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 June 30, 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 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 August 7, 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 June 30, 2017 (unaudited) and December 31, 2016	3
	Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2017 and 2016 (unaudited)	4
	Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2017 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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	14
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)

	June 30, 2017			December 31, 2016
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,600		$	2,530
Accounts receivable (net of allowance for doubtful accounts of $71; $36 in 2016)		1,144			1,247
Inventory – equipment		264			263
Other current assets		366			393
Total current assets		4,374			4,433
Property and equipment, net		124			156
Identifiable intangible assets, net		3,999			4,122
Goodwill		6,158			6,158
Other assets		309			275
Total assets	$	14,964		$	15,144
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	6,941		$	6,746
Current portion of related party debt		496			664
Current portion of contingent consideration		465			961
Other current liabilities		145			199
Total current liabilities		8,047			8,570
Non-current portion of related party debt		120			348
Non-current portion of contingent consideration		2,158			1,772
Deferred tax liabilities		960			960
Total liabilities		11,285			11,650
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and    outstanding 569 Class N shares at June 30, 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 June 30, 2017 and    28,470,148 shares at December 31, 2016		285			285
Additional paid-in capital		284,282			284,149
Accumulated deficit		(280,820	)		(280,875	)
Accumulated other comprehensive loss		(74	)		(71	)
Total stockholders’ equity		3,679			3,494
Total liabilities and stockholders’ equity	$	14,964		$	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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues:
Services revenue	$	3,945		$	3,702		$	8,406		$	7,894
Asset sales		837			259			1,409			1,487
Total revenues		4,782			3,961			9,815			9,381
Operating costs and expenses:
Cost of services revenue		710			866			1,769			1,869
Cost of asset sales		966			184			1,259			1,236
Selling, general and administrative		3,002			3,064			6,212			6,154
Depreciation and amortization		77			81			155			164
Total operating costs and expenses		4,755			4,195			9,395			9,423
Operating income (loss)		27			(234	)		420			(42	)
Fair value adjustment of contingent consideration		(179	)		925			(290	)		857
Interest and other expense, net		(32	)		(65	)		(47	)		(113	)
(Loss) income before income tax expense		(184	)		626			83			702
Income tax expense		15			2			28			18
Net (loss) income	$	(199	)	$	624		$	55		$	684
Weighted average common shares outstanding – basic		28,480,148			28,418,582			28,456,750			28,368,774
Weighted average common shares outstanding – diluted		28,480,148			28,431,406			28,472,910			28,381,278
Net (loss) income per share – basic	$	(0.01	)	$	0.02		$	0.00		$	0.02
Net (loss) income per share – diluted	$	(0.01	)	$	0.02		$	0.00		$	0.02
Comprehensive (loss) income:
Net (loss) income	$	(199	)	$	624		$	55		$	684
Other comprehensive (loss) income:
Foreign currency translation adjustment		(2	)		3			(3	)		(5	)
Comprehensive (loss) income	$	(201	)	$	627		$	52		$	679

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		—		—		—		—		132		—			—			132
Issuance of common stock from exercise    of stock options		—		—		10,000		—		1		—			—			1
Net income		—		—		—		—		—		55			—			55
Foreign currency translation adjustment		—		—		—		—		—		—			(3	)		(3	)
Balance at June 30, 2017		569	$	6		28,480,148	$	285	$	284,282	$	(280,820	)	$	(74	)	$	3,679

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)

	Six Months Ended June 30,
	2017			2016
Cash flows provided by (used in) operating activities:
Net income	$	55		$	684
Adjustments to reconcile net income to net cash provided by (used in) operating    activities:
Accrued interest added to principal of related party debt		20			48
Fair value adjustment of contingent consideration		290			(857	)
Stock-based compensation expense		132			57
Depreciation and amortization		155			164
Changes in operating assets and liabilities:
Accounts receivable		103			(84	)
Inventory		(1	)		94
Other assets		(65	)		(71	)
Accounts payable and accrued liabilities		195			(297	)
Net cash provided by (used in) operating activities		884			(262	)
Cash flows used in investing activities:
Cash distributions from equity method investments		—			20
Purchase of property and equipment		—			(75	)
Net cash used in investing activities		—			(55	)
Cash flows used in financing activities:
Proceeds from debt payable to related party		—			404
Repayment of debt payable to related party		(415	)		(428	)
Payment of contingent consideration		(400	)		(400	)
Proceeds from exercise of options to purchase common shares		1			4
Net cash used in financing activities		(814	)		(420	)
Net increase (decrease) in cash and cash equivalents		70			(737	)
Cash and cash equivalents at beginning of period		2,530			2,777
Cash and cash equivalents at end of period	$	2,600		$	2,040
Supplemental cash flow information:
Cash paid for taxes	$	16		$	19
Cash paid for interest	$	2		$	94

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 the “Company” in these financial statements. The Company’s 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.  The Company 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.  

The Company has 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 the opinion of management, 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, the Company believes 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 and six month periods ended June 30, 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, other assets, 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 the Company’s 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 the Company’s audited consolidated financial statements are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to these policies in the six months ended June 30, 2017.

Recent Accounting Pronouncements

In 2016, the FASB issued Accounting Standards update (“ASU”) 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 ASU 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.

