Heritage (US:HGBL)2025-05-08 20:00Financial Position - As of March 31, 2025, the Company held a gross balance of investments in notes receivable of $29.3 million, with the largest borrower's balance at $22.1 million, representing 75% of total gross notes receivable[38]. - The allowance for credit losses as of March 31, 2025, was approximately $1.495 million, with specific allocations of $0.130 million for accounts receivable, $0.381 million for notes receivable, and $1.0 million for equity method investments[42][48][50]. - The Company's notes receivable balance related to loans to buyers of charged-off and nonperforming receivable portfolios was $9.3 million as of March 31, 2025, reflecting an investment of approximately $1.2 million and principal repayments of $1.5 million during the quarter[57]. - The SCALE rate for credit loss allowance specific to notes receivable was 3.8% as of March 31, 2025, which is higher than the general SCALE rate of 1.3718% due to concentration risk and declining collections industry-wide[48]. - The Company recorded no material adjustments for credit losses in selling, general and administrative expense related to accounts receivable during the three months ended March 31, 2025[55]. - The Company performs a quarterly review of all outstanding loan receivables to assess credit quality and potential impairment indicators[48]. Portfolio Diversification - The Company has diversified its portfolio across 11 distinct loan agreements, including FinTech loans, installment loans, and credit card accounts, to mitigate concentration risk[39]. Stock and Compensation - The Company issued options to purchase 70,000 shares of common stock during the three months ended March 31, 2025, while canceling 60,000 options due to employee resignations[61]. - Stock-based compensation expense related to restricted stock awards was approximately $0.1 million for both the three months ended March 31, 2025 and 2024[66]. - The unrecognized stock-based compensation expense as of March 31, 2025 was approximately $0.5 million, expected to be recognized over a weighted average period of 2.1 years[66]. Joint Ventures and Investments - Joint venture revenues for the three months ended March 31, 2025 totaled $2.779 million, with a net income of $2.547 million[69]. - The Company recognized approximately $1.2 million in earnings from equity method investments related to KNFH II LLC as of March 31, 2025[71]. - The Company entered into a purchase agreement for a pharmaceutical plant in Fenton, Missouri, with a purchase price of $8.0 million[70]. - The Company purchased a 20% participating interest in a financial asset for approximately $1.6 million related to machinery and equipment at a pharmaceutical plant[73]. - The amortized cost basis of the Company's share of loans in nonaccrual status recorded in equity method investments was $17.8 million as of March 31, 2025[68]. - The total assets of the Company's joint ventures as of March 31, 2025 were $71.025 million[69]. - The total liabilities of the Company's joint ventures as of March 31, 2025 were $2.920 million[69]. Real Estate and Lease Agreements - The Company entered into a lease agreement for 6,627 square feet of industrial space in San Diego, California, with an initial monthly base rent of $11,266, increasing to $13,180 by the final year[78]. - The Company amended its Edwardsville office lease, extending the term to May 31, 2027, with an initial monthly base rent of $9,412, increasing to $9,914 in the final year[79]. - As of March 31, 2025, total right-of-use assets amounted to $2,041,000, while total lease liabilities were $2,150,000[80]. - The Company recognized lease expenses of approximately $0.2 million for both the three months ended March 31, 2025, and March 31, 2024[81]. - The Company purchased real estate for $7.4 million for future corporate headquarters, allocating $2.8 million to the building and $4.6 million to the land[83]. - As of March 31, 2025, total property and equipment, net, was $9,048,000, up from $1,643,000 as of December 31, 2024[84]. - The Company's total goodwill remained unchanged at $7,446,000 as of March 31, 2025[88]. Debt and Financing - The outstanding debt as of March 31, 2025, totaled $4,365,000, with $265,000 classified as current debt[89]. - The Company entered into a $10.0 million revolving line of credit under the 2021 Credit Facility, with no outstanding balance as of March 31, 2025[90][94]. - The ALT Note outstanding balance as of March 31, 2025, was $265,000, down from $395,000 as of December 31, 2024[95]. - Heritage Nancy Ridge LLC entered into a $4.1 million Mortgage Loan Agreement with C3bank, with a maturity date of February 5, 2035[96][97]. - The interest rate for the first three years of the Mortgage is set at 6.5%, transitioning to a variable rate based on one-month Term SOFR plus a margin of 2.25% thereafter[97]. - As of March 31, 2025, the outstanding balance of the Mortgage was $4.1 million[98]. Tax and Operating Losses - The Company has federal net operating loss carry forwards of $40.7 million, beginning to expire in 2025[99]. - The valuation allowance against the Company's deferred tax assets was approximately $3.5 million as of March 31, 2025[101]. - The Company has no net operating loss carry forwards limited under Section 382 of the Internal Revenue Code as of March 31, 2025[99]. Segment Performance - For the three months ended March 31, 2025, the gross profit from the Auction and Liquidation segment was $2.876 million, compared to $2.604 million for the same period in 2024, reflecting a 10.4% increase[103]. - Operating income for the Auction and Liquidation segment was $731,000 for the three months ended March 31, 2025, compared to $796,000 for the same period in 2024[103]. - The total amount paid to a related party for office space was approximately $29,000 for the three-month period ended March 31, 2025[102]. Subsequent Events - There were no material subsequent events requiring recognition or disclosure in the Quarterly Report on Form 10-Q[105].