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 September 30, 2018

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 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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 November 1, 2018, there were 29,253,278 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 September 30, 2018 (unaudited) and December 31, 2017	3
	Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2018 and 2017 (unaudited)	4
	Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2018 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
Part II.	Other Information	23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24

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)

	September 30, 2018			December 31, 2017
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,228		$	2,109
Accounts receivable (net of allowance for doubtful accounts of $0 in 2018; $110 in 2017)		720			384
Inventory – equipment		114			170
Other current assets		693			357
Total current assets		4,755			3,020
Property and equipment, net		177			145
Identifiable intangible assets, net		3,691			3,877
Goodwill		6,158			6,158
Other assets		251			250
Total assets	$	15,032		$	13,450
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	6,407		$	5,019
Related party debt		—			382
Current portion of third party debt		372			356
Contingent consideration		—			2,774
Other current liabilities		84			133
Total current liabilities		6,863			8,664
Non-current portion of third party debt		535			786
Deferred tax liabilities		512			512
Total liabilities		7,910			9,962
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and    outstanding 569 Class N shares at September 30, 2018 and December 31, 2017		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued    and outstanding 29,253,278 shares at September 30, 2018 and    28,480,148 shares at December 31, 2017		293			285
Additional paid-in capital		284,681			284,396
Accumulated deficit		(277,781	)		(281,124	)
Accumulated other comprehensive loss		(77	)		(75	)
Total stockholders’ equity		7,122			3,488
Total liabilities and stockholders’ equity	$	15,032		$	13,450

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 September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues:
Services revenue	$	4,897		$	4,231		$	16,407		$	12,637
Asset sales		231			506			1,351			1,915
Total revenues		5,128			4,737			17,758			14,552
Operating costs and expenses:
Cost of services revenue		710			522			2,001			2,291
Cost of asset sales		189			282			752			1,541
Selling, general and administrative		3,734			3,539			11,315			9,751
Depreciation and amortization		79			78			239			233
Total operating costs and expenses		4,712			4,421			14,307			13,816
Operating income		416			316			3,451			736
Fair value adjustment of contingent consideration		—			(246	)		157			(536	)
Interest and other expense, net		(47	)		3			(201	)		(44	)
Income before income tax expense		369			73			3,407			156
Income tax expense		—			(10	)		64			18
Net income	$	369		$	83		$	3,343		$	138
Weighted average common shares outstanding – basic		28,653,278			28,480,148			28,557,517			28,464,635
Weighted average common shares outstanding – diluted		28,823,918			28,481,296			28,902,499			28,474,997
Net income per share – basic	$	0.01		$	0.00		$	0.12		$	0.00
Net income per share – diluted	$	0.01		$	0.00		$	0.12		$	0.00
Comprehensive income:
Net income	$	369		$	83		$	3,343		$	138
Other comprehensive income:
Foreign currency translation adjustment		(6	)		(2	)		(2	)		(3	)
Comprehensive income	$	363		$	81		$	3,341		$	135

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, 2017		569	$	6		28,480,148	$	285	$	284,396		$	(281,124	)	$	(75	)	$	3,488
Stock-based compensation expense		—		—		—		—		219			—			—			219
Issuance of restricted common stock		—		—		600,000		6		(6	)		—			—			—
Issuance of common stock from exercise of stock options		—		—		173,130		2		72			—			—			74
Net income		—		—		—		—		—			3,343			—			3,343
Foreign currency translation adjustment		—		—		—		—		—			—			(2	)		(2	)
Balance at September 30, 2018		569	$	6		29,253,278	$	293	$	284,681		$	(277,781	)	$	(77	)	$	7,122

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)

	Nine Months Ended September 30,
	2018			2017
Cash flows provided by operating activities:
Net income	$	3,343		$	138
Adjustments to reconcile net income to net cash provided by operating    activities:
Accrued interest added to principal of related party debt		8			27
Fair value adjustment of contingent consideration		(157	)		536
Stock-based compensation expense		219			186
Depreciation and amortization		239			233
Changes in operating assets and liabilities:
Accounts receivable		(336	)		593
Inventory		56			121
Other assets		(337	)		(24	)
Accounts payable and accrued liabilities		1,337			29
Net cash provided by operating activities		4,372			1,839
Cash flows used in investing activities:
Purchase of property and equipment		(85	)		(16	)
Net cash used in investing activities		(85	)		(16	)
Cash flows used in financing activities:
Repayment of debt payable to third party		(235	)		—
Payment of contingent consideration		(2,617	)		(897	)
Repayment of debt payable to related party		(390	)		(498	)
Proceeds from exercise of options to purchase common shares		74			1
Net cash used in financing activities		(3,168	)		(1,394	)
Net increase in cash and cash equivalents		1,119			429
Cash and cash equivalents at beginning of period		2,109			2,530
Cash and cash equivalents at end of period	$	3,228		$	2,959
Supplemental cash flow information:
Cash paid for taxes	$	86		$	19
Cash paid for interest	$	92		$	3

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. (“HGI”) 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. (“NLEX”). 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, 2017, filed with the SEC on March 13, 2018.

The results of operations for the nine month period ended September 30, 2018 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2018. The accompanying condensed consolidated balance sheet at December 31, 2017 has been derived from the audited consolidated balance sheet at December 31, 2017, 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

Revenue Recognition

On January 1, 2018, the Company adopted the new accounting standard FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) to all contracts using the modified retrospective method. Based on the Company’s analysis of contracts with customers in prior periods, there was no cumulative effect adjustment to the opening balance of the Company’s accumulated deficit as a result of the adoption of this new standard. We expect the impact of the adoption of the new standard to be immaterial to the consolidated financial statements on an ongoing basis.

