Heritage (HGBL) - 2021 Q3 - Quarterly Report

Part I. Financial Information Financial Statements The company's financial statements show a significant cash decrease due to the ALT acquisition and operations Condensed Consolidated Balance Sheets 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 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 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] - The increase in equity was primarily due to the cumulative net income of $2.093 million recorded during the nine-month period[13] Condensed Consolidated Statements of Cash Flows 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] Notes to Condensed Consolidated Financial Statements 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][22] - On August 23, 2021, the company acquired American Laboratory Trading (ALT) for an aggregate purchase price of approximately $4.3 million[83] - The ALT acquisition resulted in the recognition of $1.7 million in goodwill and $1.4 million in intangible assets[87][88] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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][132] 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 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] Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the nine months ended September 30, 2021[167] Part II. Other Information Legal Proceedings 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] Risk Factors As a Smaller Reporting Company, this disclosure is not required - The company is not required to provide risk factor disclosures in this report[170] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[171] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[172] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[173] Other Information The company reported no other information for this item - None[174] Exhibits 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]