10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to

Commission file number: 0-17973

Heritage Global Inc.

(Exact name of registrant as specified in its charter)

FLORIDA	59-2291344
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

12625 High Bluff Drive, Suite 305, San Diego, CA 92130

(Address of Principal Executive Offices)

(858) 847-0656(Registrant’s Telephone Number)

N/A

(Registrant’s Former Name)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter time period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 4, 2017, there were 28,480,148 shares of common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

Part I.	Financial Information	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016	3
	Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2017 and 2016 (unaudited)	4
	Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2017 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
Part II.	Other Information	22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	23

2

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements.

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share and per share amounts)

	March 31, 2017			December 31, 2016
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,846		$	2,530
Accounts receivable (net of allowance for doubtful accounts of $71; $36 in 2016)		998			1,247
Inventory – equipment		52			263
Other current assets		327			393
Total current assets		5,223			4,433
Property and equipment, net		141			156
Identifiable intangible assets, net		4,061			4,122
Goodwill		6,158			6,158
Other assets		283			275
Total assets	$	15,866		$	15,144
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	7,250		$	6,746
Current portion of related party debt		538			664
Current portion of contingent consideration		868			961
Other current liabilities		220			199
Total current liabilities		8,876			8,570
Non-current portion of related party debt		235			348
Non-current portion of contingent consideration		1,976			1,772
Deferred tax liabilities		960			960
Total liabilities		12,047			11,650
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and    outstanding 569 Class N shares at March 31, 2017 and December 31, 2016		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued    and outstanding 28,480,148 shares at March 31, 2017 and    28,470,148 shares at December 31, 2016		285			285
Additional paid-in capital		284,220			284,149
Accumulated deficit		(280,620	)		(280,875	)
Accumulated other comprehensive loss		(72	)		(71	)
Total stockholders’ equity		3,819			3,494
Total liabilities and stockholders’ equity	$	15,866		$	15,144

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(In thousands of US dollars, except share and per share amounts)

(unaudited)

	Three Months Ended March 31,
	2017			2016
Revenues:
Services revenue	$	4,462		$	4,192
Asset sales		571			1,228
Total revenues		5,033			5,420
Operating costs and expenses:
Cost of services revenue		1,059			1,003
Cost of asset sales		293			1,052
Selling, general and administrative		3,210			3,090
Depreciation and amortization		77			83
Total operating costs and expenses		4,639			5,228
Operating income		394			192
Other income		—			25
Fair value adjustment of contingent consideration		(111	)		(68	)
Interest expense		(15	)		(73	)
Income before income tax expense		268			76
Income tax expense		13			16
Net income	$	255		$	60
Weighted average common shares outstanding – basic		28,433,092			28,318,967
Weighted average common shares outstanding – diluted		28,467,350			28,350,892
Net income per share – basic	$	0.01		$	0.00
Net income per share – diluted	$	0.01		$	0.00
Comprehensive income:
Net income	$	255		$	60
Other comprehensive loss:
Foreign currency translation adjustment		(1	)		(8	)
Comprehensive income	$	254		$	52

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands of US dollars, except share amounts)
(unaudited)

									Additional					Accumulated other
	Preferred stock				Common stock				paid-in		Accumulated			comprehensive
	Shares		Amount		Shares		Amount		capital		deficit			loss			Total
Balance at December 31, 2016		569	$	6		28,470,148	$	285	$	284,149	$	(280,875	)	$	(71	)	$	3,494
Stock-based compensation expense		—		—		—		—		70		—			—			70
Issuance of common stock from exercise    of stock options		—		—		10,000		—		1		—			—			1
Net income		—		—		—		—		—		255			—			255
Foreign currency translation adjustment		—		—		—		—		—		—			(1	)		(1	)
Balance at March 31, 2017		569	$	6		28,480,148	$	285	$	284,220	$	(280,620	)	$	(72	)	$	3,819

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(unaudited)

	Three months ended March 31,
	2017			2016
Cash flows provided by (used in) operating activities:
Net income	$	255		$	60
Adjustments to reconcile net income to net cash provided by (used in) operating    activities:
Accrued interest added to principal of related party debt		11			24
Fair value adjustment of contingent consideration		111			68
Stock-based compensation expense		70			36
Depreciation and amortization		77			83
Changes in operating assets and liabilities:
Accounts receivable		244			(442	)
Deposits		(4	)		(126	)
Inventory		211			135
Other assets		66			119
Accounts payable and accrued liabilities		523			(1,399	)
Net cash provided by (used in) operating activities		1,564			(1,442	)
Cash flows used in financing activities:
Proceeds from debt payable to related party		—			404
Repayment of debt payable to related party		(250	)		(428	)
Proceeds from exercise of options to purchase common shares		1			3
Net cash used in financing activities		(249	)		(21	)
Net increase (decrease) in cash and cash equivalents		1,315			(1,463	)
Effect of exchange rate changes on cash and cash equivalents		1			9
Cash and cash equivalents at beginning of period		2,530			2,777
Cash and cash equivalents at end of period	$	3,846		$	1,323
Supplemental cash flow information:
Cash paid for taxes	$	3		$	17
Cash paid for interest	$	1		$	93

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

HERITAGE GLOBAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 –Basis of Presentation

These unaudited condensed consolidated interim financial statements include the accounts of Heritage Global Inc. together with its subsidiaries, including Heritage Global Partners, Inc. (“HGP”), Heritage Global LLC (“HG LLC”), Equity Partners HG LLC (“Equity Partners”) and National Loan Exchange, Inc. These entities, collectively, are referred to as “HGI,” the “Company,” “we” or “our” in these financial statements. Our unaudited condensed consolidated interim financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), as outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and include the assets, liabilities, revenues, and expenses of all subsidiaries over which HGI exercises control. All significant intercompany accounts and transactions have been eliminated upon consolidation. The Company’s sole operating segment is its asset liquidation business.  HGI provides an array of value-added capital and financial asset solutions:  auction and appraisal services, traditional asset disposition sales, and financial solutions for businesses and properties in transition.  

We have prepared the condensed consolidated interim financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In management’s opinion, these financial statements reflect all adjustments that are necessary to present fairly the results for the interim periods included herein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, we believe that the disclosures are appropriate. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 7, 2017.

The results of operations for the three month period ended March 31, 2017 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2017. The accompanying condensed consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated balance sheet at December 31, 2016, contained in the above referenced Form 10-K.  

Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, investments, goodwill and intangible assets, liabilities, contingent consideration, deferred income tax assets and liabilities, and stock-based compensation. These estimates have the potential to significantly impact our consolidated financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Foreign Currency

The functional currency of foreign operations is deemed to be the local country’s currency.  Assets and liabilities of operations outside of the United States are generally translated into U.S. dollars, and the effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income.

Reclassifications

Certain prior year balances within the condensed consolidated financial statements have been reclassified to conform to the current year presentation.

7

The critical accounting policies used in the preparation of our audited consolidated financial statements are discussed in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to these policies in the first three months of 2017.

Recently Adopted Accounting Pronouncements

In 2014, the FASB issued Accounting Standards update 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to determine whether substantial doubt exists regarding the entity’s going concern presumption, which generally refers to an entity’s ability to meet its obligations as they become due, and provides guidance on determining when and how to disclose going-concern uncertainties in an entity’s financial statements. It requires management to perform both interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The ASU contains guidance on 1) how to perform a going-concern assessment, and 2) when to provide going-concern disclosures. An entity must provide specified disclosures if conditions or events raise substantial doubt about its ability to continue as a going concern. ASU 2014-15 became effective for annual periods ending after December 15, 2016.  The Company adopted ASU 2014-15 in the fourth quarter of 2016.  Management concluded that there were no conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the financial statements are issued.

In 2016, the FASB issued Accounting Standards update 2016-07, Investments – Equity Method and Joint Ventures (“ASU 2016-07”), which simplifies the transition to the equity method of accounting by, among other things, eliminating retroactive adjustments to the investments as a result of an increase in the level of ownership interest or degree of influence.  ASU 2016-07 became effective January 1, 2017 and did not have a material impact on the Company’s consolidated financial statements.  

In 2016, the FASB issued Accounting Standards update 2016-09, Compensation – Stock Compensation (“ASU 2016-09”), which provides improvements to employee share-based payment accounting.  ASU 2016-09 simplifies the accounting and presentation of various elements of share-based compensation including, but not limited to, income taxes, excess tax benefits, statutory tax withholding requirements, payment of employee taxes, and award assumptions.  ASU 2016-09 became effective January 1, 2017 and did not have a material impact on the Company’s consolidated financial statements.

Future Accounting Pronouncements

In 2016, the FASB issued Accounting Standards update 2016-02, Leases, (“ASU 2016-02”).  ASU 2016-02 changes the accounting for leases previously classified as operating leases under GAAP, by, among other things, requiring a Company to recognize the lease on the balance sheet with a right-of-use asset and a lease liability.  ASU 2016-02 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company has not yet adopted ASU 2016-02 nor assessed its potential impact on its consolidated financial statements.

In 2016, the FASB issued Accounting Standards update 2016-08, Revenue from Contracts with Customers (“ASU 2016-08”), which provides clarity on the implementation of guidance on principal versus agent considerations (reporting of revenue on a gross basis versus net basis).  ASU 2016-08 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company does not believe that the clarification of the implementation of the guidance will change the conclusions reached in its current analysis of principal versus agent considerations for reporting of revenue.  

In 2016, the FASB issued Accounting Standards update 2016-10, Revenue from Contracts with Customers (“ASU 2016-10”), which provides clarity on identifying performance obligations and licensing.  ASU 2016-10 clarifies how an entity identifies performance obligations and whether that entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property or a right to access the entity’s intellectual property.  ASU 2016-10 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the potential impact of ASU 2016-10 on its consolidated financial statements.  

In 2016, the FASB issued Accounting Standards update 2016-12, Revenue from Contracts with Customers (“ASU 2016-12”), which provides clarity and simplification to the transition guidance from the previously issued ASU 2014-09.  ASU 2016-12 provides narrow scope improvements to assessing the collectability criterion, the presentation of sales and other similar taxes, non-cash consideration, contract modifications, completed contracts, and technical corrections.  ASU 2016-12 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the impact of ASU 2016-12 on its consolidated financial statements.

8

In 2016, the FASB issued Accounting Standards update 2016-15, Statement of Cash Flows (“ASU 2016-15”), which clarifies the classification of certain cash receipts and payments.  The specific cash flow issues addressed by ASU 2016-15, with the objective of reducing the existing diversity in practice, are as follows: (1) Debt prepayment or debt extinguishment costs; (2) Settlement of zero-coupon debt instruments or other debt instruments with insignificant coupon interest rates; (3) Contingent consideration payments made after a business combination; (4) Proceeds from the settlement of insurance claims; (5) Proceeds from the settlement of corporate-owned life insurance policies; (6) Distributions received from equity method investees; (7) Beneficial interest in securitization transactions; and (8) Separately identifiable cash flows and application of the predominance in principle.  ASU 2016-15 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the impact of ASU 2016-15 on its consolidated financial statements.

