Acquisition and Expansion of Heritage Global Partners, Inc.

9 Months Ended

Sep. 30, 2013

Acquisition and Expansion of Heritage Global Partners, Inc. [Text Block]

Note 3 – Acquisition of Heritage Global Partners, Inc.

On February 29, 2012 the Company expanded its asset liquidation operations by acquiring 100% of the issued and outstanding capital stock in Heritage Global Partners (“HGP”), a full-service, global auction and asset advisory firm. In connection with the acquisition, HGI entered into employment agreements with the previous owners and employees of HGP. In the third quarter of 2012, the Company finalized the valuation of all assets acquired and liabilities assumed. The following table summarizes the consideration paid for HGP and the amounts of the assets acquired and liabilities assumed, which were recognized at the acquisition date:

At February 29, 2012
	$
Consideration paid
Cash 1	3,000
Promissory notes, net of receivable from owners 2	849
Equity instruments:
1,000,000 HGI common shares 3	2,100
625,000 options to purchase HGI common shares at $2.00 per share 4	1,131
Fair value of total consideration	7,080
Acquisition related costs (included in selling, general, and administrative expenses in HGI’s consolidated statement of operations for the year ended December 31, 2012)	78
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash 1	656
Accounts receivable (net of $0 allowance for doubtful accounts)	870
Deposits	20
Prepaid expenses	43
Property, plant and equipment	37
Identifiable intangible assets	5,640
Accounts payable and accrued liabilities	(1,212	)
Client liability account	(1,424	)
Short-term note payable	(100	)
Future income taxes payable	(2,178	)
Total identifiable net assets assumed	2,352
Goodwill	4,728
	7,080

¹ Net cash used for the acquisition was $2,344.

² The notes (the “Promissory Notes”) were paid in full on their August 31, 2012 maturity date.

³ Value determined using the closing price of the Company’s common shares on February 29, 2012.

⁴ Value determined using the Black-Scholes Option Pricing Model. Inputs to the model included an expected volatility rate of 133%, a risk-free interest rate of 1.25%, an expected life of 4.75 years, and an expected dividend yield of $nil.

The fair value of the accounts receivable is the value as reported in the above table.

The goodwill and identifiable intangible assets are discussed in Note 6.

The only transactions recognized separately from the acquisition were the acquisition costs noted in the above table.