Acquisition of National Loan Exchange, Inc.

3 Months Ended

Mar. 31, 2015

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 March 31, 2015, subject to the application of a 9% discount rate, is estimated to have a present value of $4,287. Key assumptions in determining this present value include projected earnings to the end of 2018 and a weighted average cost of capital of 31.6%. At March 31, 2015, the Company has estimated that the current portion of the contingent consideration is $803, and that the non-current portion is $3,484.

     During the period June 1, 2014 through December 31, 2014, the Company recognized a total of $210 of interest expense which represents the accretion of the present value discount during the period. The Company recognized an additional $89 during the period January 1, 2015 through March 31, 2015.

The intangible assets and goodwill are discussed in more detail in Note 6.