In 2016, the FASB issued ASU 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 2014, the Financial Accounting Standards Board, or FASB, issued new guidance related to revenue recognition (ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606)). Subsequently the FASB has issued additional guidance (ASU Nos. 2015-14; 2016-08; 2016-10; 2016-12; 2016-20 Revenue from Contracts with Customers (Topic 606)). The guidance establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Although the Company is still evaluating the impact of the new standard, the Company anticipates that the impact will not be material to the consolidated financial statements.

In 2016, the FASB issued ASU 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 ASU 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 ASU 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.  

8

Note 3 – Stock-based Compensation

Options

At June 30, 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 six months ended June 30, 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 six months ended June 30, 2017.    

The following summarizes the changes in common stock options for the six months ended June 30, 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 June 30, 2017		5,198,850		$	0.95
Options exercisable at June 30, 2017		1,912,500		$	1.82

The Company recognized stock-based compensation expense related to stock options of $0.1 million and $0.1 million, respectively, for the three and six months ended June 30, 2017.  As of June 30, 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 3.4 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 six months ended June 30, 2017:

	Restricted Stock Awards			Weighted AverageGrant Date Fair Value Per Share
Unvested awards at December 31, 2016		37,500		$	0.38
Vested		(37,500	)	$	0.38
Unvested awards at June 30, 2017		—			—
Vested awards at June 30, 2017		262,500		$	0.38

Stock-based compensation expense related to restricted stock awards was not material for the three and six months ended June 30, 2017 and 2016.

9

Note 4 – 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 June 30,				Six Months Ended June 30,
Weighted Average Shares Calculation:	2017		2016		2017		2016
Basic weighted average shares outstanding		28,480,148		28,418,582		28,456,750		28,368,774
Treasury stock effect of common stock options and restricted    stock awards		—		12,824		16,160		12,504
Diluted weighted average common shares outstanding		28,480,148		28,431,406		28,472,910		28,381,278

Potential common shares that were not included in the computation of diluted EPS because they would have been anti-dilutive for the three and six months ended June 30, 2017 were 5.1 million and 2.0 million, respectively.  Potential common shares not included for both the three and six months ended June 30, 2016 were 2.2 million.

Note 5 – 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			June 30, 2017
Customer Network (HGP)	$	158	$	(11	)	$	147
Trade Name (HGP)		953		(52	)		901
Customer Relationships (NLEX)		550		(54	)		496
Website (NLEX)		24		(6	)		18
Total		1,685		(123	)		1,562
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	4,122	$	(123	)	$	3,999

Amortization expense during each of the six months ended June 30, 2017 and 2016 was $0.1 million.

10

The estimated amortization expense as of June 30, 2017 during the next five fiscal years and thereafter is shown below (in thousands):

Year	Amount
2017 (remainder of year from July 1, 2017 to December 31, 2017)	$	122
2018		245
2019		240
2020		236
2021		236
Thereafter		483
Total	$	1,562

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 to the carrying amount of goodwill during the three or six months ended June 30, 2017 and 2016.

Acquisition	June 30, 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 6 – Debt

Outstanding debt at June 30, 2017 and December 31, 2016 is summarized as follows (in thousands):

	June 30, 2017		December 31, 2016
Current:
Related party debt	$	496	$	664
Non-current:
Related party debt		120		348
Total debt	$	616	$	1,012

In 2016, following an amendment, the Company’s related party debt with Street Capital (the “Street Capital Loan”) began accruing interest at a rate per annum equal to the Wall Street Journal prime rate + 1.0%.  The Company also agreed to a monthly payment schedule which began in the first quarter of 2017.  As of June 30, 2017 and December 31, 2016, the interest rate on the loan was 5.25% and 4.75%, respectively.  Please see Note 9 for further discussion of transactions with Street Capital.  

In 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.

11

As of June 30, 2017 and December 31, 2016, the Company had not drawn on the Line of Credit.  

Note 7 – 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 June 30, 2017 and December 31, 2016, the Company had no Level 1 or Level 2 assets or liabilities measured at fair value.  As of both June 30, 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 June 30, 2017 and December 31, 2016 (in thousands):

	Fair Value as of June 30, 2017
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	2,623	$	2,623
	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 six months ended June 30, 2017 (in thousands):

Balance at December 31, 2016	$	2,733
Payment of contingent consideration		(400	)
Fair value adjustment of contingent consideration		290
Balance at June 30, 2017	$	2,623

The Company had no assets or liabilities measured at fair value on a non-recurring basis as of June 30, 2017.

Note 8 – Income Taxes

At June 30, 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.

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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 cumulative losses and uncertainty with respect to future taxable income, the Company has provided a full valuation allowance against its net deferred tax assets as of June 30, 2017 and December 31, 2016.

Note 9 – Related Party Transactions

Debt with Street Capital

As of June 30, 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 June 30, 2017 and December 31, 2016, the Company reported amounts owed to Street Capital of $0.6 million and $1.0 million respectively, as related party debt (see Note 6). Total interest of $0.5 million has been accrued on the debt and remains unpaid through June 30, 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 and six months ended June 30, 2017 and 2016, are detailed below (in thousands):

	Three Months Ended June 30,
Leased premises location	2017		2016
Foster City, CA	$	—	$	19
Edwardsville, IL		25		25
Total	$	25	$	44

	Six Months Ended June 30,
Leased premises location	2017		2016
Foster City, CA	$	—	$	76
Edwardsville, IL		50		49
Total	$	50	$	125

In 2016 the Company entered into a secured related party loan agreement with certain executive officers of the Company which is more fully described in Note 6.  Both Ross Dove and Kirk Dove, who were parties to the related party loan, shared equally in all payments made by the Company to satisfy obligations under the loan agreement. During the six months ended June 30, 2017 there were no transactions under this agreement.

