UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
August 15, 2014 (June 2, 2014)
Date of report (Date
of earliest event reported)
HERITAGE GLOBAL INC.
(Exact Name of Registrant as
Specified in its Charter)
FLORIDA
(State or Other Jurisdiction of
Incorporation or Organization)
| 0-17973 | 59-2291344 |
| (Commission File No.) | (I.R.S. Employer Identification No.) |
1 Toronto Street, Suite 700, Toronto, Ontario, Canada, M5C
2V6
(Address of Principal Executive Offices)
(416) 866-3000
(Registrants Telephone Number,
Including Area Code)
N/A
(Former Name or Former Address, if Changed
Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
Explanatory Note
On June 6, 2014, Heritage Global Inc. (the “Company”, “HGI”, “we” or “us”) filed a Current Report on Form 8-K (the “Initial Form 8-K”) to report that on June 2, 2014, the Company acquired all of the issued and outstanding capital stock of National Loan Exchange, Inc., an Illinois corporation (“NLEX”), from David Ludwig its 100% owner. As a result of the acquisition, NLEX became a wholly owned subsidiary of the Company. The Initial Form 8-K omitted the financial statements of NLEX and the pro forma financial information as permitted by Item 9.01(a)(4) and Item 9.01(b)(2) of Form 8-K. This amendment to the Initial Form 8-K is being filed to provide the financial statements and pro forma financial information required by Item 9.01 of Form 8-K. Except as otherwise noted, all other information in the Initial Form 8-K remains unchanged.
| Item 9.01. | Financial Statements and Exhibits |
(a) Financial statements of business acquired.
The audited financial statements of NLEX as of and for the years ended December 31, 2013 and 2012, and the unaudited financial statements of NLEX as of and for the three months ended March 31, 2014 and 2013, are attached hereto as Exhibit 99.1 and incorporated herein by reference.
(b) Pro forma financial information.
The following unaudited pro forma condensed combined financial statements of the Company are attached hereto as Exhibit 99.2 and incorporated herein by reference:
Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2014; and;
Unaudited Pro Forma Condensed Combined Statements of Operations for the three months ended March 31, 2014 and the year ended December 31, 2013
(d) Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Heritage Global Inc. | |
| Date: August 15, 2014 | By:/s/ Stephen A. Weintraub |
| Name:Stephen A. Weintraub | |
| Title: Chief Financial Officer and Corporate Secretary |
Exhibit 99.1
NATIONAL LOAN EXCHANGE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012
| NATIONAL LOAN EXCHANGE, INC. |
| TABLE OF CONTENTS |
| YEARS ENDED DECEMBER 31, 2013 AND 2012 |
|
INDEPENDENT AUDITORS’ REPORT |
1 |
|
|
|
|
CONSOLIDATED FINANCIAL STATEMENTS |
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS |
3 |
|
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
4 |
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT) |
5 |
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
6 |
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
7 |
INDEPENDENT AUDITORS’ REPORT
Board of Directors
National Loan Exchange, Inc.
Report On the Consolidated Financial Statements
We
have audited the accompanying consolidated financial statements of National Loan
Exchange, Inc. and subsidiaries, which comprise the consolidated balance sheet
as of December 31, 2013 and 2012, and the related consolidated statements of
operations, changes in stockholder’s equity and cash flows for the years then
ended, and the related notes to the consolidated financial statements.
Management’s Responsibility For The Consolidated
Financial Statements
Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of consolidated financial
statements that are free from material misstatements, whether due to fraud or
error.
Auditors’ Responsibility
Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
(1)
Board of Directors
National Loan Exchange, Inc.
Opinion
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of National Loan Exchange, Inc. and subsidiaries as of
December 31, 2013 and 2012, and the results of their operations and their cash
flows for the years then ended, in accordance with accounting principles
generally accepted in the United States of America.