In 2017, the FASB issued Accounting Standards update 2017-01, Business Combinations (“ASU 2017-01”), which clarifies the definition of a business under topic 805 of the Accounting Standards Codification.  The main provisions of ASU 2017-01 provide a screen to determine when an integrated set of assets and activities is not a business.  The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business.  ASU 2017-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the impact of ASU 2017-01 on its consolidated financial statements.    

In 2017, the FASB issued Accounting Standards update 2017-04, Intangibles – Goodwill and Other (“ASU 2017-04”), which simplifies the test for goodwill impairment.  The main provisions of ASU 2017-04 eliminate the second step of the goodwill impairment test which previously was performed to determine the goodwill impairment loss for an entity by calculating the difference between the implied fair value of the entity’s goodwill and its carrying value.  Under ASU 2017-04, if a reporting unit’s carrying value exceeds its fair value, an entity will record an impairment charge based on that difference.  The impairment charge will be limited to the amount of goodwill which is allocated to that reporting unit.  ASU 2017-04 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.  The Company is still assessing the impact of ASU 2017-04 on its consolidated financial statements.  

Note 3 – Real Estate Inventory

In the first quarter of 2016 the Company entered into a purchase and sale agreement with International Auto Processing Inc. (“IAP”) to sell the Company’s real estate inventory for $4.1 million.  IAP subsequently assigned the purchase and sale agreement to an affiliate, International Investments and Infrastructure, LLC (“III”).

Concurrently, the Company entered into a five year lease agreement with an affiliate of IAP to lease the building during the escrow period, which would terminate at the close of escrow.  During the three months ended March 31, 2016, the Company earned rental income of $0.1 million, which is included within services revenue in the condensed consolidated statement of operations.  No rental income was earned during the three months ended March 31, 2017.

In the third quarter of 2016, the Company completed the sale of its real estate inventory and, in accordance with the purchase and sale agreement, terminated the previously existing lease agreement between the Company and an affiliate of III.  

Note 4 – Stock-based Compensation

Options

At March 31, 2017 the Company had four stock-based compensation plans, which are described more fully in Note 15 to the audited consolidated financial statements for the year ended December 31, 2016, contained in the Company’s most recently filed Annual Report on Form 10-K.

During the first three months of 2017 the Company issued options to purchase a total of 50,000 shares of common stock to the Company’s independent directors as part of their annual compensation.  During the same period, the Company cancelled options to purchase 10,350 shares of common stock as a result of employee resignations.  Pursuant to the exercise of common stock options 10,000 shares of common stock were issued during the first three months of 2017.    

9

The following summarizes the changes in common stock options for the three months ended March 31, 2017:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2016		5,169,200		$	0.96
Granted		50,000		$	0.48
Exercised		(10,000	)	$	0.08
Forfeited		(10,350	)	$	0.45
Outstanding at March 31, 2017		5,198,850		$	0.95
Options exercisable at March 31, 2017		1,895,000		$	1.83

The Company recognized stock-based compensation expense related to stock options of $0.1 million for the three months ended March 31, 2017.  As of March 31, 2017, there is approximately $0.9 million of unrecognized stock-based compensation expense related to unvested option awards outstanding, which is expected to be recognized over a weighted average period of 3.7 years.

Restricted Stock

Restricted stock awards represent a right to receive shares of common stock at a future date determined in accordance with the participant’s award agreement.  There is no exercise price and no monetary payment required for receipt of restricted stock awards or the shares issued in settlement of the award.  Instead, consideration is furnished in the form of the participant’s services to the Company.  Compensation cost for these awards is based on the fair value on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period.

The following summarizes the changes in restricted stock awards for the three months ended March 31, 2017:

	Restricted Stock Awards		Weighted AverageGrant Date Fair Value Per Share
Unvested Awards at December 31, 2016		37,500	$	0.38
Granted		—		—
Vested		—		—
Unvested awards at March 31, 2017		37,500	$	0.38
Vested awards at March 31, 2017		225,000	$	0.38

Stock-based compensation expense related to restricted stock awards was not material for the three months ended March 31, 2017 and 2016.

Note 5 – Earnings Per Share

The Company is required in periods in which it has net income to calculate basic earnings per share (“basic EPS”) using the two-class method. The two-class method is required because the Company’s Class N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock. Under the two-class method, earnings for the period are allocated on a pro-rata basis to the common and preferred stockholders. The weighted-average number of common and preferred shares outstanding during the period is then used to calculate basic EPS for each class of shares.

In periods in which the Company has a net loss, basic loss per share is calculated by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The two-class method is not used in periods in which the Company has a net loss because the preferred stock does not participate in losses.

10

Stock options and other potential common shares are included in the calculation of diluted earnings per share (“diluted EPS”), since they are assumed to be exercised or converted, except when their effect would be anti-dilutive. The table below shows the calculation of the shares used in computing diluted EPS.

	Three months ended March 31,
Weighted Average Shares Calculation:	2017		2016
Basic weighted average shares outstanding		28,433,092		28,318,967
Treasury stock effect of common stock options and restricted    stock awards		34,258		31,925
Diluted weighted average common shares outstanding		28,467,350		28,350,892

Potential common shares that were not included in the computation of diluted EPS because they would have been anti-dilutive for the three months ended March 31, 2017 and 2016 were 1.9 million and 2.2 million, respectively.  

Note 6 – Intangible Assets and Goodwill

Identifiable intangible assets

The Company’s identifiable intangible assets are associated with its acquisitions of HGP in 2012 and NLEX in 2014, as shown in the table below (in thousands), and are amortized using the straight-line method over their estimated useful lives of two to twelve years.  The Company’s tradename acquired as part of the acquisition of NLEX in 2014 has an indefinite life and therefore is not amortized.

	Carrying Value					Carrying Value
Amortized Intangible Assets	December 31, 2016		Amortization			March 31, 2017
Customer Network (HGP)	$	158	$	(5	)	$	153
Trade Name (HGP)		953		(26	)		927
Customer Relationships (NLEX)		550		(27	)		523
Website (NLEX)		24		(3	)		21
Total		1,685		(61	)		1,624
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	4,122	$	(61	)	$	4,061

Amortization expense during each of the first three months of 2017 and 2016 was $0.1 million.

The estimated amortization expense as of March 31, 2017 during the next five fiscal years and thereafter is shown below (in thousands):

Year	Amount
2017 (remainder of year from April 1, 2017 to December 31, 2017)	$	184
2018		245
2019		240
2020		236
2021		236
Thereafter		483
Total	$	1,624

11

Goodwill

The Company’s goodwill is related to its asset liquidation business, and is comprised of goodwill from three acquisitions, as shown in the table below (in thousands). There were no impairment losses or other charges to the carrying amount of goodwill during the three months ended March 31, 2017 and 2016.

Acquisition	March 31, 2017		December 31, 2016
Equity Partners	$	573	$	573
HGP		2,040		2,040
NLEX		3,545		3,545
Total goodwill	$	6,158	$	6,158

Note 7 – Debt

Outstanding debt at March 31, 2017 and December 31, 2016 is summarized as follows (in thousands):

	March 31, 2017		December 31, 2016
Current:
Related party debt	$	538	$	664
		538		664
Non-current:
Related party debt		235		348
Total debt	$	773	$	1,012

In 2016, following an amendment, the Company’s related party debt (the “Street Capital Loan”) began accruing interest at a rate per annum equal to the WSJ prime rate + 1.0%.  The Company also agreed to a monthly payment schedule which began in the first quarter of 2017.  As of March 31, 2017 and December 31, 2016, the interest rate on the loan was 5.0% and 4.75%, respectively.  Please see Note 10 for further discussion of transactions with Street Capital.  

In the fourth quarter of 2016, the Company entered into a related party secured promissory note with an entity owned by certain executive officers of the Company (the “Entity”) for a revolving line of credit (the “Line of Credit”).  Under the terms of the Line of Credit, the Company received a revolving line of credit with an aggregate borrowing capacity of $1.5 million.  Interest under the Line of Credit is charged at a variable rate.  Aggregate loans under the Line of Credit up to $1.0 million incur interest at a variable rate per annum based on the rate charged to the Entity by its bank, plus 2.0%.  Amounts outstanding at any time in excess of $1.0 million incur interest at a rate of 8.0% per annum.  The Company is required to pay the Entity an annual commitment fee of $15,000, payable on a monthly basis, and due regardless of amounts drawn against the line.  Further, the Entity is eligible to participate in the net profits and net losses of certain industrial auction principal and guarantee transactions entered into by the Company on or after January 1, 2017, and consummated on or prior to the maturity date.  Principal transactions are those in which the Company purchases assets for resale.  Guarantee transactions are those in which the Company guarantees its client a minimum amount of proceeds from the auction.  The Line of Credit matures at the earlier of (i) three years from the date of the Agreement, (ii) the termination of the Entity’s line of credit with its bank, or (iii) forty-five (45) days following the date the Company closes a new credit facility with a financial institution.

As of March 31, 2017 and December 31, 2016, the Company had not drawn on the Line of Credit.  

In the first quarter of 2016, the Company entered into a related party loan with a trust controlled by certain executive officers of the Company.  The Company received proceeds of $0.4 million.  The loan accrued interest at 10% per annum and was payable within 90 days of the loan date.  The Company repaid the loan plus accrued interest in March 2016.  

Note 8 – Fair Value Measurements

In accordance with the authoritative guidance for financial assets and liabilities measured at fair value on a recurring basis, the Company prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:

• Level 1 – Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

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• Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 – Inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.  The inputs are unobservable in the market and significant to the instruments valuation.

As of March 31, 2017 and December 31, 2016, the Company had no Level 1 or Level 2 assets or liabilities measured at fair value.  As of both March 31, 2017 and December 31, 2016, the Company’s contingent consideration from the 2014 acquisition of NLEX was the only liability measured at fair value on a recurring basis.  The fair value of the Company’s contingent consideration was determined using a discounted cash flow analysis, which is based on significant inputs that are not observable in the market.

The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 (in thousands):

	Fair Value as of March 31, 2017
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	2,844	$	2,844
	Fair Value as of December 31, 2016
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	2,733	$	2,733

When valuing its Level 3 liabilities, the Company gives consideration to operating results, financial condition, economic and/or market events, and other pertinent information that would impact its estimate of the expected contingent consideration payments.  The valuation of the liability is primarily based on management’s estimate of the Net Profits of NLEX (as defined in the NLEX stock purchase agreement).  Given the short term nature of the contingent consideration periods, changes in the discount rate are not expected to have a material impact on the fair value of the liability.

The following table summarizes the changes in the fair value of the liability during the three months ended March 31, 2017 (in thousands):

Balance at December 31, 2016	$	2,733
Fair value adjustment of contingent consideration		111
Balance at March 31, 2017	$	2,844

The Company had no assets or liabilities measured at fair value on a non-recurring basis as of March 31, 2017.

