Acquisition of National Loan Exchange, Inc.

9 Months Ended

Sep. 30, 2014

Acquisition of National Loan Exchange, Inc. [Text Block]

Note 3 – Acquisition of National Loan Exchange, Inc.

     On June 2, 2014, and effective May 31, 2014, the Company acquired all of the issued and outstanding capital stock in National Loan Exchange, Inc. (“NLEX”), a broker of charged-off receivables in the United States and Canada. NLEX operates as a wholly owned division of the Company. The acquisition of NLEX is consistent with HGI’s strategy to expand the services provided by its asset liquidation business. In connection with the acquisition, HGI entered into employment agreements with the previous owner and employees of NLEX.

     The consideration for the acquisition consisted of $2,000 cash, and an earnout provision (“contingent consideration”). Under the terms of the NLEX purchase agreement, the Company will pay, to the former owner of NLEX, 50% of gross revenues of NLEX and its affiliates, minus 50% of certain expenses, for each of the four years following the closing. The payments are due on or about July 30 of each year, beginning in 2015. The contingent consideration is capped at an aggregate of $5,000, and at September 30, 2014, subject to finalization of the purchase price allocation and the application of a 6% discount rate, is estimated to have a present value of $4,198. At September 30, 2014, the Company has estimated that the current portion of the contingent consideration is $650, and that the non-current portion is $3,548.

  The following table summarizes the consideration paid for NLEX and the amounts of the assets acquired and liabilities assumed, with the excess purchase price recognized as goodwill. As the purchase price allocation is still being finalized, these amounts are subject to change.

Consideration
Cash paid on closing	$	2,000
Contingent consideration		4,198
Total purchase price	$	6,198
Acquisition related costs (included in selling, general, and administrative expenses
in HGI’s condensed consolidated interim statement of operations for the nine
months ended September 30, 2014)	$	197
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash	$	639
Other current assets		2
Fixed assets		14
Accounts payable and accrued liabilities		(642	)
Total identifiable net assets assumed		13
Goodwill		6,185
	$	6,198

     The goodwill is discussed in Note 6.

     The amounts of NLEX revenue and earnings for the period June 1, 2014 through September 30, 2014, included in HGI’s condensed consolidated statement of operations for the nine months ended September 30, 2014, are shown below. Also shown are HGI’s consolidated revenue and net loss as if the acquisition of NLEX had occurred on January 1, 2014. It is impracticable for the Company to provide this information as if the acquisition had occurred on January 1, 2013, because it would require unreasonable efforts.

		Revenue		Net income       (loss)
NLEX revenue and net income included through  September 30, 2014	$	1,141	$	292
Consolidated revenue and net loss assuming January 1, 2014 acquisition	$	12,322	$	(26,335	)