | $1,264 | $2,093 | $3,341 | | Net income per share – diluted | $0.01 | $0.04 | $0.06 | $0.11 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased to $31.6 million, primarily driven by net income of $2.1 million - Total stockholders' equity **increased by $1.64 million** during the first nine months of 2021, from $29.94 million to $31.58 million[13](index=13&type=chunk) - The increase in equity was primarily due to the cumulative **net income of $2.093 million** recorded during the nine-month period[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash decreased by $10.2 million due to outflows from operating and investing activities Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(4,126) | $2,806 | | Net cash (used in) provided by investing activities | $(7,258) | $620 | | Net cash provided by (used in) financing activities | $1,233 | $(359) | | **Net (decrease) increase in cash** | **$(10,151)** | **$3,067** | - Investing activities included **$4.3 million for the acquisition of ALT**, net of cash acquired, and $5.9 million for investments in notes receivable[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the $4.3M ALT acquisition, a new $10M credit facility, and the pandemic's impact - The COVID-19 pandemic negatively impacted performance in the first three quarters of 2021, but the company expects a **future increase in distressed and surplus assets**[21](index=21&type=chunk)[22](index=22&type=chunk) - On August 23, 2021, the company acquired American Laboratory Trading (ALT) for an aggregate purchase price of approximately **$4.3 million**[83](index=83&type=chunk) - The ALT acquisition resulted in the recognition of **$1.7 million in goodwill** and **$1.4 million in intangible assets**[87](index=87&type=chunk)[88](index=88&type=chunk) - The company entered into a new **$10.0 million revolving line of credit** which matures in May 2023, with no outstanding balance as of September 30, 2021[73](index=73&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses declining Q3 performance, decreased liquidity from the ALT acquisition, and future optimism - The acquisition of American Laboratory Trading (ALT) in 2021 is a key development, **expanding the company's services in the life sciences sector**[99](index=99&type=chunk) - **Working capital decreased from $13.0 million to $9.9 million** as of September 30, 2021, mainly due to cash used for the ALT acquisition and operations[130](index=130&type=chunk)[132](index=132&type=chunk) Comparison of Results of Operations (in thousands) | Metric | Q3 2021 | Q3 2020 | Change | 9 Months 2021 | 9 Months 2020 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenues | $5,991 | $7,566 | (21)% | $18,268 | $17,927 | 2% | | Operating income | $533 | $1,612 | (67)% | $1,652 | $2,730 | (39)% | | Net income | $474 | $1,264 | (63)% | $2,093 | $3,341 | (37)% | Adjusted EBITDA Reconciliation (in thousands) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $474 | $1,264 | $2,093 | $3,341 | | EBITDA | $638 | $1,704 | $1,946 | $3,002 | | **Adjusted EBITDA** | **$740** | **$1,801** | **$2,459** | **$3,260** | [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a Smaller Reporting Company, this disclosure is not required - As a Smaller Reporting Company, Heritage Global Inc. is **not required to provide** quantitative and qualitative disclosures about market risk[165](index=165&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed effective with no material changes in internal controls - The Certifying Officers concluded that the company's **disclosure controls and procedures were effective** as of September 30, 2021[166](index=166&type=chunk) - **No material changes** in internal control over financial reporting occurred during the nine months ended September 30, 2021[167](index=167&type=chunk) [Part II. Other Information](index=32&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) No material changes to legal proceedings were reported since the last annual report - **No material changes** to legal proceedings have occurred since the last Form 10-K filing[169](index=169&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) As a Smaller Reporting Company, this disclosure is not required - The company is **not required to provide** risk factor disclosures in this report[170](index=170&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[171](index=171&type=chunk) [Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - None[172](index=172&type=chunk) [Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[173](index=173&type=chunk) [Other Information](index=32&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - None[174](index=174&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed, including ALT acquisition agreements and officer certifications - Exhibits filed include agreements related to the acquisition of American Laboratory Trading and **certifications by the Principal Executive Officer and Principal Financial Officer**[176](index=176&type=chunk)