Note 9 – Income Taxes

At March 31, 2017 the Company has aggregate tax net operating loss carry forwards of approximately $74.5 million ($59.3 million of unrestricted net operating tax losses and approximately $15.2 million of restricted net operating tax losses) and unused minimum tax credit carry forwards of $0.5 million. Substantially all of the net operating loss carry forwards and unused minimum tax credit carry forwards expire between 2024 and 2035. The Company’s utilization of restricted net operating tax loss carry forwards against future income for tax purposes is restricted pursuant to the “change in ownership” rules in Section 382 of the Internal Revenue Code.

The reported tax expense varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the income from operations before taxes primarily as a result of the change in the deferred tax asset valuation allowance.

The Company records net deferred tax assets to the extent that it believes such assets will more likely than not be realized. As a result of our cumulative losses and uncertainty with respect to future taxable income, we have provided a full valuation allowance against our net deferred tax assets as of March 31, 2017 and December 31, 2016.

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Note 10 – Related Party Transactions

Debt with Street Capital

As of March 31, 2017, the Company’s loan from Street Capital continues to be classified as related party debt because Allan Silber, an affiliate of Street Capital, is the Company’s chairman of the board, and a significant shareholder of the Company.  At March 31, 2017 and December 31, 2016, the Company reported amounts owed to Street Capital of $0.8 million and $1.0 million respectively, as related party debt (see Note 7). Total interest of $0.5 million has been accrued on the debt and remains unpaid through March 31, 2017.

Transactions with Other Related Parties

As part of the operations of NLEX, the Company leases office space in Edwardsville, IL that is owned by the President of NLEX, David Ludwig.  The total amount paid to the related party is outlined in the table below.  All of the payments in both 2017 and 2016 were made to David Ludwig. 

The lease amounts paid by the Company to the related parties, which are included in selling, general and administrative expenses during the three months ended March 31, 2017 and 2016, are detailed below (in thousands):

	Three months ended March 31,
Leased premises location	2017		2016
Foster City, CA	$	—	$	57
Edwardsville, IL		25		25
Total	$	25	$	82

In 2016 the Company entered into multiple related party loan agreements with certain executive officers of the Company.  These related party loans are more fully described in Note 7.  Both Ross Dove and Kirk Dove, who were parties to the related party loans, shared equally in all payments made by the Company to satisfy obligations under the loan agreements.    

Note 11 – Subsequent Events

The Company has evaluated events subsequent to March 31, 2017 for potential recognition or disclosure in its condensed consolidated financial statements.  There have been no material subsequent events requiring recognition or disclosure in this Report.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the information contained in the unaudited condensed consolidated interim financial statements of the Company and the related notes thereto for the three-month periods ended March 31, 2017 and 2016, appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (“SEC”).

Forward Looking Information

This Quarterly Report on Form 10-Q (the “Report”) contains certain “forward-looking statements” that are based on management’s exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words “may,” "will,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties, as noted in the Company’s Annual Report on Form 10-K, filed with the SEC, and as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

Overview, History and Recent Developments

Heritage Global Inc. (“HGI”) was incorporated in the State of Florida in 1983 under the name “MedCross, Inc.” The Company’s name was changed to “I-Link Incorporated” in 1997, to “Acceris Communications Inc.” in 2003, to “C2 Global Technologies Inc.” in 2005, to “Counsel RB Capital Inc.” in 2011, and to Heritage Global Inc. effective in 2013. The most recent name change more closely identifies the Company with its core auction business, Heritage Global Partners, Inc. (“HGP”).

In 2014, HGI (together with its consolidated subsidiaries, “we”, “us” “our” or 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. As a result of this acquisition, NLEX now operates as a wholly owned division of the Company.

In 2016, the Company completed the sale of its real estate inventory to International Investments and Infrastructure, LLC (“III”) for $4.1 million.  The Company used the proceeds from the sale to repay $2.5 million of outstanding principal, plus accrued interest, on its loan with an unrelated party.  

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The organization chart below outlines the basic corporate structure of the Company as of March 31, 2017.

(1) Registrant.

(2) Full service, global auction, appraisal and asset advisory company.

(3) Asset liquidation company which acquires and monetizes distressed and surplus assets.

(4) Mergers and acquisitions (M&A) advisory firm specializing in financially distressed businesses and properties.

(5) Broker of charged-off receivables.

Asset liquidation

The Company is a value-driven, innovative leader in corporate and financial asset liquidation transactions, valuations and advisory services.  The Company specializes both in acting as an adviser, as well as in acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, real estate, accounts receivable portfolios, intellectual property, and entire business enterprises.

The Company’s asset liquidation business began operations in 2009 with the establishment of Heritage Global LLC (“HG LLC”). In addition to acquiring turnkey manufacturing facilities and used industrial machinery and equipment, HG LLC arranges traditional asset disposition sales, including liquidation and auction sales. In 2011, HG LLC acquired 100% of the business of EP USA, LLC (“Equity Partners”), thereby expanding the Company’s operations. Equity Partners is a boutique M&A advisory firm and provider of financial solutions for businesses and properties in transition.  

In 2012 the Company increased its in-house asset liquidation expertise with its acquisition of 100% of the outstanding equity of HGP, a global full-service auction, appraisal and asset advisory firm, and launched Heritage Global Partners Europe (“HGP Europe”). Through its wholly-owned subsidiary Heritage Global Partners UK Limited, the Company opened three European-based offices, one each in the United Kingdom, Germany and Spain.

In 2014, the Company again expanded its asset liquidation operations with the acquisition of 100% of the outstanding equity of NLEX. NLEX is the largest volume broker of charged-off receivables in the United States and Canada, and its offerings include national, state and regional portfolios on behalf of many of the world’s top financial institutions. The NLEX acquisition is consistent with the Company’s strategy to expand and diversify the services provided by its asset liquidation business.

As a result of the events and acquisitions outlined above, management believes that the Company’s expanded global platform will allow the Company to achieve its long term industry leadership goals.

Industry and Competition

Asset Liquidation

The Company’s asset liquidation business consists primarily of the auction, appraisal and asset advisory services provided by HGP, mergers and acquisitions advisory services provided by Equity Partners, and the accounts receivable brokerage services

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provided by NLEX. It also includes the purchase and sale, including at auction, of industrial machinery and equipment, real estate, inventories, accounts receivable and distressed debt. The market for these services and assets is highly fragmented. To acquire auction or appraisal contracts, or assets for resale, HGI competes with other liquidators, auction companies, dealers and brokers. It also competes with them for potential purchasers, as well as with equipment manufacturers, distributors, dealers and equipment rental companies. Some competitors have significantly greater financial and marketing resources and name recognition.

HGI’s business strategy includes the option of partnering with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company agreement (collectively, “Joint Ventures”). These Joint Ventures give the Company access to more opportunities, helping to mitigate some of the competition from the market’s larger participants and contribute to the Company’s objective to be the leading resource for clients requiring capital and financial asset solutions.

Government Regulation

We are subject to federal, state and local consumer protection laws, including laws protecting the privacy of customer non-public information and regulations prohibiting unfair and deceptive trade practices. Many jurisdictions also regulate "auctions" and "auctioneers" and may regulate online auction services. These consumer protection laws and regulations could result in substantial compliance costs and could interfere with the conduct of our business.

Legislation in the United States, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, has increased public companies’ regulatory and compliance costs as well as the scope and cost of work provided by independent registered public accountants and legal advisors. The mandatory adoption of XBRL reporting in 2011 has also increased the Company’s costs paid to third party service providers. As regulatory and compliance guidelines continue to evolve, we expect to continue to incur costs, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations references our unaudited condensed consolidated interim financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are considered to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates required in the preparation of the unaudited condensed consolidated interim financial statements included in this Report include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, investments, goodwill, intangible assets, liabilities, contingent consideration, deferred income tax assets and liabilities and stock-based compensation. These estimates are considered significant either because of the significance of the financial statement items to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

The Company has no off-balance sheet arrangements.

The Company has not paid any dividends, and does not expect to pay any dividends in the future.  

The critical accounting policies used in the preparation of our audited consolidated financial statements are discussed in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to these policies in the first three months of 2017.

Management’s Discussion of Financial Condition

Liquidity and Capital Resources

Liquidity

At March 31, 2017 the Company had a working capital deficit of $3.7 million, as compared to a working capital deficit of $4.1 million at December 31, 2016, an improvement of approximately $0.4 million.

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The Company’s current assets at March 31, 2017 increased to $5.2 million compared to $4.4 million at December 31, 2016. The most significant change was an increase of $1.3 million in cash, primarily the result of the Company’s operating income, and collection of client funds held on account to be settled in the second quarter.  This increase was offset by the approximately $0.2 million decrease in accounts receivable resulting from the collection of invoices during the quarter, and the approximately $0.2 million decrease in inventory.    

The Company’s current liabilities increased to $8.9 million compared to $8.6 million at December 31, 2016.  The most significant change was the $0.5 million increase in the accounts payable and accrued liabilities, primarily the result of the Company’s client liabilities due.  This was offset slightly by the approximately $0.1 million decrease in the current portion of related party debt due to scheduled payments, and the $0.1 million decrease in the current portion of contingent consideration due to the quarterly fair value adjustment.    

During the first three months of 2017, the Company’s primary source of cash was the operation of its asset liquidation business.  Cash disbursements, other than those related to debt repayment of $0.3 million (all of which was paid to a related party), were primarily related to operating expenses.

The Company expects that its asset liquidation business will continue to be the primary source of cash required for ongoing operations for the foreseeable future.

Ownership Structure and Capital Resources

• At March 31, 2017 the Company had stockholders’ equity of $3.8 million, as compared to $3.5 million at December 31, 2016.

• In the fourth quarter of 2016, the Company entered into a related party secured promissory note for a revolving line of credit (the “Line of Credit”).  The credit facility provides for aggregate loans of up to $1.5 million.  Refer to Note 7 to the consolidated financial statements for further information.  

• The Company determines its future capital and operating requirements based upon its current and projected operating performance and the extent of its contractual commitments.  The Company expects to be able to finance its future operations through its asset liquidation business and occasional draws on the Line of Credit.  The Company repays its outstanding loan on a monthly basis in accordance with the loan agreement.  Capital requirements are generally limited to the Company’s purchases of surplus and distressed assets.  The Company believes that its current capital resources are sufficient for these requirements.  In the event additional capital is needed, the Company will draw on the Line of Credit.  

Cash Position and Cash Flows

Cash and cash equivalents at March 31, 2017 were $3.8 million as compared to $2.5 million at December 31, 2016, an increase of approximately $1.3 million.