/s/ RubinBrown LLP
St. Louis, Missouri
August 12, 2014
(2)
| NATIONAL LOAN EXCHANGE, INC. |
| CONSOLIDATED BALANCE SHEETS |
| DECEMBER 31, 2013 AND 2012 |
|
|
2013 | 2012 | ||||
|
ASSETS |
||||||
|
|
||||||
|
Cash and Cash Equivalents |
$ | 276,359 | $ | 69,203 | ||
|
Premises and Equipment, Net |
8,259 | 12,979 | ||||
|
Other Assets |
22,421 | 24,762 | ||||
|
|
||||||
|
Total Assets |
$ | 307,039 | $ | 106,944 | ||
|
|
||||||
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
||||||
|
|
||||||
|
LIABILITIES |
||||||
|
Funds Held for Third Parties |
$ | 24,758 | $ | 26,774 | ||
|
Accounts Payable |
43,107 | 71,082 | ||||
|
Accrued Compensation |
136,366 | 138,104 | ||||
|
Accrued Taxes |
22,974 | 18,581 | ||||
|
Total Liabilities |
227,205 | 254,541 | ||||
|
|
||||||
|
COMMITMENTS AND CONTINGENCIES (NOTE 4) |
||||||
|
|
||||||
|
STOCKHOLDER'S EQUITY (DEFICIT) |
||||||
|
Common Stock, $150 Par Value, 10,000 Shares Authorized, |
||||||
|
100 Issued and Outstanding |
15,000 | 15,000 | ||||
|
Additional Paid-In Capital |
27,739 | 27,739 | ||||
|
Retained Earnings |
1,344,672 | 1,117,241 | ||||
|
Treasury Stock, at cost |
(1,307,577 | ) | (1,307,577 | ) | ||
|
Total Stockholder's Equity (Deficit) |
79,834 | (147,597 | ) | |||
|
|
||||||
|
Total Liabilities and Stockholder's Equity |
$ | 307,039 | $ | 106,944 |
See accompanying Notes to Consolidated Financial Statements.
(3)
| NATIONAL LOAN EXCHANGE, INC. |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| YEARS ENDED DECEMBER 31, 2013 AND 2012 |
|
|
2013 | 2012 | ||||
|
|
||||||
|
COMMISSION AND FEE REVENUE |
$ | 4,997,353 | $ | 4,634,780 | ||
|
|
||||||
|
EXPENSES |
||||||
|
Compensation and Benefits |
2,723,343 | 2,561,681 | ||||
|
Travel and Entertainment |
240,551 | 296,070 | ||||
|
Insurance |
59,485 | 53,073 | ||||
|
Professional Fees |
132,103 | 111,403 | ||||
|
Other Operating Expenses |
309,850 | 358,127 | ||||
|
Total Expenses |
3,465,332 | 3,380,354 | ||||
|
|
||||||
|
NET INCOME |
$ | 1,532,021 | $ | 1,254,426 |
See accompanying Notes to Consolidated Financial Statements.
(4)
| NATIONAL LOAN EXCHANGE, INC. |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT) |
| YEARS ENDED DECEMBER 31, 2013 AND 2012 |
|
|
Additional | ||||||||||||||
|
|
Common | Paid-In | Retained | Treasury | |||||||||||
|
|
Stock | Capital | Earnings | Stock | Total | ||||||||||
|
|
|||||||||||||||
|
BALANCE, JANUARY 1, 2012 |
$ | 15,000 | $ | 27,739 | $ | 1,318,627 | $ | (1,307,577 | ) | $ | 53,789 | ||||
|
|
|||||||||||||||
|
Net Income |
- | - | 1,254,426 | - | 1,254,426 | ||||||||||
|
Distributions |
- | - | (1,455,812 | ) | - | (1,455,812 | ) | ||||||||
|
|
|||||||||||||||
|
BALANCE, DECEMBER 31, 2012 |
15,000 | 27,739 | 1,117,241 | (1,307,577 | ) | (147,597 | ) | ||||||||
|
|
|||||||||||||||
|
Net Income |
- | - | 1,532,021 | - | 1,532,021 | ||||||||||
|
Distributions |
- | - | (1,304,590 | ) | - | (1,304,590 | ) | ||||||||
|
|
|||||||||||||||
|
BALANCE, DECEMBER 31, 2013 |
$ | 15,000 | $ | 27,739 | $ | 1,344,672 | $ | (1,307,577 | ) | $ | 79,834 |
See accompanying Notes to Consolidated Financial Statements.