Services revenue generally consists of commissions and fees from providing auction services, appraisals, brokering of sales transactions and providing merger and acquisition advisory services. Asset sales revenue generally consists of proceeds obtained through sales of purchased assets. Revenue is recognized for both services revenue and asset sales revenue based on the ASC 606 standard recognition model, which consists of the following: (1) an agreement exists between two or more parties that creates enforceable rights and obligations, (2) the performance obligations are clearly identified, (3) the transaction price has been determined, (4) the transaction price has been properly allocated to each performance obligation, and (5) the entity satisfies a performance obligation by transferring a promised good or service to a customer for each of the entities.

All services and asset sales revenue from contracts with customers is considered to be one reporting segment – the asset liquidation business. Although the Company provides various services within the asset liquidation business, it does not disaggregate revenue streams further than that in its statement of operations, services revenue and asset sales. Generally, revenue is recognized in the asset liquidation business at the point in time in which the performance obligation has been satisfied and full consideration is received. The exception to recognition at a point in time occurs when certain contracts provide for advance payments recognized over a period of time. Services revenue recognized over a period of time is not material in comparison to total revenues (4% of total revenues for the nine month period ended September 30, 2018), and therefore not reported on a disaggregated basis. Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and the Company’s “contract liability”. As of September 30, 2018, the deferred revenue balance was approximately $10,000. The Company records receivables related to asset liquidation in certain situations based on timing of payments for asset liquidation transactions held at the end of the reporting period; however, revenue is generally recognized in the period that the Company satisfies the performance obligation and cash is collected. The Company does not record a “contract asset” for partially satisfied performance obligations.

We evaluate revenue from asset liquidation transactions in accordance with the accounting guidance to determine whether to report such revenue on a gross or net basis.  We have determined that we act as an agent for our fee based asset liquidation transactions and therefore we report the revenue from transactions in which we act as an agent on a net basis.  

The Company also earns asset liquidation income through asset liquidation transactions that involve the Company acting jointly with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company (“LLC”) agreement (collectively, “Joint Ventures”). For these transactions, the Company does not record asset liquidation revenue or expense. Instead, the Company’s proportionate share of the net income (loss) is reported as earnings of equity method investments. In general, the Joint Ventures apply the same revenue recognition and other accounting policies as the Company.

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, 2017. There have been no changes to these policies in the nine months ended September 30, 2018, except for the adoption of ASC 606 as described above.

Recent Accounting Pronouncements

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 completed its assessment of the potential impact of this new guidance on its consolidated financial statements.

In 2014, the FASB issued new guidance related to revenue recognition (ASU 2014-09 Revenue from Contracts with Customers (Topic 606)). Subsequently the FASB has issued additional guidance (ASUs 2015-14; 2016-08; 2016-10; 2016-12; 2016-13; 2016-20). 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 above stated updates became effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements, except for more comprehensive disclosure requirements (see Note 2 – Revenue Recognition for further detail).

8

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 became effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.

In 2017, the FASB issued ASU 2017-01, Business Combinations (“ASU 2017-01”), which clarifies the definition of a business under ASC 805. 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 became effective January 1, 2018 and did not have a material impact on the Company’s 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.   

In 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (“ASU 2018-07”), which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is still evaluating the impact of ASU 2018-07 on the consolidated financial statements.  

Note 3 – Stock-based Compensation

Options

At September 30, 2018 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, 2017, contained in the Company’s most recently filed Annual Report on Form 10-K.

During the nine months ended September 30, 2018, the Company issued options to purchase 441,500 shares of common stock to the Company’s employees and options to purchase 85,000 shares of common stock to the Company’s non-employee directors as part of their annual compensation.  During the same period, the Company cancelled options to purchase 1,058,420 shares of common stock as a result of employee resignations and natural expiration.

On June 1, 2018, the Company issued options to purchase 300,000 shares of common stock to the employees of NLEX, in connection with the Addendum to the Employment Agreements of David Ludwig and Tom Ludwig. As of September 30, 2018, 173,130 shares of common stock were issued pursuant to the exercise of these common stock options. The remaining 126,870 shares expired as of July 31, 2018.

The following summarizes the changes in common stock options for the nine months ended September 30, 2018:

9

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2017		5,040,450		$	0.97
Granted		526,500		$	0.43
Exercised		(173,130	)	$	0.43
Forfeited		(1,058,420	)	$	1.71
Outstanding at September 30, 2018		4,335,400		$	0.59
Options exercisable at September 30, 2018		1,800,975		$	1.17

The Company recognized stock-based compensation expense related to stock options of $0.1 million and $0.2 million, respectively, for the three and nine months ended September 30, 2018. As of September 30, 2018, there is approximately $0.8 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 3.0 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.

On June 1, 2018, the Company granted 600,000 shares of Company restricted common stock in connection with the Addendum to the Employment Agreements of David Ludwig and Tom Ludwig. The shares are subject to certain restrictions on transfer and a right of repurchase over five years, ending May 31, 2023, and require a continued term of service to the Company. Stock-based compensation expense related to the restricted stock awards, calculated by using the grant date fair value of $0.43 per share, was $12,900 and $17,200 for the three and nine months ended September 30, 2018, respectively. The unrecognized stock-based compensation expense as of September 30, 2018 was approximately $0.2 million.