During the six months ended June 30, 2017 the Company paid David Ludwig $0.4 million for a portion of his third earn-out provision payment.  

Note 10 – Subsequent Events

The Company has evaluated events subsequent to June 30, 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 Quarterly Report on Form 10-Q.

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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 Heritage Global Inc. (together with its consolidated subsidiaries, “we”, “us”, “our” or the “Company”) and the related notes thereto for the three and six month periods ended June  30, 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 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 June 30, 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, the Company 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.

The Company’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, other assets, 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 six months ended June 30, 2017.

Management’s Discussion of Financial Condition

Liquidity and Capital Resources

Liquidity

At June 30, 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, a decrease of approximately $0.4 million.

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The Company’s current assets at June 30, 2017 remained constant at $4.4 million with the balance at December 31, 2016. The Company’s current liabilities decreased to $8.0 million compared to $8.6 million at December 31, 2016. The most significant change was an approximate $0.5 million decrease in the current portion of contingent consideration due to a $0.4 million advance payment made to the former owner of NLEX and the fair value adjustment of the contingent consideration liability as of June 30, 2017.

During the six months ended June 30, 2017, the Company’s primary source of cash was the cash provided by operations of its asset liquidation business.  Cash disbursements, other than those related to debt repayment of $0.4 million (all of which was paid to a related party) and the $0.4 million advance payment of the contingent consideration, 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 June 30, 2017 the Company had stockholders’ equity of $3.7 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 6 to the condensed 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 any outstanding balance on the Line of Credit 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 June 30, 2017 were $2.6 million as compared to $2.5 million at December 31, 2016, an increase of approximately $0.1 million.

Cash provided by or used in operating activities.  Cash provided by operating activities was $0.9 million during the six months ended June 30, 2017 as compared to $0.3 million cash used during the same period in 2016. The $1.2 million change was primarily attributable to a net favorable change of $0.6 million in the operating assets and liabilities in the six months ended June 30, 2017 compared to the same period in 2016 and a favorable change in the net income adjusted for noncash items, which was $0.6 million better during the six months ended June 30, 2017 compared to the same period in 2016.  

The significant changes in operating assets and liabilities during the six months ended June 30, 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 used in investing activities.  There was no cash provided by or used in investing activities during the six months ended June 30, 2017, as compared to $0.1 million used during the six months ended June 30, 2016.    

Cash used in financing activities.  Cash used in financing activities was $0.8 million during the six months ended June 30, 2017, as compared to $0.4 million used during the same period in 2016. During the six months ended June 30, 2017 the Company repaid $0.4 million of its related party loan and made an advance contingent consideration payment of $0.4 million to the former owner of NLEX.  The 2016 activity consisted of proceeds of $0.4 million from a related party loan, which was repaid in full during the same period and $24,000 of debt repaid to Street Capital.  The Company also made an advance contingent consideration payment of $0.4 million to the former owner of NLEX during the six months ended June 30, 2016.  

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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 David Ludwig 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 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.  During the six months ended June 30, 2017 the Company paid David Ludwig $0.4 million for a portion of his third earn-out provision payment. The Company expects to pay approximately $3.0 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 and six months ended June 30, 2017 and 2016 (dollars in thousands).

	Three Months Ended June 30,						Change						Six Months Ended June 30,						Change
	2017			2016			Dollars			Percent			2017			2016			Dollars			Percent
Revenues:
Services revenue	$	3,945		$	3,702		$	243			7	%	$	8,406		$	7,894		$	512			6	%
Asset sales		837			259			578			223	%		1,409			1,487			(78	)		(5	)%
Total revenues		4,782			3,961			821			21	%		9,815			9,381			434			5	%
Operating costs and expenses:
Cost of services revenue		710			866			(156	)		(18	)%		1,769			1,869			(100	)		(5	)%
Cost of asset sales		966			184			782			425	%		1,259			1,236			23			2	%
Selling, general and administrative		3,002			3,064			(62	)		(2	)%		6,212			6,154			58			1	%
Depreciation and amortization		77			81			(4	)		(5	)%		155			164			(9	)		(5	)%
Total operating costs and expenses		4,755			4,195			560			13	%		9,395			9,423			(28	)		(0	)%
Operating income (loss)		27			(234	)		261			(112	)%		420			(42	)		462			(1100	)%
Fair value adjustment of contingent consideration		(179	)		925			(1,104	)		(119	)%		(290	)		857			(1,147	)		(134	)%
Interest and other expense, net		(32	)		(65	)		33			(51	)%		(47	)		(113	)		66			(58	)%
(Loss) income before income tax expense		(184	)		626			(810	)		(129	)%		83			702			(619	)		(88	)%
Income tax expense		15			2			13			650	%		28			18			10			56	%
Net (loss) income	$	(199	)	$	624		$	(823	)		(132	)%	$	55		$	684		$	(629	)		(92	)%

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.