(5)
| NATIONAL LOAN EXCHANGE, INC. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| YEARS ENDED DECEMBER 31, 2013 AND 2012 |
|
|
2013 | 2012 | ||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||
|
Net Income |
$ | 1,532,021 | $ | 1,254,426 | ||
|
Adjustments to Reconcile Net Income to Net |
||||||
|
Cash Provided by Operating Activities: |
||||||
|
Depreciation |
9,620 | 16,884 | ||||
|
Net Change in: |
||||||
|
Other Assets |
2,341 | (6,496 | ) | |||
|
Funds Held for Third Parties |
(2,016 | ) | (1,184,665 | ) | ||
|
Accounts Payable |
(27,975 | ) | (26,371 | ) | ||
|
Accrued Expenses |
2,655 | 4,423 | ||||
|
Net Cash Provided by Operating Activities |
1,516,646 | 58,201 | ||||
|
|
||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||
|
Purchases of Equipment |
(4,900 | ) | (701 | ) | ||
|
Net Cash Used in Investing Activities |
(4,900 | ) | (701 | ) | ||
|
|
||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||
|
Distributions |
(1,304,590 | ) | (1,455,812 | ) | ||
|
Net Cash Used in Financing Activities |
(1,304,590 | ) | (1,455,812 | ) | ||
|
|
||||||
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
207,156 | (1,398,312 | ) | |||
|
|
||||||
|
Cash and Cash Equivalents at Beginning of Year |
69,203 | 1,467,515 | ||||
|
|
||||||
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
$ | 276,359 | $ | 69,203 |
See accompanying Notes to Consolidated Financial Statements.
(6)
| NATIONAL LOAN EXCHANGE, INC. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| DECEMBER 31, 2013 AND 2012 |
| NOTE 1 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
| |
|
Nature of Operations | |
|
National Loan Exchange, Inc. (“NLEX”) is a broker of charged off receivables in the United States and Canada. NLEX offerings include national, state and regional portfolios on behalf of many of the world's top financial institutions. NLEX maintains its corporate headquarters in Edwardsville, Illinois and has offices in Parker, Colorado and Glen Allen, Virginia. | |
|
| |
|
Basis of Consolidation | |
|
The consolidated financial statements include the accounts of NLEX and its wholly-owned subsidiaries Solutions Management Group International, LLC (“SMGI”) and NLEX, LLC (collectively the “Company”), after elimination of all material intercompany transactions and balances. | |
|
| |
|
Use of Estimates | |
|
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | |
|
| |
|
Cash and Cash Equivalents | |
|
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and interest-earning deposits, all of which have an original maturity within 90 days. | |
|
| |
|
Revenue Recognition | |
|
The Company recognizes commissions and referral fees when earned, which is when the underlying transaction closes and is funded. Commission and referral fees are contractually agreed to with the customer, and are generally based on a percentage of the sale price of the underlying portfolio. | |
|
| |
|
Premises and Equipment | |
|
Premises and equipment are recorded at cost and are depreciated on the straight-line method. Depreciation and amortization are provided over the estimated useful lives of the respective assets ranging from three to ten years. | |
|
| |
|
Funds Held for Third Parties | |
|
Funds held for third parties represent amounts collected from buyers and sellers that will be disbursed to the counterparty. |
(7)
| NATIONAL LOAN EXCHANGE, INC. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| DECEMBER 31, 2013 AND 2012 |
| NOTE 1 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
|
Income Taxes | |
|
The Company, with the consent of its stockholder, has elected to be taxed under sections of federal and state income tax laws which provide that, in lieu of Company income taxes, the Company’s items of income, deductions, losses and credits are allocated to the stockholder’s personal income tax return. | |
|
The Company files federal and state income tax returns and is not subject to federal income tax examinations for taxable years prior to 2010. | |
|
Subsequent Events | |
|
In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through August 12, 2014, the date the consolidated financial statements were available to be issued. | |
| NOTE 2 |
PREMISES AND EQUIPMENT |