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.

10

	Three Months Ended September 30,				Nine Months Ended September 30,
Weighted Average Shares Calculation:	2018		2017		2018		2017
Basic weighted average shares outstanding		28,653,278		28,480,148		28,557,517		28,464,635
Treasury stock effect of common stock options and restricted stock awards		170,640		1,148		344,982		10,362
Diluted weighted average common shares outstanding		28,823,918		28,481,296		28,902,499		28,474,997

For the nine months ended September 30, 2018 and 2017 there were potential common shares totaling approximately 1.0 million and 5.0 million, respectively, that were excluded from the computation of diluted EPS as the inclusion of such shares would have been anti-dilutive. For the three months ended September 30, 2018 and 2017 there were potential common shares totaling approximately 1.0 million and 5.0 million, respectively, that were excluded.

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 remaining estimated useful lives of one to eight 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
	December 31,					September 30,
Amortized Intangible Assets	2017		Amortization			2018
Customer Network (HGP)	$	136	$	(17	)	$	119
Trade Name (HGP)		850		(78	)		772
Customer Relationships (NLEX)		440		(82	)		358
Website (NLEX)		14		(9	)		5
Total		1,440		(186	)		1,254
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	3,877	$	(186	)	$	3,691

Amortization expense during the nine months ended September 30, 2018 and 2017 was $0.2 million.

The estimated amortization expense as of September 30, 2018 during the next five fiscal years and thereafter is shown below (in thousands):

Year	Amount
2018 (remainder of year from October 1, 2018 to December 31, 2018)	$	63
2019		236
2020		236
2021		236
2022		128
Thereafter		355
Total	$	1,254

11

Goodwill

The Company’s goodwill is related to its asset liquidation business, and is comprised of goodwill from three acquisitions, as shown in the table below (in thousands). There were no additions to goodwill and no impairment losses to the carrying amount of goodwill during the three or nine months ended September 30, 2018 and 2017.

Acquisition	September 30, 2018		December 31, 2017
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 September 30, 2018 and December 31, 2017 is summarized as follows (in thousands):

	September 30, 2018		December 31, 2017
Current:
Related party debt	$	-	$	382
Third party debt		372		356
Non-current:
Third party debt		535		786
Total debt	$	907	$	1,524

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%.  During the period ending September 30, 2018, the Company terminated the existing Street Capital Loan with repayment of all principal and interest outstanding. 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 was charged at a variable rate, and the Entity was 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. In connection with the Company entering into a new credit facility with a third party bank on September 27, 2018, the Company terminated the related party secured promissory note with the Entity.

On September 27, 2018, Heritage Global, Inc. entered into a secured promissory note and business loan agreement (the “Credit Facility”) with First Choice Bank, for a $1.5 million revolving line of credit. The Credit Facility matures on October 5, 2019 and replaced the Line of Credit. The Company is permitted to use the proceeds of the loan solely for its business operations. The Credit Facility accrues at a variable interest rate, which is equal to the rate of interest last quoted by The Wall Street Journal as the “prime rate,” not to be less than 5.25% per annum, with a minimum interest charge of $100.00 per month. The Company will pay interest on the Credit Facility in regular monthly payments, beginning on November 5, 2018. The Company may prepay the Credit Facility without penalty, subject to the minimum monthly interest charge. The Company is the borrower, with certain of the subsidiaries of the Company as guarantors under the Credit Facility. The Credit Facility is secured by a first priority security interest in all of the Company’s and its certain subsidiaries’ current and future tangible and intangible assets, inventory, chattel paper, accounts, equipment and general intangibles. The availability of draws under the Credit Facility is conditioned, among other things, on the compliance with certain customary representations and warranties, including the preparation of timely financial statements, payment of taxes and disclosure of all material legal or administrative proceedings. The agreement governing the Credit Facility also contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance with governmental requirements, timely submission of all filings with the Securities and Exchange Commission and payment of taxes. The Credit Facility contains certain customary financial covenants and negative covenants that, among other things, include restrictions on the Company’s ability to create, incur or assume indebtedness for borrowed money, including capital leases or to sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of the Company’s assets. As of September 30, 2018, the Company had not drawn on the line of credit.

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On January 30, 2018, HG LLC, a wholly owned subsidiary of HGI, settled a long-standing litigation matter that was commenced against the predecessor in interest of HGLLC. The settlement, which also involved several other co-defendant parties, included a complete release of HGLLC’s predecessor in interest and its successors and affiliates by the plaintiffs from all claims arising from or relating to the facts and circumstances underlying the litigation. The portion of the settlement attributable to HGLLC’s predecessor in interest was paid on behalf of HGLLC by 54 Finance, LLC (“54 Finance”) (an affiliate of a co-defendant in the litigation) in consideration of a Promissory Note dated January 30, 2018 (the “Note”) from HGLLC in the amount of $1,260,000. Pursuant to a Guaranty dated January 30, 2018, HGI has guaranteed the obligations of HGLLC under the Note, which are required to be paid in 36 equal installments of $35,000, with any remaining outstanding balance due and payable in full on January 30, 2021. As of December 31, 2017, the Company accrued the present value of the Note based on the payment terms noted above and at an interest rate of 6.5%. The Note was recorded as this was determined to be a recognized subsequent event pursuant to ASC 855, Subsequent Events. Upon the occurrence of any Event of Default (as defined below), in the sole discretion of 54 Finance, the outstanding principal balance of the Note will bear interest at a rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to 12%. An “Event of Default” means: (a) any failure of HGLLC to pay when due any amount thereunder, when and as due, (b) any failure on the part of HGLLC to pay upon 54 Finance’s demand any fees, costs, expenses or other charges hereunder or otherwise due to HGLLC under the Note or the Guaranty, (c) any breach, failure or default under the Guaranty, (d) HGLLC or HGI repudiates or revokes, or purports to repudiate or revoke, any obligation under the Note or the Guaranty, or the obligation of HGI under the Guaranty is limited or terminated by operation of law or by HGI, or (e) HGLLC or HGI are insolvent or admit in writing its inability to pay debts as they mature, or make a general assignment for the benefit of its creditors, or institute any bankruptcy, insolvency or similar proceeding under the laws of any jurisdiction, or take any action to authorize such proceeding. During the nine months ended September 30, 2018, the Company made the scheduled payments on the Note totaling $280,000. The outstanding balance on the Note as of September 30, 2018 was $907,000.