Three-Month Period Ended June 30, 2017 Compared to Three-Month Period Ended June 30, 2016

Revenues and cost of revenues – Revenues were $4.8 million during the three months ended June 30, 2017 compared to $4.0 million during the same period in 2016. Costs of services revenue and asset sales were $1.7 million during the three months ended June 30, 2017 compared to $1.1 million during the same period in 2016.  The gross profit of these items was therefore $3.1 million during the three months ended June 30, 2017 compared to $2.9 million during the same period in 2016, an increase of approximately $0.2 million, or approximately 7%.  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 $3.0 million during the three months ended June 30, 2017 compared to $3.1 million during the same period in 2016.    

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

	Three Months Ended June 30,
	2017		2016		% change
Compensation
HGP	$	939	$	1,012		(7	)%
Equity Partners		343		384		(11	)%
NLEX		619		583		6	%
HGI		90		75		20	%
Stock-based compensation		62		21		195	%
Consulting		125		77		62	%
Board of Directors fees		58		81		(28	)%
Accounting, tax and legal professional fees		152		152		0	%
Insurance		83		69		20	%
Occupancy		197		179		10	%
Travel and entertainment		181		186		(3	)%
Advertising and promotion		127		138		(8	)%
Other		26		107		(76	)%
Total selling, general & administrative expense	$	3,002	$	3,064

The total selling, general and administrative expenses was relatively constant between the two periods with some fluctuations in the following:  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 increased rent at one of the office locations, offset by a decrease in overall compensation due to lower headcount in certain divisions.    

Depreciation and amortization expense – Depreciation and amortization expense was $0.1 million during both the three months ended June 30, 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.

Six-Month Period Ended June 30, 2017 Compared to Six-Month Period Ended June 30, 2016

Revenues and cost of revenues – Revenues were $9.8 million during the six months ended June 30, 2017 compared to $9.4 million during the same period in 2016. Costs of services revenue and asset sales were $3.0 million during the three months ended June 30, 2017 compared to $3.1 million during the same period in 2016.  The gross profit of these items was therefore $6.8 million during the six months ended June 30, 2017 compared to $6.3 million during the same period in 2016, an increase of approximately $0.5 million, or approximately 8%.  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.

Selling, general and administrative expense – Selling, general and administrative expense was $6.2 million during both the six months ended June 30, 2017 and the same period in 2016.

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

	Six Months Ended June 30,
	2017		2016		% change
Compensation
HGP	$	1,890	$	1,965		(4	)%
Equity Partners		750		806		(7	)%
NLEX		1,224		1,166		5	%
HGI		180		150		20	%
Stock-based compensation		132		57		132	%
Consulting		284		149		91	%
Board of Directors fees		117		137		(15	)%
Accounting, tax and legal professional fees		244		329		(26	)%
Insurance		165		137		20	%
Occupancy		391		344		14	%
Travel and entertainment		366		418		(12	)%
Advertising and promotion		237		257		(8	)%
Other		232		239		(3	)%
Total selling, general & administrative expense	$	6,212	$	6,154

The total selling, general and administrative expenses was relatively flat between the two periods with some fluctuations in the following:  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 $0.2 million during both the six months ended June 30, 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 and other 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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	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017		2016
Net income	$	(199	)	$	624		$	55	$	684
Add back:
Depreciation and amortization		77			81			155		164
Interest and other expense, net		32			65			47		113
Income tax expense		15			2			28		18
EBITDA		(75	)		772			285		979
Management add back:
Fair value adjustment of contingent consideration		179			(925	)		290		(857	)
Stock based compensation		62			21			132		57
Adjusted EBITDA	$	166		$	(132	)	$	707	$	179

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 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 six months ended June 30, 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.

None.  

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

On and effective as of August 7, 2017, the Board elected Emmett DeMoss to the Company’s Board of Directors as a Class III Director.  With the appointment of Mr. DeMoss, the Board consists of seven members, five of whom are independent directors.  Mr. DeMoss has not yet been appointed to serve on any of the Board’s sub-committees.  There have been no arrangements between Mr. DeMoss and any other persons pursuant to his appointment to the Board, nor have there been any agreements between Mr. DeMoss and the Company. Mr. DeMoss graduated from Princeton University, served as a U.S. Marine Corps pilot and earned his MBA from Stanford University. He worked in the business sector as a Corporate Finance Officer for Dean Witter and for Hambrecht & Quist, where he managed the initial public offerings (“IPO”) of several companies. He later served as Chief Operating Officer of Grubb & Ellis (“G&E”), a commercial real estate brokerage and advisory firm, where he helped grow the business to $350 million in annual revenues and led the reverse IPO of the Company. Mr. DeMoss has extensive executive leadership experience with growing businesses and was the founder, director and senior officer of Rackwise and Real Bid, the first on-line Company to offer indicative bidding for commercial real estate, which eventually merged with CoStar (Nasdaq: CSGP). He also held positions as a director and senior officer of Docutel.

The Company expects that recent developments in its business could result in its receipt of up to $5.6 million in additional service fee revenue over the next 12 months in connection with the sale of assets between third parties. If received, these fees will not be materially offset by corresponding expenses and would therefore have a material positive effect on the Company’s earnings over this period.  Although the Company believes there is a high likelihood these fees will be received, receipt is entirely dependent on entrance into and performance under contracts to which the Company will not be a party, and are therefore subject to significant uncertainty which the Company has no ability to control.