Cash provided by or used in operating activities.  Cash provided by operating activities was $1.6 million during the three months ended March 31, 2017 as compared to $1.4 million cash used during the same period in 2016. The $3.0 million change was primarily attributable to the following: we had a net favorable change of $2.8 million in the operating assets and liabilities in the first three months of 2017 compared to the same period in 2016, and had a favorable change in the net income adjusted for noncash items, which was $0.2 million better during the first three months of 2017 compared to the same period in 2016.  There were no significant noncash items in either period.      

The significant changes in operating assets and liabilities during the first three months of 2017 as compared to 2016 are primarily due to the nature of the Company’s operations. The Company earns revenue from discrete asset liquidation deals that vary considerably with respect to their magnitude and timing, and that can consist of fees, commissions, asset sale proceeds, or a combination of these. The operating assets and liabilities associated with these deals are therefore subject to the same variability and can be quite different at the end of any given period.

Cash provided by investing activities.  There was no cash provided by or used in investing activities during the three months ended March 31, 2017, nor the three months ended March 31, 2016.    

Cash used in financing activities.  Cash used in financing activities was $0.2 million during the three months ended March 31, 2017, as compared to $21,000 cash used during the same period in 2016. During the first three months of 2017 the Company repaid $0.3 million of its related party loan.  The 2016 activity consisted of proceeds of $0.4 million from a related party loan, which was

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repaid in full during the same period, and $24,000 of debt repaid to Street Capital.  In both periods the exercise of stock options to purchase common shares was not material.  

Contractual Obligations

The Company’s only significant contractual obligation, other than its related party loan(s), is its long-term earn-out obligation owed to the former owner (and current president) of NLEX (“David Ludwig”).  The Company will pay the former owner of NLEX 50% of the Net Profits (as defined in the NLEX stock purchase agreement) of NLEX for each of the four years following the closing of the acquisition.  The payments are due on or about July 30 of each year, began in 2015, and are expected to continue until at least 2019.  In the fourth quarter of 2016 the Company agreed in principle with David Ludwig to extend the earn-out provision.  The extension of the earn-out is subject to ratification by the Board of Directors.  In 2015 the Company paid David Ludwig $0.5 million to satisfy the first earn out payment.  In 2016 the Company paid David Ludwig $0.8 million to satisfy the second earn out payment.  The Company expects to pay approximately $2.8 million over the period from 2017 to 2019.  

Management’s Discussion of Results of Operations

The following table sets out the Company’s condensed consolidated results of operations for the three months ended March 31, 2017 and 2016 (dollars in thousands).

	Three months ended						Change
	March 31, 2017			March 31, 2016			Dollars			Percent
Revenues:
Services revenue	$	4,462		$	4,192		$	270			6	%
Asset sales		571			1,228			(657	)		-54	%
Total revenues		5,033			5,420			(387	)		(7	)%
Operating costs and expenses:
Cost of services revenue		1,059			1,003			56			6	%
Cost of asset sales		293			1,052			(759	)		(72	)%
Selling, general and administrative		3,210			3,090			120			4	%
Depreciation and amortization		77			83			(6	)		(7	)%
Total operating costs and expenses		4,639			5,228			(589	)		(11	)%
Operating income		394			192			202			105	%
Other income		—			25			(25	)		(100	)%
Fair value adjustment of contingent consideration		(111	)		(68	)		(43	)		63	%
Interest expense		(15	)		(73	)		58			-79	%
Income before income tax expense		268			76			192			253	%
Income tax expense		13			16			(3	)		-19	%
Net income	$	255		$	60		$	195			325	%

The Company’s asset liquidation business model has several components: (1) traditional fee based asset disposition services, such as commissions from on-line and webcast auctions, liquidations and negotiated sales, and commissions from the NLEX charged-off receivables business, (2) the acquisition and subsequent disposition of distressed and surplus assets, including industrial machinery and equipment and real estate, and (3) fees earned for appraisal and management advisory services. The Company also earns income from its asset liquidation business through its earnings from equity method investments.

Three-Month Period Ended March 31, 2017 Compared to Three-Month Period Ended March 31, 2016

Revenues and cost of revenues – Revenues were $5.0 million during the three months ended March 31, 2017 compared to $5.4 million during the same period in 2016. Costs of services revenue and asset sales were $1.4 million during the same period in 2017 compared to $2.1 million during the same period in 2016.  The gross profit of these items was therefore $3.7 million during the first three months in 2017 compared to $3.4 million during the same period in 2016, an increase of approximately $0.3 million, or approximately 9%.  Because the Company conducts its asset liquidation operations both independently and through partnerships, and the ratio of the two is unlikely to remain constant in each period, the operations should be considered as a whole rather than on a line-by-line basis. The increased gross profit in the current year reflects the vagaries of the timing and magnitude of asset liquidation transactions.

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Selling, general and administrative expense – Selling, general and administrative expense was $3.2 million during the three months ended March 31, 2017, compared to $3.1 million during the same period in 2016, an increase of approximately $0.1 million or approximately 4%.    

Significant components of selling, general and administrative expense were as shown below (dollars in thousands):

	For the three months ended
	March 31,
	2017		2016		% change
Compensation
HGP	$	950	$	953		(0	)%
Equity Partners		408		422		(3	)%
NLEX		604		583		4	%
HGI		90		75		20	%
Stock-based compensation		70		36		94	%
Consulting		78		72		8	%
Board of Directors fees		59		57		4	%
Accounting, tax and legal professional fees		92		177		(48	)%
Insurance		82		68		21	%
Occupancy		194		165		18	%
Travel and entertainment		184		232		(21	)%
Advertising and promotion		110		118		(7	)%
Other		289		132		119	%
Total selling, general & administrative expense	$	3,210	$	3,090

The increase in total selling, general and administrative expenses was largely attributable to an increase in the Company’s non-cash stock-based compensation expense, attributable to the Company wide option grant in the fourth quarter of 2016, an increase in the Company’s occupancy expense due to more expensive rent at one of the office locations, and an increase in the finder’s fees paid for sales referred to the Company.  This was offset slightly by a decrease in legal fees during the current year period.    

Depreciation and amortization expense – Depreciation and amortization expense was $0.1 million during both the three months ended March 31, 2017 and the same period in 2016, and consisted almost entirely of amortization expense related to intangible assets.  In both years the depreciation of property and equipment was not material.

Non-GAAP Financial Measure - Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”)

We prepared our unaudited condensed consolidated financial statements in accordance with GAAP. We use the non-GAAP financial measure “Adjusted EBITDA” in assessing the Company’s results. Adjusted EBITDA reflects the standard definition of EBITDA (net income plus depreciation and amortization, interest expense, and provision for income taxes), adjusted further to eliminate the effects of fair value adjustments of contingent consideration and stock-based compensation.  We believe that Adjusted EBITDA is relevant and useful supplemental information for our investors. Management believes that the presentation of this non-GAAP financial measure, when considered together with our GAAP financial measures and the reconciliation to the most directly comparable GAAP financial measure, provides a more complete understanding of the factors and trends affecting the Company than could be obtained absent these disclosures. Management uses Adjusted EBITDA to make operating and strategic decisions and to evaluate the Company’s performance. We have disclosed this non-GAAP financial measure so that our investors have the same financial data that management uses, with the intention of assisting investors to make comparisons to our historical operating results and analyze our underlying performance. Management believes that Adjusted EBITDA is a useful supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis. Our use of Adjusted EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the financial information, below, which reconciles our GAAP reported net income to Adjusted EBITDA for the periods presented (in thousands).

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	For the three months ended
	March 31, 2017		March 31, 2016
Net income	$	255	$	60
Add back:
Depreciation and amortization		77		83
Interest expense		15		73
Income tax expense		13		16
EBITDA		360		232
Management add back:
Fair value adjustment of contingent consideration		111		68
Stock based compensation		70		36
Adjusted EBITDA	$	541	$	336

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

As a Smaller Reporting Company, we are not required to provide the information required by this item.  

Item 4. Controls and Procedures.

As of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”) conducted evaluations of our disclosure controls and procedures. As defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective.

Further, there were no changes in our internal control over financial reporting during the first fiscal quarter of 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

There have been no material changes to the legal proceedings discussed in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 7, 2017.

Item 1A.  Risk Factors

There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on March 7, 2017.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

On March 28, 2017, a director of the Company exercised a previously granted option to purchase 10,000 shares of the Company’s common stock at an exercise price of $0.08 per share.  No commissions were paid on this purchase.  This purchase was exempt from registration pursuant to Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.  

On March 31, 2017, each of the five non-employee directors of the Company was granted an option to purchase 10,000 shares of the Company’s common stock at an exercise price of $0.48 per share.  These grants were made in exchange for services rendered and no consideration or commissions were paid.  These options were exempt from registration pursuant to Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.  

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.  

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Item 6.  Exhibits.

(a) Exhibits

Exhibit No.	Identification of Exhibit
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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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 thereunder duly authorized.

	Heritage Global Inc.
Date: May 8, 2017	By:	/s/ Ross Dove
		Ross Dove
		Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Scott A. West
		Scott A. West
		Chief Financial Officer
		(Principal Financial Officer and
		Principal Accounting Officer)

24

EX-31.1

Exhibit 31.1

OFFICER’S CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ross Dove, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Heritage Global Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 8, 2017

By:	/s/ Ross Dove
	Ross Dove
	Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

OFFICER’S CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott A. West, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Heritage Global Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 8, 2017

By:	/s/ Scott A. West
	Scott A. West
	Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

HERITAGE GLOBAL INC.

OFFICER’S CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)

The undersigned Ross Dove, duly appointed and incumbent officer of Heritage Global Inc., a Florida corporation (the “Corporation”), in connection with the Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), does hereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge:

1. The Report is in full compliance with reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

May 8, 2017

/s/ Ross Dove

Ross Dove

Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

HERITAGE GLOBAL INC.