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 September 30, 2018 and December 31, 2017, the Company had no Level 1 or Level 2 assets or liabilities measured at fair value.  As of December 31, 2017, the Company’s contingent consideration from the 2014 acquisition of NLEX was the only Level 3 liability measured at fair value on a recurring basis which had a fair value of $2,774,000.  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. As of September 30, 2018, the contingent consideration had been fully satisfied in accordance with terms stated within the NLEX stock purchase agreement.  

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 did not 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 nine months ended September 30, 2018 (in thousands):

Balance at December 31, 2017	$	2,774
Payment of contingent consideration		(2,618	)
Fair value adjustment of contingent consideration		(157	)
Balance at September 30, 2018	$	-

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Note 8 – Income Taxes

At September 30, 2018 the Company has aggregate tax net operating loss carry forwards of approximately $73.0 million ($57.8 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 2036. 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 September 30, 2018 and December 31, 2017.

Note 9 – Related Party Transactions

Debt with Street Capital

During the period ending September 30, 2018, the Company terminated the existing Street Capital Loan with repayment of all principal and interest outstanding. The Company’s loan from Street Capital was previously 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.

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 was approximately $78,000 and $75,000 for the nine months ended September 30, 2018 and 2017, respectively, and is included in selling, general and administrative expenses in the consolidated financial statements.  All of the payments in both 2018 and 2017 were made to David Ludwig. On June 1, 2018, the Company amended its lease agreement with David Ludwig, whereby the term of the agreement extends to May 31, 2023 and the rent amounts were agreed upon for the new term. 

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, share equally in all payments made by the Company to satisfy obligations under the loan agreement. During the nine months ended September 30, 2018, the Company made payment of approximately $34,000 to the respective parties based on the profit share provision for principal and guarantee transactions that occurred in 2017. Additionally, the Company has accrued as interest expense approximately $150,000 profit share for principal and guarantee transactions that occurred in the nine months ended September 30, 2018. In connection with the Company entering into a new credit facility with a third party bank on September 27, 2018, the Company terminated the related party loan agreement.

Note 10 – Subsequent Events

The Company has evaluated events subsequent to September 30, 2018 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 nine month periods ended September 30, 2018 and 2017, 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, 2017, 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” as defined by the Private Securities Litigation Reform Act of 1995 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 our 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 one of our wholly owned divisions.

The organization chart below outlines our basic domestic corporate structure as of September 30, 2018.

(1) Registrant.

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

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

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

(5) Broker of charged-off receivables.

Asset liquidation

We are a value-driven, innovative leader in corporate and financial asset liquidation transactions, valuations and advisory services. We specialize 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.

Our 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 our operations. Equity Partners is a boutique M&A advisory firm and provider of financial solutions for businesses and properties in transition.  

In 2012, we increased our in-house asset liquidation expertise with our 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 our wholly-owned subsidiary Heritage Global Partners UK Limited, we opened three European-based offices, one each in the United Kingdom, Germany and Spain.

In 2014, we again expanded our 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 our 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 our expanded global platform will allow us to achieve our long term industry leadership goals.

Industry and Competition

Our 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 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.

Our 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 us access to more opportunities, helping to mitigate some of the competition from the market’s larger participants and contribute to our 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.

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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.

We have no off-balance sheet arrangements.

We have not paid any dividends, and do 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, 2017. There have been no changes to these policies in the nine months ended September 30, 2018, except for the changes to revenue recognition accounting standards (see Note 2-Revenue Recognition for further detail).

Management’s Discussion of Financial Condition

Liquidity and Capital Resources

Liquidity

At September 30, 2018 we had a working capital deficit of $2.1 million, as compared to a working capital deficit of $5.6 million at December 31, 2017, a decrease of approximately $3.5 million primarily as a result of our net income of $3.3 million during the first three quarters of 2018.

Our current assets at September 30, 2018 increased to $4.8 million compared to $3.0 million at December 31, 2017. The most significant change was an approximate $1.1 million increase in cash and cash equivalents primarily as a result of our net income of $3.3 million during the first three quarters of 2018. Our current liabilities at September 30, 2018 decreased to $6.9 million compared to $8.7 million at December 31, 2017. The most significant change was an approximate $3.4 million decrease in debt (including the contingent consideration), partially offset by an approximate $1.4 million increase in accounts payable and accrued liabilities primarily the result of timing of certain auction settlement liabilities during the nine months ended September 30, 2018.