22

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

23

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: August 9, 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:  August 9, 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:  August 9, 2017

By:
	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 June 30, 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.

August 9, 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 June 30, 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.

August 9, 2017

/s/ Scott A. West

Scott A. West

Chief Financial Officer

(Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 07, 2017
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 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	Q2

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 2,600	$ 2,530
Accounts receivable (net of allowance for doubtful accounts of $71; $36 in 2016)	1,144	1,247
Inventory – equipment	264	263
Other current assets	366	393
Total current assets	4,374	4,433
Property and equipment, net	124	156
Identifiable intangible assets, net	3,999	4,122
Goodwill	6,158	6,158
Other assets	309	275
Total assets	14,964	15,144
Current liabilities:
Accounts payable and accrued liabilities	6,941	6,746
Current portion of related party debt	496	664
Current portion of contingent consideration	465	961
Other current liabilities	145	199
Total current liabilities	8,047	8,570
Non-current portion of related party debt	120	348
Non-current portion of contingent consideration	2,158	1,772
Deferred tax liabilities	960	960
Total liabilities	11,285	11,650
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at June 30, 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 June 30, 2017 and 28,470,148 shares at December 31, 2016	285	285
Additional paid-in capital	284,282	284,149
Accumulated deficit	(280,820)	(280,875)
Accumulated other comprehensive loss	(74)	(71)
Total stockholders’ equity	3,679	3,494
Total liabilities and stockholders’ equity	$ 14,964	$ 15,144

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 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		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Revenues:
Services revenue	$ 3,945	$ 3,702	$ 8,406	$ 7,894
Asset sales	837	259	1,409	1,487
Total revenues	4,782	3,961	9,815	9,381
Operating costs and expenses:
Cost of services revenue	710	866	1,769	1,869
Cost of asset sales	966	184	1,259	1,236
Selling, general and administrative	3,002	3,064	6,212	6,154
Depreciation and amortization	77	81	155	164
Total operating costs and expenses	4,755	4,195	9,395	9,423
Operating income (loss)	27	(234)	420	(42)
Fair value adjustment of contingent consideration	(179)	925	(290)	857
Interest and other expense, net	(32)	(65)	(47)	(113)
(Loss) income before income tax expense	(184)	626	83	702
Income tax expense	15	2	28	18
Net (loss) income	$ (199)	$ 624	$ 55	$ 684
Weighted average common shares outstanding – basic	28,480,148	28,418,582	28,456,750	28,368,774
Weighted average common shares outstanding – diluted	28,480,148	28,431,406	28,472,910	28,381,278
Net (loss) income per share – basic	$ (0.01)	$ 0.02	$ 0.00	$ 0.02
Net (loss) income per share – diluted	$ (0.01)	$ 0.02	$ 0.00	$ 0.02
Comprehensive (loss) income:
Net (loss) income	$ (199)	$ 624	$ 55	$ 684
Other comprehensive (loss) income:
Foreign currency translation adjustment	(2)	3	(3)	(5)
Comprehensive (loss) income	$ (201)	$ 627	$ 52	$ 679

XML

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - 6 months ended Jun. 30, 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	132			132
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	$ 55				55
Foreign currency translation adjustment	(3)					(3)
Ending Balance at Jun. 30, 2017	$ 3,679	$ 6	$ 285	$ 284,282	$ (280,820)	$ (74)
Balance (in shares) at Jun. 30, 2017		569	28,480,148

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Cash flows provided by (used in) operating activities:
Net income	$ 55	$ 684
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Accrued interest added to principal of related party debt	20	48
Fair value adjustment of contingent consideration	290	(857)
Stock-based compensation expense	132	57
Depreciation and amortization	155	164
Changes in operating assets and liabilities:
Accounts receivable	103	(84)
Inventory	(1)	94
Other assets	(65)	(71)
Accounts payable and accrued liabilities	195	(297)
Net cash provided by (used in) operating activities	884	(262)
Cash flows used in investing activities:
Cash distributions from equity method investments	0	20
Purchase of property and equipment	0	(75)
Net cash used in investing activities	0	(55)
Cash flows used in financing activities:
Proceeds from debt payable to related party	0	404
Repayment of debt payable to related party	(415)	(428)
Payment of contingent consideration	(400)	(400)
Proceeds from exercise of options to purchase common shares	1	4
Net cash used in financing activities	(814)	(420)
Net increase (decrease) in cash and cash equivalents	70	(737)
Cash and cash equivalents at beginning of period	2,530	2,777
Cash and cash equivalents at end of period	2,600	2,040
Supplemental cash flow information:
Cash paid for taxes	16	19
Cash paid for interest	$ 2	$ 94

XML

Basis of Presentation

6 Months Ended

Jun. 30, 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 the “Company” in these financial statements. The Company’s 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.  The Company 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.  

The Company has 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 the opinion of management, 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, the Company believes 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 and six month periods ended June 30, 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.  

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 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, other assets, 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 the Company’s 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 the Company’s audited consolidated financial statements are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to these policies in the six months ended June 30, 2017.

Recent Accounting Pronouncements

In 2016, the FASB issued Accounting Standards update (“ASU”) 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 ASU 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.