OFFICER’S CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)

The undersigned Scott A. West, duly appointed and incumbent officer of Heritage Global Inc., a Florida corporation (the “Corporation”), in connection with the Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), does hereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge:

1. The Report is in full compliance with reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

May 8, 2017

/s/ Scott A. West

Scott A. West

Chief Financial Officer

(Principal Financial Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 04, 2017
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2017
Trading Symbol	hgbl
Entity Registrant Name	Heritage Global Inc.
Entity Central Index Key	0000849145
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		28,480,148
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 3,846	$ 2,530
Accounts receivable (net of allowance for doubtful accounts of $71; $36 in 2016)	998	1,247
Inventory – equipment	52	263
Other current assets	327	393
Total current assets	5,223	4,433
Property and equipment, net	141	156
Identifiable intangible assets, net	4,061	4,122
Goodwill	6,158	6,158
Other assets	283	275
Total assets	15,866	15,144
Current liabilities:
Accounts payable and accrued liabilities	7,250	6,746
Current portion of related party debt	538	664
Current portion of contingent consideration	868	961
Other current liabilities	220	199
Total current liabilities	8,876	8,570
Non-current portion of related party debt	235	348
Non-current portion of contingent consideration	1,976	1,772
Deferred tax liabilities	960	960
Total liabilities	12,047	11,650
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at March 31, 2017 and December 31, 2016	6	6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 28,480,148 shares at March 31, 2017 and 28,470,148 shares at December 31, 2016	285	285
Additional paid-in capital	284,220	284,149
Accumulated deficit	(280,620)	(280,875)
Accumulated other comprehensive loss	(72)	(71)
Total stockholders’ equity	3,819	3,494
Total liabilities and stockholders’ equity	$ 15,866	$ 15,144

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts receivable	$ 71	$ 36
Preferred stock, par value (in dollars per share)	$ 10.00	$ 10.00
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	569	569
Preferred stock, shares outstanding	569	569
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	300,000,000	300,000,000
Common Stock, Shares, Issued	28,480,148	28,470,148
Common stock, shares outstanding	28,480,148	28,470,148

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Revenues:
Services revenue	$ 4,462	$ 4,192
Asset sales	571	1,228
Total revenues	5,033	5,420
Operating costs and expenses:
Cost of services revenue	1,059	1,003
Cost of asset sales	293	1,052
Selling, general and administrative	3,210	3,090
Depreciation and amortization	77	83
Total operating costs and expenses	4,639	5,228
Operating income	394	192
Other income	0	25
Fair value adjustment of contingent consideration	(111)	(68)
Interest expense	(15)	(73)
Income before income tax expense	268	76
Income tax expense	13	16
Net income	$ 255	$ 60
Weighted average common shares outstanding – basic	28,433,092	28,318,967
Weighted average common shares outstanding – diluted	28,467,350	28,350,892
Net income per share – basic	$ 0.01	$ 0.00
Net income per share – diluted	$ 0.01	$ 0.00
Comprehensive income:
Net income	$ 255	$ 60
Other comprehensive loss:
Foreign currency translation adjustment	(1)	(8)
Comprehensive income	$ 254	$ 52

XML

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - 3 months ended Mar. 31, 2017 - USD ($) $ in Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated deficit [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Beginning Balance at Dec. 31, 2016	$ 3,494	$ 6	$ 285	$ 284,149	$ (280,875)	$ (71)
Balance (in shares) at Dec. 31, 2016		569	28,470,148
Stock-based compensation expense	70			70
Issuance of common stock from exercise of stock options	$ 1			1
Issuance of common stock from exercise of stock options (shares)	10,000		10,000
Net income	$ 255				255
Foreign currency translation adjustment	(1)					(1)
Ending Balance at Mar. 31, 2017	$ 3,819	$ 6	$ 285	$ 284,220	$ (280,620)	$ (72)
Balance (in shares) at Mar. 31, 2017		569	28,480,148

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows provided by (used in) operating activities:
Net income	$ 255	$ 60
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Accrued interest added to principal of related party debt	11	24
Fair value adjustment of contingent consideration	111	68
Stock-based compensation expense	70	36
Depreciation and amortization	77	83
Changes in operating assets and liabilities:
Accounts receivable	244	(442)
Deposits	(4)	(126)
Inventory	211	135
Other assets	66	119
Accounts payable and accrued liabilities	523	(1,399)
Net cash provided by (used in) operating activities	1,564	(1,442)
Cash flows used in financing activities:
Proceeds from debt payable to related party	0	404
Repayment of debt payable to related party	(250)	(428)
Proceeds from exercise of options to purchase common shares	1	3
Net cash used in financing activities	(249)	(21)
Net increase (decrease) in cash and cash equivalents	1,315	(1,463)
Effect of exchange rate changes on cash and cash equivalents	1	9
Cash and cash equivalents at beginning of period	2,530	2,777
Cash and cash equivalents at end of period	3,846	1,323
Supplemental cash flow information:
Cash paid for taxes	3	17
Cash paid for interest	$ 1	$ 93

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2017

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

Note 1 –Basis of Presentation

These unaudited condensed consolidated interim financial statements include the accounts of Heritage Global Inc. together with its subsidiaries, including Heritage Global Partners, Inc. (“HGP”), Heritage Global LLC (“HG LLC”), Equity Partners HG LLC (“Equity Partners”) and National Loan Exchange, Inc. These entities, collectively, are referred to as “HGI,” the “Company,” “we” or “our” in these financial statements. Our unaudited condensed consolidated interim financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), as outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and include the assets, liabilities, revenues, and expenses of all subsidiaries over which HGI exercises control. All significant intercompany accounts and transactions have been eliminated upon consolidation. The Company’s sole operating segment is its asset liquidation business.  HGI provides an array of value-added capital and financial asset solutions:  auction and appraisal services, traditional asset disposition sales, and financial solutions for businesses and properties in transition.  

We have prepared the condensed consolidated interim financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In management’s opinion, these financial statements reflect all adjustments that are necessary to present fairly the results for the interim periods included herein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, we believe that the disclosures are appropriate. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 7, 2017.

The results of operations for the three month period ended March 31, 2017 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2017. The accompanying condensed consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated balance sheet at December 31, 2016, contained in the above referenced Form 10-K.  

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, investments, goodwill and intangible assets, liabilities, contingent consideration, deferred income tax assets and liabilities, and stock-based compensation. These estimates have the potential to significantly impact our consolidated financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Foreign Currency

The functional currency of foreign operations is deemed to be the local country’s currency.  Assets and liabilities of operations outside of the United States are generally translated into U.S. dollars, and the effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income.

Reclassifications

Certain prior year balances within the condensed consolidated financial statements have been reclassified to conform to the current year presentation.

The critical accounting policies used in the preparation of our audited consolidated financial statements are discussed in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to these policies in the first three months of 2017.

Recently Adopted Accounting Pronouncements

In 2014, the FASB issued Accounting Standards update 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to determine whether substantial doubt exists regarding the entity’s going concern presumption, which generally refers to an entity’s ability to meet its obligations as they become due, and provides guidance on determining when and how to disclose going-concern uncertainties in an entity’s financial statements. It requires management to perform both interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The ASU contains guidance on 1) how to perform a going-concern assessment, and 2) when to provide going-concern disclosures. An entity must provide specified disclosures if conditions or events raise substantial doubt about its ability to continue as a going concern. ASU 2014-15 became effective for annual periods ending after December 15, 2016.  The Company adopted ASU 2014-15 in the fourth quarter of 2016.  Management concluded that there were no conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the financial statements are issued.

In 2016, the FASB issued Accounting Standards update 2016-07, Investments – Equity Method and Joint Ventures (“ASU 2016-07”), which simplifies the transition to the equity method of accounting by, among other things, eliminating retroactive adjustments to the investments as a result of an increase in the level of ownership interest or degree of influence.  ASU 2016-07 became effective January 1, 2017 and did not have a material impact on the Company’s consolidated financial statements.  

In 2016, the FASB issued Accounting Standards update 2016-09, Compensation – Stock Compensation (“ASU 2016-09”), which provides improvements to employee share-based payment accounting.  ASU 2016-09 simplifies the accounting and presentation of various elements of share-based compensation including, but not limited to, income taxes, excess tax benefits, statutory tax withholding requirements, payment of employee taxes, and award assumptions.  ASU 2016-09 became effective January 1, 2017 and did not have a material impact on the Company’s consolidated financial statements.

Future Accounting Pronouncements

In 2016, the FASB issued Accounting Standards update 2016-02, Leases, (“ASU 2016-02”).  ASU 2016-02 changes the accounting for leases previously classified as operating leases under GAAP, by, among other things, requiring a Company to recognize the lease on the balance sheet with a right-of-use asset and a lease liability.  ASU 2016-02 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company has not yet adopted ASU 2016-02 nor assessed its potential impact on its consolidated financial statements.

In 2016, the FASB issued Accounting Standards update 2016-08, Revenue from Contracts with Customers (“ASU 2016-08”), which provides clarity on the implementation of guidance on principal versus agent considerations (reporting of revenue on a gross basis versus net basis).  ASU 2016-08 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company does not believe that the clarification of the implementation of the guidance will change the conclusions reached in its current analysis of principal versus agent considerations for reporting of revenue.  

In 2016, the FASB issued Accounting Standards update 2016-10, Revenue from Contracts with Customers (“ASU 2016-10”), which provides clarity on identifying performance obligations and licensing.  ASU 2016-10 clarifies how an entity identifies performance obligations and whether that entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property or a right to access the entity’s intellectual property.  ASU 2016-10 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the potential impact of ASU 2016-10 on its consolidated financial statements.  

In 2016, the FASB issued Accounting Standards update 2016-12, Revenue from Contracts with Customers (“ASU 2016-12”), which provides clarity and simplification to the transition guidance from the previously issued ASU 2014-09.  ASU 2016-12 provides narrow scope improvements to assessing the collectability criterion, the presentation of sales and other similar taxes, non-cash consideration, contract modifications, completed contracts, and technical corrections.  ASU 2016-12 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the impact of ASU 2016-12 on its consolidated financial statements.

In 2016, the FASB issued Accounting Standards update 2016-15, Statement of Cash Flows (“ASU 2016-15”), which clarifies the classification of certain cash receipts and payments.  The specific cash flow issues addressed by ASU 2016-15, with the objective of reducing the existing diversity in practice, are as follows: (1) Debt prepayment or debt extinguishment costs; (2) Settlement of zero-coupon debt instruments or other debt instruments with insignificant coupon interest rates; (3) Contingent consideration payments made after a business combination; (4) Proceeds from the settlement of insurance claims; (5) Proceeds from the settlement of corporate-owned life insurance policies; (6) Distributions received from equity method investees; (7) Beneficial interest in securitization transactions; and (8) Separately identifiable cash flows and application of the predominance in principle.  ASU 2016-15 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the impact of ASU 2016-15 on its consolidated financial statements.

In 2017, the FASB issued Accounting Standards update 2017-01, Business Combinations (“ASU 2017-01”), which clarifies the definition of a business under topic 805 of the Accounting Standards Codification.  The main provisions of ASU 2017-01 provide a screen to determine when an integrated set of assets and activities is not a business.  The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business.  ASU 2017-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the impact of ASU 2017-01 on its consolidated financial statements.    

In 2017, the FASB issued Accounting Standards update 2017-04, Intangibles – Goodwill and Other (“ASU 2017-04”), which simplifies the test for goodwill impairment.  The main provisions of ASU 2017-04 eliminate the second step of the goodwill impairment test which previously was performed to determine the goodwill impairment loss for an entity by calculating the difference between the implied fair value of the entity’s goodwill and its carrying value.  Under ASU 2017-04, if a reporting unit’s carrying value exceeds its fair value, an entity will record an impairment charge based on that difference.  The impairment charge will be limited to the amount of goodwill which is allocated to that reporting unit.  ASU 2017-04 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.  The Company is still assessing the impact of ASU 2017-04 on its consolidated financial statements.  