|
Premises and equipment consists of the following at December 31: |
| 2013 | 2012 | ||||||
| Equipment | $ | 137,174 | $ | 141,359 | |||
| Leasehold Improvements | 2,017 | 2,017 | |||||
| 139,191 | 143,376 | ||||||
| Less: Accumulated Depreciation | (130,932 | ) | (130,397 | ) | |||
| $ | 8,259 | $ | 12,979 |
|
Depreciation expense amounted to $9,620 and $16,884 for the years ended December 31, 2013 and 2012, respectively. | |
| NOTE 3 |
EMPLOYEE BENEFITS |
|
401(K) Plan | |
|
The Company has a safe harbor 401 (k) plan for its employees. A participant may elect to make pre-tax contributions up to the maximum amount allowed by the Internal Revenue Service. The Company made non-elective contributions of $53,434 and $43,012 for the years ended December 31, 2013 and 2012, respectively. | |
| NOTE 4 |
COMMITMENTS AND CONTINGENCIES |
|
The Company is involved from time to time in various claims and legal actions incidental to its business. It is not possible at the present time to estimate the ultimate liability, if any, of the Company with respect to such matters; however, management believes that any ultimate outcome will not have a material effect on the Company’s results of operations, financial position or cash flows. |
(8)
| NATIONAL LOAN EXCHANGE, INC. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| DECEMBER 31, 2013 AND 2012 |
| NOTE 4 |
COMMITMENTS AND CONTINGENCIES (CONTINUED) |
|
| |
|
Operating Leases | |
|
The Company leases a building from an entity owned by the sole stockholder of the Company under a month to month lease, for $4,400 per month plus certain building operating expenses. | |
|
| |
|
The Company leases buildings and equipment under agreements with third parties that expire at various dates through 2018. The following is a schedule of future minimum rental payments required under operating leases with lease terms in excess of one year: |
| 2014 | $ | 45,363 | |
| 2015 | 21,728 | ||
| 2016 | 2,832 | ||
| 2017 | 2,832 | ||
| 2018 | 2,832 | ||
| Total | $ | 75,587 |
|
Rent expense under all operating leases amounted to $108,379 and $98,712 for the years ended December 31, 2013 and 2012, respectively. Rent expense paid to related parties amounted to $53,619 and $53,346 for the years ended December 31, 2013 and 2012, respectively. | |
|
| |
| NOTE 5 |
BUSINESS COMBINATION |
|
| |
|
National Loan Exchange, Inc. was acquired by Heritage Global, Inc. effective May 31, 2014. |
(9)
NATIONAL LOAN EXCHANGE, INC.
CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
THREE MONTH PERIODS ENDED MARCH 31, 2014 AND 2013
| NATIONAL LOAN EXCHANGE, INC. |
| TABLE OF CONTENTS |
| THREE MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 |
|
CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS |
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS |
1 |
|
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
2 |
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT) |
3 |
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
4 |
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
5 |
| NATIONAL LOAN EXCHANGE, INC. |
| CONSOLIDATED UNAUDITED BALANCE SHEETS |
| MARCH 31, 2014 AND 2013 |
|
|
2014 | 2013 | ||||
|
ASSETS |
||||||
|
|
||||||
|
Cash and Cash Equivalents |
$ | 86,871 | $ | 295,831 | ||
|
Premises and Equipment, Net |
7,285 | 9,872 | ||||
|
Other Assets |
8,762 | 8,762 | ||||
|
|
||||||
|
Total Assets |
$ | 102,918 | $ | 314,465 | ||
|
|
||||||
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
||||||
|
|
||||||
|
LIABILITIES |
||||||
|
Accounts Payable |
$ | 98,697 | $ | 30,659 | ||
|
Accrued Expenses |
147,651 | 257,427 | ||||
|
Total Liabilities |
246,348 | 288,086 | ||||
|
|
||||||
|
STOCKHOLDER'S EQUITY (DEFICIT) |
||||||
|
Common Stock, $150 Par Value, 10,000 Shares Authorized, |
||||||
|
100 Issued and Outstanding |
15,000 | 15,000 | ||||
|
Additional Paid-In Capital |
27,739 | 27,739 | ||||
|
Retained Earnings |
1,121,408 | 1,291,217 | ||||
|
Treasury Stock |
(1,307,577 | ) | (1,307,577 | ) | ||
|
Stockholder's Equity (Deficit) |
(143,430 | ) | 26,379 | |||
|
|
||||||
|
Total Liabilities and Stockholder's Equity |
$ | 102,918 | $ | 314,465 |
See accompanying Notes to Consolidated Financial Statements.