In 2016, the FASB issued ASU 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 2014, the Financial Accounting Standards Board, or FASB, issued new guidance related to revenue recognition (ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606)). Subsequently the FASB has issued additional guidance (ASU Nos. 2015-14; 2016-08; 2016-10; 2016-12; 2016-20 Revenue from Contracts with Customers (Topic 606)). The guidance establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Although the Company is still evaluating the impact of the new standard, the Company anticipates that the impact will not be material to the consolidated financial statements.

In 2016, the FASB issued ASU 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 ASU 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 ASU 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.  

XML

Stock-based Compensation

6 Months Ended

Jun. 30, 2017

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-based Compensation

Note 3 – Stock-based Compensation

Options

At June 30, 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 six months ended June 30, 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 six months ended June 30, 2017.    

The following summarizes the changes in common stock options for the six months ended June 30, 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 June 30, 2017		5,198,850		$	0.95
Options exercisable at June 30, 2017		1,912,500		$	1.82

The Company recognized stock-based compensation expense related to stock options of $0.1 million and $0.1 million, respectively, for the three and six months ended June 30, 2017.  As of June 30, 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 3.4 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 six months ended June 30, 2017:

	Restricted Stock Awards			Weighted AverageGrant Date Fair Value Per Share
Unvested awards at December 31, 2016		37,500		$	0.38
Vested		(37,500	)	$	0.38
Unvested awards at June 30, 2017		—			—
Vested awards at June 30, 2017		262,500		$	0.38

Stock-based compensation expense related to restricted stock awards was not material for the three and six months ended June 30, 2017 and 2016.

XML

Earnings Per Share

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

Earnings Per Share

Note 4 – 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 June 30,				Six Months Ended June 30,
Weighted Average Shares Calculation:	2017		2016		2017		2016
Basic weighted average shares outstanding		28,480,148		28,418,582		28,456,750		28,368,774
Treasury stock effect of common stock options and restricted    stock awards		—		12,824		16,160		12,504
Diluted weighted average common shares outstanding		28,480,148		28,431,406		28,472,910		28,381,278

Potential common shares that were not included in the computation of diluted EPS because they would have been anti-dilutive for the three and six months ended June 30, 2017 were 5.1 million and 2.0 million, respectively.  Potential common shares not included for both the three and six months ended June 30, 2016 were 2.2 million.

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Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Note 5 – 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			June 30, 2017
Customer Network (HGP)	$	158	$	(11	)	$	147
Trade Name (HGP)		953		(52	)		901
Customer Relationships (NLEX)		550		(54	)		496
Website (NLEX)		24		(6	)		18
Total		1,685		(123	)		1,562
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	4,122	$	(123	)	$	3,999

Amortization expense during each of the six months ended June 30, 2017 and 2016 was $0.1 million.

The estimated amortization expense as of June 30, 2017 during the next five fiscal years and thereafter is shown below (in thousands):

Year	Amount
2017 (remainder of year from July 1, 2017 to December 31, 2017)	$	122
2018		245
2019		240
2020		236
2021		236
Thereafter		483
Total	$	1,562

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 to the carrying amount of goodwill during the three or six months ended June 30, 2017 and 2016.

Acquisition	June 30, 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

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Debt

Note 6 – Debt

Outstanding debt at June 30, 2017 and December 31, 2016 is summarized as follows (in thousands):

	June 30, 2017		December 31, 2016
Current:
Related party debt	$	496	$	664
Non-current:
Related party debt		120		348
Total debt	$	616	$	1,012

In 2016, following an amendment, the Company’s related party debt with Street Capital (the “Street Capital Loan”) began accruing interest at a rate per annum equal to the Wall Street Journal prime rate + 1.0%.  The Company also agreed to a monthly payment schedule which began in the first quarter of 2017.  As of June 30, 2017 and December 31, 2016, the interest rate on the loan was 5.25% and 4.75%, respectively.  Please see Note 9 for further discussion of transactions with Street Capital.  

In 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 June 30, 2017 and December 31, 2016, the Company had not drawn on the Line of Credit.  

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Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 7 – 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 June 30, 2017 and December 31, 2016, the Company had no Level 1 or Level 2 assets or liabilities measured at fair value.  As of both June 30, 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 June 30, 2017 and December 31, 2016 (in thousands):

	Fair Value as of June 30, 2017
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	2,623	$	2,623
	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 six months ended June 30, 2017 (in thousands):

Balance at December 31, 2016	$	2,733
Payment of contingent consideration		(400	)
Fair value adjustment of contingent consideration		290
Balance at June 30, 2017	$	2,623

The Company had no assets or liabilities measured at fair value on a non-recurring basis as of June 30, 2017.

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Income Taxes

6 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

Income Taxes

Note 8 – Income Taxes

At June 30, 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 cumulative losses and uncertainty with respect to future taxable income, the Company has provided a full valuation allowance against its net deferred tax assets as of June 30, 2017 and December 31, 2016.