During the nine months ended September 30, 2018, our primary source of cash was the cash on hand plus the cash provided by operations of our asset liquidation business.  Cash disbursements other than those related to debt repayment (including the contingent consideration payment) of $3.2 million were primarily related to operating expenses.

We expect that our 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 September 30, 2018 the Company had stockholders’ equity of $7.1 million, as compared to $3.5 million at December 31, 2017.

• In 2016, we entered into a related party secured promissory note for a revolving line of credit and in September 2018 we entered into a replacement revolving line of credit directly between the Company and a bank.  The replacement credit

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facility provides for aggregate loans of up to $1.5 million.  Refer to Note 6to the condensed consolidated financial statements for further information.  

• We determine our future capital and operating requirements based upon our current and projected operating performance and the extent of our contractual commitments.  We expect to be able to finance our future operations through cash flows from our asset liquidation business and draws on the line of credit, as needed. Capital requirements are generally limited to repayment of our debt obligations and our purchases of surplus and distressed assets.  We believe that our current capital resources are sufficient for these requirements.  In the event additional capital is needed, we will draw on the line of credit.  

Cash Position and Cash Flows

Cash and cash equivalents at September 30, 2018 were $3.2 million as compared to $2.1 million at December 31, 2017, an increase of approximately $1.1 million.

Cash provided by operating activities.  Cash provided by operating activities was $4.4 million during the nine months ended September 30, 2018 as compared to $1.8 million cash provided during the same period in 2017. The approximate $2.6 million increase was primarily attributable to a favorable change in the net income adjusted for noncash items, which was $2.5 million better during the nine months ended September 30, 2018 compared to the same period in 2017.  

The significant changes in operating assets and liabilities during the nine months ended September 30, 2018 as compared to 2017 are primarily due to the nature of our operations. We earn 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.  Cash used in investing activities during the nine months ended September 30, 2018 was $0.1 million, as compared to $16,000 used during the nine months ended September 30, 2017.    

Cash used in financing activities.  Cash used in financing activities was $3.2 million during the nine months ended September 30, 2018, as compared to $1.4 million used during the same period in 2017. The 2018 activity consisted of repayments to Street Capital ($0.4 million), repayments to an unrelated third party ($0.2 million), and the final contingent consideration payment of $2.6 million to the former owner of NLEX. The 2017 activity consisted of repayments to Street Capital ($0.5 million) and an advance contingent consideration payment of $0.9 million to the former owner of NLEX.

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Contractual Obligations

Our significant contractual obligations, are our third party loan(s) and lease obligations.  The loan and lease obligations are fully described in the notes to the financial statements including in our 2017 Form 10-K filed with the SEC on March 13, 2018. We previously had an earn-out obligation owed to the former owner (and current president) of NLEX; however the final earn-out payment was made during the quarter ended September 30, 2018.

Management’s Discussion of Results of Operations

The following table sets out the Company’s condensed consolidated results of operations for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands).

	Three Months Ended September 30,						Change						Nine Months Ended September 30,						Change
	2018			2017			Dollars			Percent			2018			2017			Dollars			Percent
Revenues:
Services revenue	$	4,897		$	4,231		$	666			16	%	$	16,407		$	12,637		$	3,770			30	%
Asset sales		231			506			(275	)		(54	)%		1,351			1,915			(564	)		(29	)%
Total revenues		5,128			4,737			391			8	%		17,758			14,552			3,206			22	%
Operating costs and expenses:
Cost of services revenue		710			522			188			36	%		2,001			2,291			(290	)		(13	)%
Cost of asset sales		189			282			(93	)		(33	)%		752			1,541			(789	)		(51	)%
Selling, general and administrative		3,734			3,539			195			6	%		11,315			9,751			1,564			16	%
Depreciation and amortization		79			78			1			1	%		239			233			6			3	%
Total operating costs and expenses		4,712			4,421			291			7	%		14,307			13,816			491			4	%
Operating income		416			316			100			32	%		3,451			736			2,715			369	%
Fair value adjustment of contingent consideration		—			(246	)		246			(100	)%		157			(536	)		693			(129	)%
Interest and other expense, net		(47	)		3			(50	)		(1667	)%		(201	)		(44	)		(157	)		357	%
Income before income tax expense		369			73			296			405	%		3,407			156			3,251			2084	%
Income tax expense		—			(10	)		10			(100	)%		64			18			46			256	%
Net income	$	369		$	83		$	286			345	%	$	3,343		$	138		$	3,205			2322	%

Our 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 September 30, 2018 Compared to Three-Month Period Ended September 30, 2017

Revenues and cost of revenues – Revenues were $5.1 million during the three months ended September 30, 2018 compared to $4.7 million during the same period in 2017. Costs of services revenue and asset sales were $0.9 million during the three months ended September 30, 2018 compared to $0.8 million during the same period in 2017.  The gross profit of these items was therefore $4.2 million during the three months ended September 30, 2018 compared to $3.9 million during the same period in 2017, an increase of approximately $0.3 million, or approximately 8%.

Selling, general and administrative expense – Selling, general and administrative expense was $3.7 million during the three months ended September 30, 2018 compared to $3.5 million during the same period in 2017.    