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Real Estate Inventory

3 Months Ended

Mar. 31, 2017

Real Estate [Abstract]

Real Estate Inventory

Note 3 – Real Estate Inventory

In the first quarter of 2016 the Company entered into a purchase and sale agreement with International Auto Processing Inc. (“IAP”) to sell the Company’s real estate inventory for $4.1 million.  IAP subsequently assigned the purchase and sale agreement to an affiliate, International Investments and Infrastructure, LLC (“III”).

Concurrently, the Company entered into a five year lease agreement with an affiliate of IAP to lease the building during the escrow period, which would terminate at the close of escrow.  During the three months ended March 31, 2016, the Company earned rental income of $0.1 million, which is included within services revenue in the condensed consolidated statement of operations.  No rental income was earned during the three months ended March 31, 2017.

In the third quarter of 2016, the Company completed the sale of its real estate inventory and, in accordance with the purchase and sale agreement, terminated the previously existing lease agreement between the Company and an affiliate of III.  

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Stock-based Compensation

3 Months Ended

Mar. 31, 2017

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-based Compensation

Note 4 – Stock-based Compensation

Options

At March 31, 2017 the Company had four stock-based compensation plans, which are described more fully in Note 15 to the audited consolidated financial statements for the year ended December 31, 2016, contained in the Company’s most recently filed Annual Report on Form 10-K.

During the first three months of 2017 the Company issued options to purchase a total of 50,000 shares of common stock to the Company’s independent directors as part of their annual compensation.  During the same period, the Company cancelled options to purchase 10,350 shares of common stock as a result of employee resignations.  Pursuant to the exercise of common stock options 10,000 shares of common stock were issued during the first three months of 2017.    

The following summarizes the changes in common stock options for the three months ended March 31, 2017:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2016		5,169,200		$	0.96
Granted		50,000		$	0.48
Exercised		(10,000	)	$	0.08
Forfeited		(10,350	)	$	0.45
Outstanding at March 31, 2017		5,198,850		$	0.95
Options exercisable at March 31, 2017		1,895,000		$	1.83

The Company recognized stock-based compensation expense related to stock options of $0.1 million for the three months ended March 31, 2017.  As of March 31, 2017, there is approximately $0.9 million of unrecognized stock-based compensation expense related to unvested option awards outstanding, which is expected to be recognized over a weighted average period of 3.7 years.

Restricted Stock

Restricted stock awards represent a right to receive shares of common stock at a future date determined in accordance with the participant’s award agreement.  There is no exercise price and no monetary payment required for receipt of restricted stock awards or the shares issued in settlement of the award.  Instead, consideration is furnished in the form of the participant’s services to the Company.  Compensation cost for these awards is based on the fair value on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period.

The following summarizes the changes in restricted stock awards for the three months ended March 31, 2017:

	Restricted Stock Awards		Weighted AverageGrant Date Fair Value Per Share
Unvested Awards at December 31, 2016		37,500	$	0.38
Granted		—		—
Vested		—		—
Unvested awards at March 31, 2017		37,500	$	0.38
Vested awards at March 31, 2017		225,000	$	0.38

Stock-based compensation expense related to restricted stock awards was not material for the three months ended March 31, 2017 and 2016.

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Earnings Per Share

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Earnings Per Share

Note 5 – Earnings Per Share

The Company is required in periods in which it has net income to calculate basic earnings per share (“basic EPS”) using the two-class method. The two-class method is required because the Company’s Class N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock. Under the two-class method, earnings for the period are allocated on a pro-rata basis to the common and preferred stockholders. The weighted-average number of common and preferred shares outstanding during the period is then used to calculate basic EPS for each class of shares.

In periods in which the Company has a net loss, basic loss per share is calculated by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The two-class method is not used in periods in which the Company has a net loss because the preferred stock does not participate in losses.

Stock options and other potential common shares are included in the calculation of diluted earnings per share (“diluted EPS”), since they are assumed to be exercised or converted, except when their effect would be anti-dilutive. The table below shows the calculation of the shares used in computing diluted EPS.

	Three months ended March 31,
Weighted Average Shares Calculation:	2017		2016
Basic weighted average shares outstanding		28,433,092		28,318,967
Treasury stock effect of common stock options and restricted    stock awards		34,258		31,925
Diluted weighted average common shares outstanding		28,467,350		28,350,892

Potential common shares that were not included in the computation of diluted EPS because they would have been anti-dilutive for the three months ended March 31, 2017 and 2016 were 1.9 million and 2.2 million, respectively.  

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Intangible Assets and Goodwill

3 Months Ended

Mar. 31, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Note 6 – Intangible Assets and Goodwill

Identifiable intangible assets

The Company’s identifiable intangible assets are associated with its acquisitions of HGP in 2012 and NLEX in 2014, as shown in the table below (in thousands), and are amortized using the straight-line method over their estimated useful lives of two to twelve years.  The Company’s tradename acquired as part of the acquisition of NLEX in 2014 has an indefinite life and therefore is not amortized.

	Carrying Value					Carrying Value
Amortized Intangible Assets	December 31, 2016		Amortization			March 31, 2017
Customer Network (HGP)	$	158	$	(5	)	$	153
Trade Name (HGP)		953		(26	)		927
Customer Relationships (NLEX)		550		(27	)		523
Website (NLEX)		24		(3	)		21
Total		1,685		(61	)		1,624
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	4,122	$	(61	)	$	4,061

Amortization expense during each of the first three months of 2017 and 2016 was $0.1 million.

The estimated amortization expense as of March 31, 2017 during the next five fiscal years and thereafter is shown below (in thousands):

Year	Amount
2017 (remainder of year from April 1, 2017 to December 31, 2017)	$	184
2018		245
2019		240
2020		236
2021		236
Thereafter		483
Total	$	1,624

Goodwill

The Company’s goodwill is related to its asset liquidation business, and is comprised of goodwill from three acquisitions, as shown in the table below (in thousands). There were no impairment losses or other charges to the carrying amount of goodwill during the three months ended March 31, 2017 and 2016.

Acquisition	March 31, 2017		December 31, 2016
Equity Partners	$	573	$	573
HGP		2,040		2,040
NLEX		3,545		3,545
Total goodwill	$	6,158	$	6,158

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Debt

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Debt

Note 7 – Debt

Outstanding debt at March 31, 2017 and December 31, 2016 is summarized as follows (in thousands):

	March 31, 2017		December 31, 2016
Current:
Related party debt	$	538	$	664
		538		664
Non-current:
Related party debt		235		348
Total debt	$	773	$	1,012

In 2016, following an amendment, the Company’s related party debt (the “Street Capital Loan”) began accruing interest at a rate per annum equal to the WSJ prime rate + 1.0%.  The Company also agreed to a monthly payment schedule which began in the first quarter of 2017.  As of March 31, 2017 and December 31, 2016, the interest rate on the loan was 5.0% and 4.75%, respectively.  Please see Note 10 for further discussion of transactions with Street Capital.  

In the fourth quarter of 2016, the Company entered into a related party secured promissory note with an entity owned by certain executive officers of the Company (the “Entity”) for a revolving line of credit (the “Line of Credit”).  Under the terms of the Line of Credit, the Company received a revolving line of credit with an aggregate borrowing capacity of $1.5 million.  Interest under the Line of Credit is charged at a variable rate.  Aggregate loans under the Line of Credit up to $1.0 million incur interest at a variable rate per annum based on the rate charged to the Entity by its bank, plus 2.0%.  Amounts outstanding at any time in excess of $1.0 million incur interest at a rate of 8.0% per annum.  The Company is required to pay the Entity an annual commitment fee of $15,000, payable on a monthly basis, and due regardless of amounts drawn against the line.  Further, the Entity is eligible to participate in the net profits and net losses of certain industrial auction principal and guarantee transactions entered into by the Company on or after January 1, 2017, and consummated on or prior to the maturity date.  Principal transactions are those in which the Company purchases assets for resale.  Guarantee transactions are those in which the Company guarantees its client a minimum amount of proceeds from the auction.  The Line of Credit matures at the earlier of (i) three years from the date of the Agreement, (ii) the termination of the Entity’s line of credit with its bank, or (iii) forty-five (45) days following the date the Company closes a new credit facility with a financial institution.

As of March 31, 2017 and December 31, 2016, the Company had not drawn on the Line of Credit.  

In the first quarter of 2016, the Company entered into a related party loan with a trust controlled by certain executive officers of the Company.  The Company received proceeds of $0.4 million.  The loan accrued interest at 10% per annum and was payable within 90 days of the loan date.  The Company repaid the loan plus accrued interest in March 2016.  

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Fair Value Measurements

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 8 – Fair Value Measurements

In accordance with the authoritative guidance for financial assets and liabilities measured at fair value on a recurring basis, the Company prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:

• Level 1 – Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

• Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 – Inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.  The inputs are unobservable in the market and significant to the instruments valuation.

As of March 31, 2017 and December 31, 2016, the Company had no Level 1 or Level 2 assets or liabilities measured at fair value.  As of both March 31, 2017 and December 31, 2016, the Company’s contingent consideration from the 2014 acquisition of NLEX was the only liability measured at fair value on a recurring basis.  The fair value of the Company’s contingent consideration was determined using a discounted cash flow analysis, which is based on significant inputs that are not observable in the market.

The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 (in thousands):

	Fair Value as of March 31, 2017
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	2,844	$	2,844
	Fair Value as of December 31, 2016
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	2,733	$	2,733

When valuing its Level 3 liabilities, the Company gives consideration to operating results, financial condition, economic and/or market events, and other pertinent information that would impact its estimate of the expected contingent consideration payments.  The valuation of the liability is primarily based on management’s estimate of the Net Profits of NLEX (as defined in the NLEX stock purchase agreement).  Given the short term nature of the contingent consideration periods, changes in the discount rate are not expected to have a material impact on the fair value of the liability.

The following table summarizes the changes in the fair value of the liability during the three months ended March 31, 2017 (in thousands):

Balance at December 31, 2016	$	2,733
Fair value adjustment of contingent consideration		111
Balance at March 31, 2017	$	2,844

The Company had no assets or liabilities measured at fair value on a non-recurring basis as of March 31, 2017.

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Income Taxes

3 Months Ended

Mar. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Note 9 – Income Taxes

At March 31, 2017 the Company has aggregate tax net operating loss carry forwards of approximately $74.5 million ($59.3 million of unrestricted net operating tax losses and approximately $15.2 million of restricted net operating tax losses) and unused minimum tax credit carry forwards of $0.5 million. Substantially all of the net operating loss carry forwards and unused minimum tax credit carry forwards expire between 2024 and 2035. The Company’s utilization of restricted net operating tax loss carry forwards against future income for tax purposes is restricted pursuant to the “change in ownership” rules in Section 382 of the Internal Revenue Code.

The reported tax expense varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the income from operations before taxes primarily as a result of the change in the deferred tax asset valuation allowance.

The Company records net deferred tax assets to the extent that it believes such assets will more likely than not be realized. As a result of our cumulative losses and uncertainty with respect to future taxable income, we have provided a full valuation allowance against our net deferred tax assets as of March 31, 2017 and December 31, 2016.