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Related Party Transactions

6 Months Ended

Jun. 30, 2017

Related Party Transactions [Abstract]

Related Party Transactions

Note 9 – Related Party Transactions

Debt with Street Capital

As of June 30, 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 June 30, 2017 and December 31, 2016, the Company reported amounts owed to Street Capital of $0.6 million and $1.0 million respectively, as related party debt (see Note 6). Total interest of $0.5 million has been accrued on the debt and remains unpaid through June 30, 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 and six months ended June 30, 2017 and 2016, are detailed below (in thousands):

	Three Months Ended June 30,
Leased premises location	2017		2016
Foster City, CA	$	—	$	19
Edwardsville, IL		25		25
Total	$	25	$	44

	Six Months Ended June 30,
Leased premises location	2017		2016
Foster City, CA	$	—	$	76
Edwardsville, IL		50		49
Total	$	50	$	125

In 2016 the Company entered into a secured related party loan agreement with certain executive officers of the Company which is more fully described in Note 6.  Both Ross Dove and Kirk Dove, who were parties to the related party loan, shared equally in all payments made by the Company to satisfy obligations under the loan agreement. During the six months ended June 30, 2017 there were no transactions under this agreement.

During the six months ended June 30, 2017 the Company paid David Ludwig $0.4 million for a portion of his third earn-out provision payment.  

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Subsequent Events

6 Months Ended

Jun. 30, 2017

Subsequent Events [Abstract]

Subsequent Events

Note 10 – Subsequent Events

The Company has evaluated events subsequent to June 30, 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 Quarterly Report on Form 10-Q.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 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, other assets, 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 the Company’s 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 the Company’s audited consolidated financial statements are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes to these policies in the six months ended June 30, 2017.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In 2016, the FASB issued Accounting Standards update (“ASU”) 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 ASU 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.

In 2016, the FASB issued ASU 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 2014, the Financial Accounting Standards Board, or FASB, issued new guidance related to revenue recognition (ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606)). Subsequently the FASB has issued additional guidance (ASU Nos. 2015-14; 2016-08; 2016-10; 2016-12; 2016-20 Revenue from Contracts with Customers (Topic 606)). The guidance establishes principles for reporting information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Although the Company is still evaluating the impact of the new standard, the Company anticipates that the impact will not be material to the consolidated financial statements.

In 2016, the FASB issued ASU 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 ASU 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 ASU 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)

6 Months Ended

Jun. 30, 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 six months ended June 30, 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 June 30, 2017		5,198,850		$	0.95
Options exercisable at June 30, 2017		1,912,500		$	1.82

Schedule of Changes in Restricted Stock Awards

The following summarizes the changes in restricted stock awards for the six months ended June 30, 2017:

	Restricted Stock Awards			Weighted AverageGrant Date Fair Value Per Share
Unvested awards at December 31, 2016		37,500		$	0.38
Vested		(37,500	)	$	0.38
Unvested awards at June 30, 2017		—			—
Vested awards at June 30, 2017		262,500		$	0.38

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 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 June 30,				Six Months Ended June 30,
Weighted Average Shares Calculation:	2017		2016		2017		2016
Basic weighted average shares outstanding		28,480,148		28,418,582		28,456,750		28,368,774
Treasury stock effect of common stock options and restricted    stock awards		—		12,824		16,160		12,504
Diluted weighted average common shares outstanding		28,480,148		28,431,406		28,472,910		28,381,278

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Intangible Assets and Goodwill (Tables)

6 Months Ended

Jun. 30, 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			June 30, 2017
Customer Network (HGP)	$	158	$	(11	)	$	147
Trade Name (HGP)		953		(52	)		901
Customer Relationships (NLEX)		550		(54	)		496
Website (NLEX)		24		(6	)		18
Total		1,685		(123	)		1,562
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	4,122	$	(123	)	$	3,999

Schedule of Estimated Amortization Expense, Intangible Assets

The estimated amortization expense as of June 30, 2017 during the next five fiscal years and thereafter is shown below (in thousands):

Year	Amount
2017 (remainder of year from July 1, 2017 to December 31, 2017)	$	122
2018		245
2019		240
2020		236
2021		236
Thereafter		483
Total	$	1,562

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 to the carrying amount of goodwill during the three or six months ended June 30, 2017 and 2016.

Acquisition	June 30, 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)

6 Months Ended

Jun. 30, 2017

Debt Disclosure [Abstract]

Schedule of Debt

	June 30, 2017		December 31, 2016
Current:
Related party debt	$	496	$	664
Non-current:
Related party debt		120		348
Total debt	$	616	$	1,012

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 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 June 30, 2017 and December 31, 2016 (in thousands):

	Fair Value as of June 30, 2017
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	2,623	$	2,623
	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 six months ended June 30, 2017 (in thousands):

Balance at December 31, 2016	$	2,733
Payment of contingent consideration		(400	)
Fair value adjustment of contingent consideration		290
Balance at June 30, 2017	$	2,623

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Related Party Transactions (Tables)

6 Months Ended

Jun. 30, 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 and six months ended June 30, 2017 and 2016, are detailed below (in thousands):

	Three Months Ended June 30,
Leased premises location	2017		2016
Foster City, CA	$	—	$	19
Edwardsville, IL		25		25
Total	$	25	$	44

	Six Months Ended June 30,
Leased premises location	2017		2016
Foster City, CA	$	—	$	76
Edwardsville, IL		50		49
Total	$	50	$	125

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Stock-based Compensation (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2017	Jun. 30, 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		$ 132	$ 57
Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 100	100
Employee Service-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Stock Options	$ 900	$ 900
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition		3 years 4 months 24 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)	6 Months Ended
	Jun. 30, 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	1,912,500
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	$ 1.82