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

	Three Months Ended September 30,
	2018		2017		% change
Compensation
HGP	$	1,043	$	985		6	%
Equity Partners		507		570		(11	)%
NLEX		1,002		667		50	%
HGI		124		90		38	%
Stock-based compensation		73		54		35	%
Consulting		51		112		(54	)%
Board of Directors fees		64		69		(7	)%
Accounting, tax and legal professional fees		110		212		(48	)%
Insurance		95		83		14	%
Occupancy		211		226		(7	)%
Travel and entertainment		263		226		16	%
Advertising and promotion		191		153		25	%
Other		-		92		(100	)%
Total selling, general & administrative expense	$	3,734	$	3,539

The increase in total selling, general and administrative expenses was largely attributable to an increase in salaries and commissions, due to improved performance, for the HGP and NLEX divisions as compared to the prior year.

Depreciation and amortization expense – Depreciation and amortization expense was $0.1 million during the three months ended September 30, 2018 and the same period in 2017, and consisted almost entirely of amortization expense related to intangible assets.  Depreciation of property and equipment was not material.

Nine-Month Period Ended September 30, 2018 Compared to Nine-Month Period Ended September 30, 2017

Revenues and cost of revenues – Revenues were $17.8 million during the nine months ended September 30, 2018 compared to $14.6 million during the same period in 2017. Costs of services revenue and asset sales were $2.8 million during the nine months ended September 30, 2018 compared to $3.8 million during the same period in 2017.  The gross profit of these items was therefore $15.0 million during the nine months ended September 30, 2018 compared to $10.7 million during the same period in 2017, an increase of approximately $4.3 million, or approximately 40%.  In addition, cost of services revenue decreased during the nine months ended September 30, 2018 as compared to the same period in 2017, and services revenue increased during the nine months ended September 30, 2018 as compared to the same period in 2017, based on a higher volume of deals for the Equity Partners and NLEX divisions, which have lower direct costs as compared to deals for HGP. 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 $11.3 million during the nine months ended September 30, 2018 compared to $9.8 million during the same period in 2017.

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

	Nine Months Ended September 30,
	2018		2017		% change
Compensation
HGP	$	3,284	$	2,875		14	%
Equity Partners		1,288		1,320		(2	)%
NLEX		2,844		1,891		50	%
HGI		372		270		38	%
Stock-based compensation		219		186		18	%
Consulting		244		397		(39	)%
Board of Directors fees		200		186		8	%
Accounting, tax and legal professional fees		384		453		(15	)%
Insurance		280		248		13	%
Occupancy		614		617		(0	)%
Travel and entertainment		733		592		24	%
Advertising and promotion		626		390		61	%
Other		228		326		(30	)%
Total selling, general & administrative expense	$	11,316	$	9,751

The increase in total selling, general and administrative expenses was largely attributable to an increase in salaries and commissions, due to improved performance, for the HGP and NLEX divisions as compared to the prior year and slightly offset by the decrease in consulting fees.

Depreciation and amortization expense – Depreciation and amortization expense was $0.2 million during both the nine months ended September 30, 2018 and the same period in 2017, 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”) and Adjusted 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).

21

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018			2017
Net income	$	369	$	83		$	3,343		$	138
Add back:
Depreciation and amortization		79		78			239			233
Interest and other expense, net		47		(3	)		201			44
Income tax expense		—		(10	)		64			18
EBITDA		495		148			3,847			433
Management add back:
Fair value adjustment of contingent consideration		—		246			(157	)		536
Stock based compensation		73		54			219			186
Adjusted EBITDA	$	568	$	448		$	3,909		$	1,155

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 nine months ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

22

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, 2017, as filed with the SEC on March 13, 2018.

Item 1A.  Risk Factors

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

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.

None.

23

Item 6.  Exhibits.

(a) Exhibits

Exhibit No.	Identification of Exhibit
10.1 10.2	Secured Promissory Note by and between Heritage Global Inc. and First Choice Bank, effective as of September 27, 2018 (incorporated by reference to our Current Report on Form 8-K (File No. 000-17973) filed on December 27, 2016) Business Loan Agreement by and between Heritage Global Inc. and First Choice Bank, effective as of September 27, 2018 (incorporated by reference to our Current Report on Form 8-K (File No. 000-17973) filed on October 3, 2018)
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

24

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: November 5, 2018	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)

25

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:  November 5, 2018

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:  November 5, 2018

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

EX-32.1

Exhibit 32.1

HERITAGE GLOBAL INC.

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

The undersigned Ross Dove, duly appointed and incumbent officer of Heritage Global Inc., a Florida corporation (the “Corporation”), in connection with the Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2018, 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.

November 5, 2018

/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 September 30, 2018, 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.

November 5, 2018

/s/ Scott A. West

Scott A. West

Chief Financial Officer

(Principal Financial Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 01, 2018
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2018
Trading Symbol	hgbl
Entity Registrant Name	Heritage Global Inc.
Entity Central Index Key	0000849145
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		29,253,278
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 3,228	$ 2,109
Accounts receivable (net of allowance for doubtful accounts of $0 in 2018; $110 in 2017)	720	384
Inventory – equipment	114	170
Other current assets	693	357
Total current assets	4,755	3,020
Property and equipment, net	177	145
Identifiable intangible assets, net	3,691	3,877
Goodwill	6,158	6,158
Other assets	251	250
Total assets	15,032	13,450
Current liabilities:
Accounts payable and accrued liabilities	6,407	5,019
Related party debt	0	382
Current portion of third party debt	372	356
Contingent consideration		2,774
Other current liabilities	84	133
Total current liabilities	6,863	8,664
Non-current portion of third party debt	535	786
Deferred tax liabilities	512	512
Total liabilities	7,910	9,962
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 569 Class N shares at September 30, 2018 and December 31, 2017	6	6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 29,253,278 shares at September 30, 2018 and 28,480,148 shares at December 31, 2017	293	285
Additional paid-in capital	284,681	284,396
Accumulated deficit	(277,781)	(281,124)
Accumulated other comprehensive loss	(77)	(75)
Total stockholders’ equity	7,122	3,488
Total liabilities and stockholders’ equity	$ 15,032	$ 13,450