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Related Party Transactions

3 Months Ended

Mar. 31, 2017

Related Party Transactions [Abstract]

Related Party Transactions

Note 10 – Related Party Transactions

Debt with Street Capital

As of March 31, 2017, the Company’s loan from Street Capital continues to be classified as related party debt because Allan Silber, an affiliate of Street Capital, is the Company’s chairman of the board, and a significant shareholder of the Company.  At March 31, 2017 and December 31, 2016, the Company reported amounts owed to Street Capital of $0.8 million and $1.0 million respectively, as related party debt (see Note 7). Total interest of $0.5 million has been accrued on the debt and remains unpaid through March 31, 2017.

Transactions with Other Related Parties

As part of the operations of NLEX, the Company leases office space in Edwardsville, IL that is owned by the President of NLEX, David Ludwig.  The total amount paid to the related party is outlined in the table below.  All of the payments in both 2017 and 2016 were made to David Ludwig. 

The lease amounts paid by the Company to the related parties, which are included in selling, general and administrative expenses during the three months ended March 31, 2017 and 2016, are detailed below (in thousands):

	Three months ended March 31,
Leased premises location	2017		2016
Foster City, CA	$	—	$	57
Edwardsville, IL		25		25
Total	$	25	$	82

In 2016 the Company entered into multiple related party loan agreements with certain executive officers of the Company.  These related party loans are more fully described in Note 7.  Both Ross Dove and Kirk Dove, who were parties to the related party loans, shared equally in all payments made by the Company to satisfy obligations under the loan agreements.    

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Subsequent Events

3 Months Ended

Mar. 31, 2017

Subsequent Events [Abstract]

Subsequent Events

Note 11 – Subsequent Events

The Company has evaluated events subsequent to March 31, 2017 for potential recognition or disclosure in its condensed consolidated financial statements.  There have been no material subsequent events requiring recognition or disclosure in this Report.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Use of Estimates

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, investments, goodwill and intangible assets, liabilities, contingent consideration, deferred income tax assets and liabilities, and stock-based compensation. These estimates have the potential to significantly impact our consolidated financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Foreign Currency

Foreign Currency

The functional currency of foreign operations is deemed to be the local country’s currency.  Assets and liabilities of operations outside of the United States are generally translated into U.S. dollars, and the effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income.

Reclassifications

Reclassifications

Certain prior year balances within the condensed consolidated financial statements have been reclassified to conform to the current year presentation.

The critical accounting policies used in the preparation of our audited consolidated financial statements are discussed in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to these policies in the first three months of 2017.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In 2014, the FASB issued Accounting Standards update 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to determine whether substantial doubt exists regarding the entity’s going concern presumption, which generally refers to an entity’s ability to meet its obligations as they become due, and provides guidance on determining when and how to disclose going-concern uncertainties in an entity’s financial statements. It requires management to perform both interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The ASU contains guidance on 1) how to perform a going-concern assessment, and 2) when to provide going-concern disclosures. An entity must provide specified disclosures if conditions or events raise substantial doubt about its ability to continue as a going concern. ASU 2014-15 became effective for annual periods ending after December 15, 2016.  The Company adopted ASU 2014-15 in the fourth quarter of 2016.  Management concluded that there were no conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the financial statements are issued.

In 2016, the FASB issued Accounting Standards update 2016-07, Investments – Equity Method and Joint Ventures (“ASU 2016-07”), which simplifies the transition to the equity method of accounting by, among other things, eliminating retroactive adjustments to the investments as a result of an increase in the level of ownership interest or degree of influence.  ASU 2016-07 became effective January 1, 2017 and did not have a material impact on the Company’s consolidated financial statements.  

In 2016, the FASB issued Accounting Standards update 2016-09, Compensation – Stock Compensation (“ASU 2016-09”), which provides improvements to employee share-based payment accounting.  ASU 2016-09 simplifies the accounting and presentation of various elements of share-based compensation including, but not limited to, income taxes, excess tax benefits, statutory tax withholding requirements, payment of employee taxes, and award assumptions.  ASU 2016-09 became effective January 1, 2017 and did not have a material impact on the Company’s consolidated financial statements.

Future Accounting Pronouncements

Future Accounting Pronouncements

In 2016, the FASB issued Accounting Standards update 2016-02, Leases, (“ASU 2016-02”).  ASU 2016-02 changes the accounting for leases previously classified as operating leases under GAAP, by, among other things, requiring a Company to recognize the lease on the balance sheet with a right-of-use asset and a lease liability.  ASU 2016-02 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company has not yet adopted ASU 2016-02 nor assessed its potential impact on its consolidated financial statements.

In 2016, the FASB issued Accounting Standards update 2016-08, Revenue from Contracts with Customers (“ASU 2016-08”), which provides clarity on the implementation of guidance on principal versus agent considerations (reporting of revenue on a gross basis versus net basis).  ASU 2016-08 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company does not believe that the clarification of the implementation of the guidance will change the conclusions reached in its current analysis of principal versus agent considerations for reporting of revenue.  

In 2016, the FASB issued Accounting Standards update 2016-10, Revenue from Contracts with Customers (“ASU 2016-10”), which provides clarity on identifying performance obligations and licensing.  ASU 2016-10 clarifies how an entity identifies performance obligations and whether that entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property or a right to access the entity’s intellectual property.  ASU 2016-10 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the potential impact of ASU 2016-10 on its consolidated financial statements.  

In 2016, the FASB issued Accounting Standards update 2016-12, Revenue from Contracts with Customers (“ASU 2016-12”), which provides clarity and simplification to the transition guidance from the previously issued ASU 2014-09.  ASU 2016-12 provides narrow scope improvements to assessing the collectability criterion, the presentation of sales and other similar taxes, non-cash consideration, contract modifications, completed contracts, and technical corrections.  ASU 2016-12 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the impact of ASU 2016-12 on its consolidated financial statements.

In 2016, the FASB issued Accounting Standards update 2016-15, Statement of Cash Flows (“ASU 2016-15”), which clarifies the classification of certain cash receipts and payments.  The specific cash flow issues addressed by ASU 2016-15, with the objective of reducing the existing diversity in practice, are as follows: (1) Debt prepayment or debt extinguishment costs; (2) Settlement of zero-coupon debt instruments or other debt instruments with insignificant coupon interest rates; (3) Contingent consideration payments made after a business combination; (4) Proceeds from the settlement of insurance claims; (5) Proceeds from the settlement of corporate-owned life insurance policies; (6) Distributions received from equity method investees; (7) Beneficial interest in securitization transactions; and (8) Separately identifiable cash flows and application of the predominance in principle.  ASU 2016-15 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the impact of ASU 2016-15 on its consolidated financial statements.

In 2017, the FASB issued Accounting Standards update 2017-01, Business Combinations (“ASU 2017-01”), which clarifies the definition of a business under topic 805 of the Accounting Standards Codification.  The main provisions of ASU 2017-01 provide a screen to determine when an integrated set of assets and activities is not a business.  The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business.  ASU 2017-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is still assessing the impact of ASU 2017-01 on its consolidated financial statements.    

In 2017, the FASB issued Accounting Standards update 2017-04, Intangibles – Goodwill and Other (“ASU 2017-04”), which simplifies the test for goodwill impairment.  The main provisions of ASU 2017-04 eliminate the second step of the goodwill impairment test which previously was performed to determine the goodwill impairment loss for an entity by calculating the difference between the implied fair value of the entity’s goodwill and its carrying value.  Under ASU 2017-04, if a reporting unit’s carrying value exceeds its fair value, an entity will record an impairment charge based on that difference.  The impairment charge will be limited to the amount of goodwill which is allocated to that reporting unit.  ASU 2017-04 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.  The Company is still assessing the impact of ASU 2017-04 on its consolidated financial statements.  

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Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2017

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Changes in Common Stock Options

The following summarizes the changes in common stock options for the three months ended March 31, 2017:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2016		5,169,200		$	0.96
Granted		50,000		$	0.48
Exercised		(10,000	)	$	0.08
Forfeited		(10,350	)	$	0.45
Outstanding at March 31, 2017		5,198,850		$	0.95
Options exercisable at March 31, 2017		1,895,000		$	1.83

Schedule of Changes in Restricted Stock Awards

The following summarizes the changes in restricted stock awards for the three months ended March 31, 2017:

	Restricted Stock Awards		Weighted AverageGrant Date Fair Value Per Share
Unvested Awards at December 31, 2016		37,500	$	0.38
Granted		—		—
Vested		—		—
Unvested awards at March 31, 2017		37,500	$	0.38
Vested awards at March 31, 2017		225,000	$	0.38

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Schedule of Calculation of the Shares Used in Computing Diluted EPS

The table below shows the calculation of the shares used in computing diluted EPS.

	Three months ended March 31,
Weighted Average Shares Calculation:	2017		2016
Basic weighted average shares outstanding		28,433,092		28,318,967
Treasury stock effect of common stock options and restricted    stock awards		34,258		31,925
Diluted weighted average common shares outstanding		28,467,350		28,350,892

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Intangible Assets and Goodwill (Tables)

3 Months Ended

Mar. 31, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

The Company’s identifiable intangible assets are associated with its acquisitions of HGP in 2012 and NLEX in 2014, as shown in the table below (in thousands), and are amortized using the straight-line method over their estimated useful lives of two to twelve years.  The Company’s tradename acquired as part of the acquisition of NLEX in 2014 has an indefinite life and therefore is not amortized.

	Carrying Value					Carrying Value
Amortized Intangible Assets	December 31, 2016		Amortization			March 31, 2017
Customer Network (HGP)	$	158	$	(5	)	$	153
Trade Name (HGP)		953		(26	)		927
Customer Relationships (NLEX)		550		(27	)		523
Website (NLEX)		24		(3	)		21
Total		1,685		(61	)		1,624
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	4,122	$	(61	)	$	4,061

Schedule of Estimated Amortization Expense, Intangible Assets

The estimated amortization expense as of March 31, 2017 during the next five fiscal years and thereafter is shown below (in thousands):

Year	Amount
2017 (remainder of year from April 1, 2017 to December 31, 2017)	$	184
2018		245
2019		240
2020		236
2021		236
Thereafter		483
Total	$	1,624

Schedule of Goodwill

The Company’s goodwill is related to its asset liquidation business, and is comprised of goodwill from three acquisitions, as shown in the table below (in thousands). There were no impairment losses or other charges to the carrying amount of goodwill during the three months ended March 31, 2017 and 2016.