(1)
| NATIONAL LOAN EXCHANGE, INC. |
| CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS |
| THREE MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 |
|
|
2014 | 2013 | ||||
|
REVENUES |
||||||
|
Commissions and Fees |
$ | 761,627 | $ | 1,795,274 | ||
|
Other Income (Expense) |
9,707 | (1,204 | ) | |||
|
Interest Income |
9 | 30 | ||||
|
Total Revenues |
771,343 | 1,794,100 | ||||
|
|
||||||
|
EXPENSES |
||||||
|
Compensation and Benefits |
587,356 | 791,177 | ||||
|
Travel and Entertainment |
53,429 | 62,113 | ||||
|
Insurance |
40,929 | 42,157 | ||||
|
Professional Fees |
39,378 | 12,410 | ||||
|
Other Operating Expenses |
76,532 | 81,403 | ||||
|
Total Expense |
797,624 | 989,260 | ||||
|
|
||||||
|
NET INCOME (LOSS) |
$ | (26,281 | ) | $ | 804,840 |
See accompanying Notes to Consolidated Financial Statements.
(2)
| NATIONAL LOAN EXCHANGE, INC. |
| CONSOLIDATED UNAUDITED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT) |
| THREE MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 |
|
|
Additional | ||||||||||||||
|
|
Common | Paid-In | Retained | Treasury | |||||||||||
|
|
Stock | Capital | Earnings | Stock | Total | ||||||||||
|
|
|||||||||||||||
|
BALANCE, JANUARY 1, 2013 |
$ | 15,000 | $ | 27,739 | $ | 1,117,241 | $ | (1,307,577 | ) | $ | (147,597 | ) | |||
|
|
|||||||||||||||
|
Net Income |
- | - | 804,840 | - | 804,840 | ||||||||||
|
Distributions |
- | - | (630,864 | ) | - | (630,864 | ) | ||||||||
|
|
|||||||||||||||
|
BALANCE, MARCH 31, 2013 |
$ | 15,000 | $ | 27,739 | $ | 1,291,217 | $ | (1,307,577 | ) | $ | 26,379 | ||||
|
|
|||||||||||||||
|
BALANCE, JANUARY 1, 2014 |
$ | 15,000 | $ | 27,739 | $ | 1,344,672 | $ | (1,307,577 | ) | $ | 79,834 | ||||
|
|
|||||||||||||||
|
Net Loss |
- | - | (26,281 | ) | - | (26,281 | ) | ||||||||
|
Distributions |
- | - | (196,983 | ) | - | (196,983 | ) | ||||||||
|
|
|||||||||||||||
|
BALANCE, MARCH 31, 2014 |
$ | 15,000 | $ | 27,739 | $ | 1,121,408 | $ | (1,307,577 | ) | $ | (143,430 | ) |
See accompanying Notes to Consolidated Financial Statements.
(3)
| NATIONAL LOAN EXCHANGE, INC. |
| CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS |
| THREE MONTH PERIODS ENDED MARCH 31, 2014 AND 2013 |
|
|
2014 | 2013 | ||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||
|
Net Income (Loss) |
$ | (26,281 | ) | $ | 804,840 | |
|
Adjustments to Reconcile Net Income (Loss) to Net |
||||||
|
Cash Provided (Used) by Operating Activities: |
||||||
|
Depreciation |
974 | 3,107 | ||||
|
Net Change in: |
||||||
|
Accounts Payable |
55,590 | (26,867 | ) | |||
|
Accrued Expenses |
(22,788 | ) | 76,412 | |||
|
Net Cash Provided by Operating Activities |
7,495 | 857,492 | ||||
|
|
||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||
|
Distributions |
(196,983 | ) | (630,864 | ) | ||
|
Net Cash Used by Financing Activities |
(196,983 | ) | (630,864 | ) | ||
|
|
||||||
|
NET CHANGE IN CASH AND CASH EQUIVALENTS |
(189,488 | ) | 226,628 | |||
|
|
||||||
|
Cash and Cash Equivalents at Beginning of Year |
276,359 | 69,203 | ||||
|
|
||||||
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 86,871 | $ | 295,831 |
See accompanying Notes to Consolidated Financial Statements.