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Schedule of Changes in Restricted Stock Awards (Details)	6 Months Ended
	Jun. 30, 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, Vested | shares	(37,500)
Restricted Stock Awards, Unvested awards at June 30, 2017 | shares	0
Restricted Stock Awards, Vested awards at June 30, 2017 | shares	262,500
Weighted Average Grant Date Fair Value, Unvested Awards at December 31, 2016 | $ / shares	$ 0.38
Weighted Average Grant Date Fair Value, Vested | $ / shares	0.38
Weighted Average Grant Date Fair Value, Unvested at June 30, 2017 | $ / shares	0
Weighted Average Grant Date Fair Value, Vested at June 30, 2017 | $ / shares	$ 0.38

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Earnings Per Share (Narrative) (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 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		40
Anti-dilutive common shares	5,100,000	2,200,000	2,000,000	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		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Earnings Per Share [Abstract]
Basic weighted average shares outstanding	28,480,148	28,418,582	28,456,750	28,368,774
Treasury stock effect of common stock options and restricted stock awards		12,824	16,160	12,504
Diluted weighted average common shares outstanding	28,480,148	28,431,406	28,472,910	28,381,278

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Intangible Assets and Goodwill (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Finite Lived Intangible Assets [Line Items]
Amortization expense, intangible assets			$ 123	$ 100
Goodwill, Impairment Loss	$ 0	$ 0	$ 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	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	$ 1,685
Amortization	(123)	$ (100)
Total net amortized intangible assets	1,562
Total net intangible assets	4,122
Total net intangible assets	3,999
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	(11)
Total net amortized intangible assets	147
HGP Trade Name [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	953
Amortization	(52)
Total net amortized intangible assets	901
Customer Relationships [Member] | NLEX [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	550
Amortization	(54)
Total net amortized intangible assets	496
NLEX's Website [Member] | NLEX [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	24
Amortization	(6)
Total net amortized intangible assets	$ 18

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Schedule of Estimated Amortization Expense, Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Goodwill And Intangible Assets Disclosure [Abstract]
2017 (remainder of year from July 1, 2017 to December 31, 2017)	$ 122
2018	245
2019	240
2020	236
2021	236
Thereafter	483
Total	$ 1,562	$ 1,685

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Schedule of Goodwill (Details) - USD ($) $ in Thousands	Jun. 30, 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	Jun. 30, 2017	Dec. 31, 2016
Current:
Related party debt	$ 496	$ 664
Non-current:
Related party debt	120	348
Total debt	$ 616	$ 1,012

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Debt (Narrative) (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Revolving Line of Credit [Member]
Debt Instrument [Line Items]
Line of credit	$ 0	$ 0
Affiliated Entity [Member] | Revolving Line of Credit [Member]
Debt Instrument [Line Items]
Line of credit aggregate borrowing capacity		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.
Wall Street Journal 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
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
Street Capital Loan [Member]
Debt Instrument [Line Items]
Related party loan, Interest rate	5.25%	4.75%

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Fair Value Measurements (Narrative) (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets measured at fair value on non-recurring basis	$ 0
Liabilities measured at fair value on non-recurring basis	0
Level 1 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	0	$ 0
Fair value of assets	0	0
Level 2 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	0	0
Fair value of assets	$ 0	$ 0

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Fair Value Measurements - Fair Value of Financial Assets and Liabilities Measured on Recurring Basis (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
NLEX [Member] | Contingent Consideration [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	$ 2,623,000	$ 2,733,000
Level 1 [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	0	0
Level 1 [Member] | NLEX [Member] | Contingent Consideration [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 2 [Member] | NLEX [Member] | Contingent Consideration [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	0	0
Level 3 [Member] | NLEX [Member] | Contingent Consideration [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities	$ 2,623,000	$ 2,733,000

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Fair Value Measurements - Summary of Changes in the Fair Value of the Liability (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Payment of contingent consideration			$ (400)	$ (400)
Fair value adjustment of contingent consideration	$ (179)	$ 925	(290)	$ 857
NLEX [Member] | Contingent Consideration [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Beginning balance			2,733
Payment of contingent consideration			(400)
Fair value adjustment of contingent consideration			290
Ending balance	$ 2,623		$ 2,623

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Income Taxes (Narrative) (Details) $ in Millions	6 Months Ended
	Jun. 30, 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) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Related Party Transaction [Line Items]
Payment to related party	$ 415	$ 428
Street Capital Loan [Member]
Related Party Transaction [Line Items]
Related Party Accrued Interest	500
Related party debt	600		$ 1,000
Third Earn-out Provision Payment [Member] | David Ludwig [Member]
Related Party Transaction [Line Items]
Payment to related party	$ 400

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Schedule of Lease Amounts Paid to Related Parties (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Related Party Transaction [Line Items]
Amount Charged on Leased Premises	$ 25	$ 44	$ 50	$ 125
Lease Amounts [Member] | Foster City, CA [Member] | Senior Officers of HGI [Member]
Related Party Transaction [Line Items]
Amount Charged on Leased Premises	0	19	0	76
Lease Amounts [Member] | Edwardsville, IL [Member] | Senior Officer of NLEX [Member]
Related Party Transaction [Line Items]
Amount Charged on Leased Premises	$ 25	$ 25	$ 50	$ 49