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts receivable	$ 0	$ 110
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	29,253,278	28,480,148
Common stock, shares outstanding	29,253,278	28,480,148

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenues:
Total revenues	$ 5,128	$ 4,737	$ 17,758	$ 14,552
Operating costs and expenses:
Selling, general and administrative	3,734	3,539	11,315	9,751
Depreciation and amortization	79	78	239	233
Total operating costs and expenses	4,712	4,421	14,307	13,816
Operating income	416	316	3,451	736
Fair value adjustment of contingent consideration		(246)	157	(536)
Interest and other expense, net	(47)	3	(201)	(44)
Income before income tax expense	369	73	3,407	156
Income tax expense		(10)	64	18
Net income	$ 369	$ 83	$ 3,343	$ 138
Weighted average common shares outstanding – basic	28,653,278	28,480,148	28,557,517	28,464,635
Weighted average common shares outstanding – diluted	28,823,918	28,481,296	28,902,499	28,474,997
Net income per share – basic	$ 0.01	$ 0.00	$ 0.12	$ 0.00
Net income per share – diluted	$ 0.01	$ 0.00	$ 0.12	$ 0.00
Comprehensive income:
Net income	$ 369	$ 83	$ 3,343	$ 138
Other comprehensive income:
Foreign currency translation adjustment	(6)	(2)	(2)	(3)
Comprehensive income	363	81	3,341	135
Services Revenue [Member]
Revenues:
Total revenues	4,897	4,231	16,407	12,637
Operating costs and expenses:
Cost of services revenue and assets sales	710	522	2,001	2,291
Asset Sales [Member]
Revenues:
Total revenues	231	506	1,351	1,915
Operating costs and expenses:
Cost of services revenue and assets sales	$ 189	$ 282	$ 752	$ 1,541

XML

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 2018 - USD ($) $ in Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Loss [Member]
Beginning Balance at Dec. 31, 2017	$ 3,488	$ 6	$ 285	$ 284,396	$ (281,124)	$ (75)
Balance (in shares) at Dec. 31, 2017		569	28,480,148
Stock-based compensation expense	219			219
Issuance of restricted common stock			$ 6	(6)
Issuance of restricted common stock (shares)			600,000
Issuance of common stock from exercise of stock options	$ 74		$ 2	72
Issuance of common stock from exercise of stock options (shares)	173,130		173,130
Net income	$ 3,343				3,343
Foreign currency translation adjustment	(2)					(2)
Ending Balance at Sep. 30, 2018	$ 7,122	$ 6	$ 293	$ 284,681	$ (277,781)	$ (77)
Balance (in shares) at Sep. 30, 2018		569	29,253,278

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows provided by operating activities:
Net income	$ 3,343	$ 138
Adjustments to reconcile net income to net cash provided by operating activities:
Accrued interest added to principal of related party debt	8	27
Fair value adjustment of contingent consideration	(157)	536
Stock-based compensation expense	219	186
Depreciation and amortization	239	233
Changes in operating assets and liabilities:
Accounts receivable	(336)	593
Inventory	56	121
Other assets	(337)	(24)
Accounts payable and accrued liabilities	1,337	29
Net cash provided by operating activities	4,372	1,839
Cash flows used in investing activities:
Purchase of property and equipment	(85)	(16)
Net cash used in investing activities	(85)	(16)
Cash flows used in financing activities:
Repayment of debt payable to third party	(235)	0
Payment of contingent consideration	(2,617)	(897)
Repayment of debt payable to related party	(390)	(498)
Proceeds from exercise of options to purchase common shares	74	1
Net cash used in financing activities	(3,168)	(1,394)
Net increase in cash and cash equivalents	1,119	429
Cash and cash equivalents at beginning of period	2,109	2,530
Cash and cash equivalents at end of period	3,228	2,959
Supplemental cash flow information:
Cash paid for taxes	86	19
Cash paid for interest	$ 92	$ 3

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2018

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. (“HGI”) 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. (“NLEX”). 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, 2017, filed with the SEC on March 13, 2018.

The results of operations for the nine month period ended September 30, 2018 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2018. The accompanying condensed consolidated balance sheet at December 31, 2017 has been derived from the audited consolidated balance sheet at December 31, 2017, contained in the above referenced Form 10-K.  

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

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.

Revenue Recognition

On January 1, 2018, the Company adopted the new accounting standard FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) to all contracts using the modified retrospective method. Based on the Company’s analysis of contracts with customers in prior periods, there was no cumulative effect adjustment to the opening balance of the Company’s accumulated deficit as a result of the adoption of this new standard. We expect the impact of the adoption of the new standard to be immaterial to the consolidated financial statements on an ongoing basis.