(4)
| NATIONAL LOAN EXCHANGE, INC. |
| NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS |
| MARCH 31, 2014 AND 2013 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
National Loan Exchange, Inc. (“NLEX”) is a broker of charged off
receivables in the United States and Canada. NLEX offerings
include national, state and regional portfolios on behalf of many of the world's
top financial institutions. NLEX maintains its corporate headquarters in
Edwardsville, Illinois, and has offices in Parker, Colorado, and Glen Allen,
Virginia.
The accounting policies of NLEX conform to industry practice. The accounts are maintained on an accrual basis in accordance with accounting principles generally accepted in the United States of America.
Basis of
Consolidation
The consolidated financial statements include
the accounts of NLEX and its wholly-owned subsidiaries, Solutions Management
Group International, LLC (“SMGI”) and NLEX, LLC (collectively the “Company”),
after elimination of all material intercompany transactions and balances.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash
Equivalents
For purposes of the consolidated statements of
cash flows, cash and cash equivalents include cash and interest-earning
deposits, all of which have an original maturity within 90 days.
Revenue Recognition
The Company recognizes commissions and referral fees when earned, which
is when the underlying transaction closes and is funded. Commissions and
referral fees are contractually agreed to with the customer, and are generally
based on a percentage of the sale price of the underlying portfolio.
Premises and
Equipment
Premises and equipment are recorded at cost and are
depreciated on the straight-line method. Depreciation and amortization are
provided over the estimated useful lives of the respective assets.
Income Taxes
The Company, with the consent of its stockholder, has elected to be
taxed under sections of federal and state income tax laws which provide that, in
lieu of Company income taxes, the Company’s items of income, deductions, losses,
and credits are allocated to the stockholder’s personal income tax return.
(5)
| NATIONAL LOAN EXCHANGE, INC. |
| NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS |
| MARCH 31, 2014 AND 2013 |
| NOTE 1 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
|
Income Taxes (Continued) | |
|
The Company files consolidated federal and state income tax returns and is not subject to federal income tax examinations for taxable years prior to 2010. | |
|
Subsequent Events | |
|
In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through August 12, 2014, the date the consolidated financial statements were available to be issued. |
PREMISES AND EQUIPMENT
Premises and equipment consists of the following at March 31:
| 2014 | 2013 | ||||||
| Equipment | $ | 217,172 | $ | 212,567 | |||
| Leasehold Improvements | 2,017 | 2,017 | |||||
| 219,189 | 214,584 | ||||||
| Less: Accumulated Depreciation | (211,904 | ) | (204,712 | ) | |||
| $ | 7,285 | $ | 9,872 |
| NOTE 3 | EMPLOYEE BENEFITS |
| 401(K) Plan | |
|
The Company has a Safe Harbor 401 (k) plan for its employees. A participant may elect to make pre-tax contributions up to the maximum amount allowed by the Internal Revenue Service. The Company made non-elective contributions of $10,250 and $8,727 for the three month periods ended March 31, 2014 and 2013, respectively. | |
|
| |
| NOTE 4 |
LEGAL CONTINGENCIES |
|
| |
|