Acquisition	March 31, 2017		December 31, 2016
Equity Partners	$	573	$	573
HGP		2,040		2,040
NLEX		3,545		3,545
Total goodwill	$	6,158	$	6,158

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Debt (Tables)

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Schedule of Debt

	March 31, 2017		December 31, 2016
Current:
Related party debt	$	538	$	664
		538		664
Non-current:
Related party debt		235		348
Total debt	$	773	$	1,012

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value of Financial Assets and Liabilities Measured on Recurring Basis

The following tables present the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 (in thousands):

	Fair Value as of March 31, 2017
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	2,844	$	2,844
	Fair Value as of December 31, 2016
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	2,733	$	2,733

Summary of Changes in the Fair Value of the Liability

The following table summarizes the changes in the fair value of the liability during the three months ended March 31, 2017 (in thousands):

Balance at December 31, 2016	$	2,733
Fair value adjustment of contingent consideration		111
Balance at March 31, 2017	$	2,844

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Related Party Transactions (Tables)

3 Months Ended

Mar. 31, 2017

Related Party Transactions [Abstract]

Schedule of Lease Amounts Paid to Related Parties

The lease amounts paid by the Company to the related parties, which are included in selling, general and administrative expenses during the three months ended March 31, 2017 and 2016, are detailed below (in thousands):

	Three months ended March 31,
Leased premises location	2017		2016
Foster City, CA	$	—	$	57
Edwardsville, IL		25		25
Total	$	25	$	82

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Real Estate Inventory (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Real Estate [Abstract]
Real estate inventory, selling price		$ 4,100,000
Lease agreement term	5 years
Rental income	$ 0	$ 100,000

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Stock-based Compensation (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options to purchase, Granted (in shares)	50,000
Options cancelled to purchase common stock	10,350
Options, Exercised (in shares)	10,000
Stock-based compensation expense	$ 70	$ 36
Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	100
Employee Service-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Stock Options	$ 900
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	3 years 8 months 12 days
Common Stock [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options, Exercised (in shares)	10,000

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Schedule of Changes in Common Stock Options (Details)	3 Months Ended
	Mar. 31, 2017 $ / shares shares
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options, Outstanding at the beginning of the period | shares	5,169,200
Options, Granted | shares	50,000
Options, Exercised | shares	(10,000)
Options, Forfeited | shares	(10,350)
Options, Outstanding at the end of the period | shares	5,198,850
Options, Exercisable at the end of the period | shares	1,895,000
Weighted Average Exercise Price, Outstanding at the beginning of the period | $ / shares	$ 0.96
Weighted Average Exercise Price, Granted | $ / shares	0.48
Weighted Average Exercise Price, Exercised | $ / shares	0.08
Weighted Average Exercise Price, Forfeited | $ / shares	0.45
Weighted Average Exercise Price, Outstanding at the end of the period | $ / shares	0.95
Weighted Average Exercise Price, Exercisable at the end of the period | $ / shares	$ 1.83

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Schedule of Changes in Restricted Stock Awards (Details)	3 Months Ended
	Mar. 31, 2017 $ / shares shares
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Restricted Stock Awards, Unvested at December 31, 2016 | shares	37,500
Restricted Stock Awards, Granted | shares	0
Restricted Stock Awards, Vested | shares	0
Restricted Stock Awards, Unvested awards at March 31, 2017 | shares	37,500
Restricted Stock Awards, Vested awards at March 31, 2017 | shares	225,000
Weighted Average Grant Date Fair Value, Unvested Awards at December 31, 2016 | $ / shares	$ 0.38
Weighted Average Grant Date Fair Value, Granted | $ / shares	0
Weighted Average Grant Date Fair Value, Vested | $ / shares	0
Weighted Average Grant Date Fair Value, Unvested at March 31, 2017 | $ / shares	0.38
Weighted Average Grant Date Fair Value, Vested at March 31, 2017 | $ / shares	$ 0.38

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Earnings Per Share (Narrative) (Details) - shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Earnings Per Share [Abstract]
Convertible Preferred Stock, Shares Issuable upon Conversion	The Company’s Class N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock.
Class N preferred shares, each convertible to common shares	40
Anti-dilutive common shares	1,900,000	2,200,000

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Earnings Per Share - Schedule of Calculation of the Shares Used in Computing Diluted EPS (Details) - shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Earnings Per Share [Abstract]
Basic weighted average shares outstanding	28,433,092	28,318,967
Treasury stock effect of common stock options and restricted stock awards	34,258	31,925
Diluted weighted average common shares outstanding	28,467,350	28,350,892

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Intangible Assets and Goodwill (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Finite Lived Intangible Assets [Line Items]
Amortization expense, intangible assets	$ 61	$ 100
Goodwill, Impairment Loss	$ 0	$ 0
Minimum [Member]
Finite Lived Intangible Assets [Line Items]
Finite-Lived intangible asset, useful life	2 years
Maximum [Member]
Finite Lived Intangible Assets [Line Items]
Finite-Lived intangible asset, useful life	12 years

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Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	$ 1,685
Amortization	(61)	$ (100)
Total net amortized intangible assets	1,624
Total net intangible assets	4,122
Total net intangible assets	4,061
NLEX [Member] | Trade Name [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Unamortized intangible assets	2,437
Impairment of indefinite lived	0
Unamortized intangible assets	2,437
Customer Network [Member] | HGP [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	158
Amortization	(5)
Total net amortized intangible assets	153
HGP Trade Name [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	953
Amortization	(26)
Total net amortized intangible assets	927
Customer Relationships [Member] | NLEX [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	550
Amortization	(27)
Total net amortized intangible assets	523
NLEX's Website [Member] | NLEX [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	24
Amortization	(3)
Total net amortized intangible assets	$ 21

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Schedule of Estimated Amortization Expense, Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Goodwill And Intangible Assets Disclosure [Abstract]
2017 (remainder of year from April 1, 2017 to December 31, 2017)	$ 184
2018	245
2019	240
2020	236
2021	236
Thereafter	483
Total	$ 1,624	$ 1,685

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Schedule of Goodwill (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Finite Lived Intangible Assets [Line Items]
Goodwill	$ 6,158	$ 6,158
Equity Partners [Member]
Finite Lived Intangible Assets [Line Items]
Goodwill	573	573
HGP [Member]
Finite Lived Intangible Assets [Line Items]
Goodwill	2,040	2,040
NLEX [Member]
Finite Lived Intangible Assets [Line Items]
Goodwill	$ 3,545	$ 3,545

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Schedule of Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current:
Related party debt	$ 538	$ 664
Total current debt	538	664
Non-current:
Related party debt	235	348
Total debt	$ 773	$ 1,012

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Debt (Narrative) (Details) - USD ($)	3 Months Ended			12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2016
Debt Instrument [Line Items]
Proceeds from debt payable to related party	$ 0		$ 404,000
Revolving Line of Credit [Member]
Debt Instrument [Line Items]
Line of credit	$ 0	$ 0		$ 0
Affiliated Entity [Member] | Revolving Line of Credit [Member]
Debt Instrument [Line Items]
Line of credit aggregate borrowing capacity		1,500,000		$ 1,500,000
Interest rate description	Aggregate loans under the Line of Credit up to $1.0 million incur interest at a variable rate per annum based on the rate charged to the Entity by its bank, plus 2.0%. Amounts outstanding at any time in excess of $1.0 million incur interest at a rate of 8.0% per annum.
Line of credit, annual commitment fee		$ 15,000
Line of credit, commitment fee payment description	monthly basis
Maturity description	The Line of Credit matures at the earlier of (i) three years from the date of the Agreement, (ii) the termination of the Entity’s line of credit with its bank, or (iii) forty-five (45) days following the date the Company closes a new credit facility with a financial institution.
Trust [Member]
Debt Instrument [Line Items]
Related party loan, Interest rate			10.00%
Proceeds from debt payable to related party			$ 400,000
Related party loan, maturity period			90 days
Wall St. Journal ("WSJ") prime rate [Member]
Debt Instrument [Line Items]
Interest rate per annum				1.00%
Bank Plus 2.0% [Member] | Affiliated Entity [Member] | Revolving Line of Credit [Member]
Debt Instrument [Line Items]
Interest rate per annum		2.00%
Bank Plus 2.0% [Member] | Affiliated Entity [Member] | Revolving Line of Credit [Member] | Maximum [Member]
Debt Instrument [Line Items]
Line of credit		$ 1,000,000		$ 1,000,000
8.0% Interest Rate [Member] | Affiliated Entity [Member] | Revolving Line of Credit [Member]
Debt Instrument [Line Items]
Related party loan, Interest rate		8.00%
8.0% Interest Rate [Member] | Affiliated Entity [Member] | Revolving Line of Credit [Member] | Minimum [Member]
Debt Instrument [Line Items]
Line of credit		$ 1,000,000		$ 1,000,000
Street Capital Loan [Member]
Debt Instrument [Line Items]
Related party loan, Interest rate	5.00%			4.75%

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Fair Value Measurements - Fair Value of Financial Assets and Liabilities Measured on Recurring Basis (Details) - NLEX [Member] - Contingent Consideration [Member] - USD ($) $ in Thousands	Mar. 31, 2017	Mar. 31, 2016
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	$ 2,844	$ 2,733
Level 1 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	0	0
Level 2 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	0	0
Level 3 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	$ 2,844	$ 2,733

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Fair Value Measurements - Summary of Changes in the Fair Value of the Liability (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value adjustment of contingent consideration	$ (111)	$ (68)
NLEX [Member] | Contingent Consideration [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Beginning balance	2,733
Fair value adjustment of contingent consideration	111
Ending balance	$ 2,844

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Income Taxes (Narrative) (Details) $ in Millions	3 Months Ended
	Mar. 31, 2017 USD ($)
Income Taxes [Line Items]
Operating loss carryforwards	$ 74.5
Tax Credit Carryforward, Amount	$ 0.5
Operating Loss Carryforwards, Expiration Date	Substantially all of the net operating loss carry forwards and unused minimum tax credit carry forwards expire between 2024 and 2035.
Operating Loss Carryforwards, Limitations on Use	The Company’s utilization of restricted net operating tax loss carry forwards against future income for tax purposes is restricted pursuant to the “change in ownership” rules in Section 382 of the Internal Revenue Code.
Unrestricted [Member]
Income Taxes [Line Items]
Operating loss carryforwards	$ 59.3
Restricted [Member]
Income Taxes [Line Items]
Operating loss carryforwards	$ 15.2

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Related Party Transactions (Narrative) (Details) - Street Capital Loan [Member] - USD ($) $ in Millions	Mar. 31, 2017	Dec. 31, 2016
Related Party Transaction [Line Items]
Related Party Accrued Interest	$ 0.5
Related party debt	$ 0.8	$ 1.0

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Schedule of Lease Amounts Paid to Related Parties (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Related Party Transaction [Line Items]
Amount Charged on Leased Premises	$ 25	$ 82
Lease Amounts [Member] | Foster City, CA [Member] | Senior Officers of HGI [Member]
Related Party Transaction [Line Items]
Amount Charged on Leased Premises	0	57
Lease Amounts [Member] | Edwardsville, IL [Member] | Senior Officer of NLEX [Member]
Related Party Transaction [Line Items]
Amount Charged on Leased Premises	$ 25	$ 25