The Company is involved from time to time in various claims and legal actions incidental to its business. It is not possible at the present time to estimate the ultimate liability, if any, of the Company with respect to such matters; however, management believes that any ultimate outcome will not have a material effect on the Company’s results of operations, financial position or cash flows. | |
|
| |
| NOTE 5 |
SUBSEQUENT EVENTS |
|
| |
|
National Loan Exchange, Inc. was acquired by Heritage Global, Inc. effective May 31, 2014. |
(6)
Exhibit 99.2
HERITAGE GLOBAL INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
As of March 31, 2014
(In thousands
of US dollars, except share and per share amounts)
| Pro-forma | ||||||||||||
|
|
HGI | NLEX | Adjustments | HGI | ||||||||
|
|
Actual | Actual | (Note 1) | Pro-forma | ||||||||
|
ASSETS |
||||||||||||
|
Current assets: |
||||||||||||
|
Cash and cash equivalents |
$ | 2,802 | $ | 87 | $ | (2,000 | ) | $ | 889 | |||
|
Amounts receivable (net of allowance for doubtful accounts of $0) |
868 | — | — | 868 | ||||||||
|
Deposits |
17 | — | — | 17 | ||||||||
|
Inventory – equipment |
441 | — | — | 441 | ||||||||
|
Other current assets |
448 | 9 | — | 457 | ||||||||
|
Income taxes recoverable |
22 | — | — | 22 | ||||||||
|
Total current assets |
4,598 | 96 | (2,000 | ) | 2,694 | |||||||
|
Non-current assets: |
||||||||||||
|
Inventory – real estate |
6,328 | — | — | 6,328 | ||||||||
|
Asset liquidation investments |
1,011 | — | — | 1,011 | ||||||||
|
Investments |
1,747 | — | — | 1,747 | ||||||||
|
Property, plant and equipment, net |
34 | 7 | — | 41 | ||||||||
|
Intangible assets, net |
4,697 | — | — | 4,697 | ||||||||
|
Goodwill |
5,301 | — | 6,342 | 11,643 | ||||||||
|
Total assets |
$ | 23,716 | $ | 103 | $ | 4,342 | $ | 28,161 | ||||
|
|
||||||||||||
|
LIABILITIES AND EQUITY |
||||||||||||
|
Current liabilities: |
||||||||||||
|
Accounts payable and accrued liabilities |
$ | 5,368 | $ | 247 | $ | - | $ | 5,615 | ||||
|
Debt payable to third parties |
1,248 | — | — | 1,248 | ||||||||
|
Debt payable to a related party |
3,057 | — | — | 3,057 | ||||||||
|
Total current liabilities |
9.673 | 247 | - | 9,920 | ||||||||
|
Non-current liabilities: |
||||||||||||
|
Contingent consideration |
— | — | 4,198 | 4,198 | ||||||||
|
Total liabilities |
9,673 | 247 | 4,198 | 14,118 | ||||||||
|
|
||||||||||||
|
Commitments and contingencies |
||||||||||||
|
|
||||||||||||
|
Equity: |
||||||||||||
|
Preferred stock, $10.00 par
value, authorized |
6 | — | — | 6 | ||||||||
|
Common
stock, $0.01 par value, authorized |
282 | 15 | (15 | ) | 282 | |||||||
|
Additional paid-in capital |
283,330 | 28 | (28 | ) | 283,330 | |||||||
|
Accumulated deficit |
(269,525 | ) | (187 | ) | 187 | (269,525 | ) | |||||
|
Accumulated other comprehensive loss |
(50 | ) | — | — | (50 | ) | ||||||
|
Total equity |
14,043 | (144 | ) | 144 | 14,043 | |||||||
|
Total liabilities and equity |
$ | 23,716 | $ | 103 | $ | 4,342 | $ | 28,161 |
| Note 1 – NLEX purchase equation | ||
| DR Goodwill | 6,342 | |
| DR Common stock | 15 | |
| DR Additional paid-in capital | 28 | |
| CR Accumulated deficit | 187 | |
| CR Cash | 2,000 | |
| CR Contingent consideration | 4,198 |
HERITAGE GLOBAL INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF
COMPREHENSIVE INCOME (LOSS)
For the
year ended December 31, 2013
(In thousands of US dollars, except per
share amounts)
| HGI | NLEX | HGI | |||||||
|
|
Actual | Actual | Pro-Forma | ||||||
|
|
|||||||||
|
Revenue: |
|||||||||
|
Asset liquidation |
|||||||||
|
Asset sales |
$ | 2,046 | $ | — | $ | 2,046 | |||
|
Commissions and other |
6,022 | 4,997 | 11,019 | ||||||
|
Total asset liquidation revenue |
8,068 | 4,997 | 13,065 | ||||||
|
Intellectual property licensing |
824 | — | 824 | ||||||
|
Total revenue |
8,892 | 4,997 | 13,889 | ||||||
|
|
|||||||||
|
Operating costs and expenses: |
|||||||||
|
Asset liquidation |
2,423 | — | 2,423 | ||||||
|
Inventory maintenance |
283 | — | 283 | ||||||
|
Patent licensing and maintenance |
191 | — | 191 | ||||||
|
Selling, general and administrative, including expenses paid to related parties |
9,660 | 3,455 | 13,115 | ||||||
|
Depreciation and amortization |
472 | 10 | 482 | ||||||
|
Total operating costs and expenses |
13,029 | 3,465 | 16,494 | ||||||
|
|
(4,137 | ) | 1,532 | (2,605 | ) | ||||
|
Earnings of equity accounted asset liquidation investments (net of tax of $0) |
1,200 | — | 1,200 | ||||||
|
Operating income (loss) |
(2,937 | ) | 1,532 | (1,405 | ) | ||||
|
Other expense: |
|||||||||
|
Interest expense – third party |
(388 | ) | — | (388 | ) | ||||
|
Interest expense – related party |
(168 | ) | — | (168 | ) | ||||
|
Total other expense |
(556 | ) | — | (556 | ) | ||||
|
Income (loss) before the undernoted |
(3,493 | ) | 1,532 | (1,961 | ) | ||||
|
Income tax expense |
3,029 | — | 3,029 | ||||||
|
Earnings of other equity accounted investments (net of tax of $0) |
126 | — | 126 | ||||||
|
Net income (loss) |
(6,396 | ) | 1,532 | (4,864 | ) | ||||
|
Other comprehensive loss: |
|||||||||
|
Currency translation adjustment (net of tax of $0) |
(37 | ) | — | (37 | ) | ||||
|
Comprehensive income (loss) |
$ | (6,433 | ) | $ | 1,532 | $ | (4,901 | ) | |
|
|
|||||||||
|
Weighted average common shares outstanding – basic and diluted (in thousands) |
28,610 | 28,610 | |||||||
|
|
|||||||||
|
Net loss per share – basic and diluted |
$ | (0.22 | ) | $ | (0.17 | ) |
HERITAGE GLOBAL INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF
COMPREHENSIVE LOSS
For the three
months ended March 31, 2014
(In thousands of US dollars, except per
share amounts)
| HGI | NLEX | HGI | |||||||
| Actual | Actual | Pro-Forma | |||||||
|
|
|||||||||
|
Revenue: |
|||||||||
|
Asset liquidation |
|||||||||
|
Asset sales |
$ | 975 | $ | — | $ | 975 | |||
|
Commissions and other |
1,010 | 771 | 1,781 | ||||||
|
Total revenue |
1,985 | 771 | 2,756 | ||||||
|
|
|||||||||
|
Operating costs and expenses: |
|||||||||
|
Asset liquidation |
404 | — | 404 | ||||||
|
Inventory maintenance |
61 | — | 61 | ||||||
|
Patent licensing and maintenance |
11 | — | 11 | ||||||
|
Selling, general and administrative, including expenses paid to related parties |
2,138 | 796 | 2,934 | ||||||
|
Depreciation and amortization |
118 | 1 | 119 | ||||||
|
Total operating costs and expenses |
2,732 | 797 | 3,529 | ||||||
|
|
(747 | ) | (26 | ) | (773 | ) | |||
|
Loss of equity accounted asset liquidation investments (net of tax of $0) |
(30 | ) | — | (30 | ) | ||||
|
Operating loss |
(777 | ) | (26 | ) | (803 | ) | |||
|
Other expense: |
|||||||||
|
Interest expense – third party |
(71 | ) | — | (71 | ) | ||||
|
Interest expense – related party |
(67 | ) | — | (67 | ) | ||||
|
Total other expense |
(138 | ) | — | (138 | ) | ||||
|
Loss before the undernoted |
(915 | ) | (26 | ) | (941 | ) | |||
|
Income tax expense |
24,667 | — | 24,667 | ||||||
|
Earnings of other equity accounted investments (net of tax of $0) |
11 | — | 11 | ||||||
|
Net loss |
(25,571 | ) | (26 | ) | (25,597 | ) | |||
|
Other comprehensive loss: |
|||||||||
|
Currency translation adjustment (net of tax of $0) |
(6 | ) | — | (6 | ) | ||||
|
Comprehensive loss |
$ | (25,577 | ) | $ | (26 | ) | $ | (25,603 | ) |
|
|
|||||||||
|
Weighted average common shares outstanding – basic and diluted (in thousands) |
28,167 | 28,167 | |||||||
|
|
|||||||||
|
Net loss per share – basic and diluted |
$ | (0.91 | ) | $ | (0.91 | ) |