Services revenue generally consists of commissions and fees from providing auction services, appraisals, brokering of sales transactions and providing merger and acquisition advisory services. Asset sales revenue generally consists of proceeds obtained through sales of purchased assets. Revenue is recognized for both services revenue and asset sales revenue based on the ASC 606 standard recognition model, which consists of the following: (1) an agreement exists between two or more parties that creates enforceable rights and obligations, (2) the performance obligations are clearly identified, (3) the transaction price has been determined, (4) the transaction price has been properly allocated to each performance obligation, and (5) the entity satisfies a performance obligation by transferring a promised good or service to a customer for each of the entities.

All services and asset sales revenue from contracts with customers is considered to be one reporting segment – the asset liquidation business. Although the Company provides various services within the asset liquidation business, it does not disaggregate revenue streams further than that in its statement of operations, services revenue and asset sales. Generally, revenue is recognized in the asset liquidation business at the point in time in which the performance obligation has been satisfied and full consideration is received. The exception to recognition at a point in time occurs when certain contracts provide for advance payments recognized over a period of time. Services revenue recognized over a period of time is not material in comparison to total revenues (4% of total revenues for the nine month period ended September 30, 2018), and therefore not reported on a disaggregated basis. Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and the Company’s “contract liability”. As of September 30, 2018, the deferred revenue balance was approximately $10,000. The Company records receivables related to asset liquidation in certain situations based on timing of payments for asset liquidation transactions held at the end of the reporting period; however, revenue is generally recognized in the period that the Company satisfies the performance obligation and cash is collected. The Company does not record a “contract asset” for partially satisfied performance obligations.

We evaluate revenue from asset liquidation transactions in accordance with the accounting guidance to determine whether to report such revenue on a gross or net basis.  We have determined that we act as an agent for our fee based asset liquidation transactions and therefore we report the revenue from transactions in which we act as an agent on a net basis.  

The Company also earns asset liquidation income through asset liquidation transactions that involve the Company acting jointly with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company (“LLC”) agreement (collectively, “Joint Ventures”). For these transactions, the Company does not record asset liquidation revenue or expense. Instead, the Company’s proportionate share of the net income (loss) is reported as earnings of equity method investments. In general, the Joint Ventures apply the same revenue recognition and other accounting policies as the Company.

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, 2017. There have been no changes to these policies in the nine months ended September 30, 2018, except for the adoption of ASC 606 as described above.

Recent Accounting Pronouncements

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 completed its assessment of the potential impact of this new guidance on its consolidated financial statements.

In 2014, the FASB issued new guidance related to revenue recognition (ASU 2014-09 Revenue from Contracts with Customers (Topic 606)). Subsequently the FASB has issued additional guidance (ASUs 2015-14; 2016-08; 2016-10; 2016-12; 2016-13; 2016-20). 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 above stated updates became effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements, except for more comprehensive disclosure requirements (see Note 2 – Revenue Recognition for further detail).

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 became effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.

In 2017, the FASB issued ASU 2017-01, Business Combinations (“ASU 2017-01”), which clarifies the definition of a business under ASC 805. 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 became effective January 1, 2018 and did not have a material impact on the Company’s 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.  

In 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (“ASU 2018-07”), which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is still evaluating the impact of ASU 2018-07 on the consolidated financial statements.  

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Stock-based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-based Compensation

Note 3 – Stock-based Compensation

Options

At September 30, 2018 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, 2017, contained in the Company’s most recently filed Annual Report on Form 10-K.

During the nine months ended September 30, 2018, the Company issued options to purchase 441,500 shares of common stock to the Company’s employees and options to purchase 85,000 shares of common stock to the Company’s non-employee directors as part of their annual compensation.  During the same period, the Company cancelled options to purchase 1,058,420 shares of common stock as a result of employee resignations and natural expiration.

On June 1, 2018, the Company issued options to purchase 300,000 shares of common stock to the employees of NLEX, in connection with the Addendum to the Employment Agreements of David Ludwig and Tom Ludwig. As of September 30, 2018, 173,130 shares of common stock were issued pursuant to the exercise of these common stock options. The remaining 126,870 shares expired as of July 31, 2018.

The following summarizes the changes in common stock options for the nine months ended September 30, 2018:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2017		5,040,450		$	0.97
Granted		526,500		$	0.43
Exercised		(173,130	)	$	0.43
Forfeited		(1,058,420	)	$	1.71
Outstanding at September 30, 2018		4,335,400		$	0.59
Options exercisable at September 30, 2018		1,800,975		$	1.17

The Company recognized stock-based compensation expense related to stock options of $0.1 million and $0.2 million, respectively, for the three and nine months ended September 30, 2018. As of September 30, 2018, there is approximately $0.8 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 3.0 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.

On June 1, 2018, the Company granted 600,000 shares of Company restricted common stock in connection with the Addendum to the Employment Agreements of David Ludwig and Tom Ludwig. The shares are subject to certain restrictions on transfer and a right of repurchase over five years, ending May 31, 2023, and require a continued term of service to the Company. Stock-based compensation expense related to the restricted stock awards, calculated by using the grant date fair value of $0.43 per share, was $12,900 and $17,200 for the three and nine months ended September 30, 2018, respectively. The unrecognized stock-based compensation expense as of September 30, 2018 was approximately $0.2 million.

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Earnings Per Share

9 Months Ended

Sep. 30, 2018

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 September 30,				Nine Months Ended September 30,
Weighted Average Shares Calculation:	2018		2017		2018		2017
Basic weighted average shares outstanding		28,653,278		28,480,148		28,557,517		28,464,635
Treasury stock effect of common stock options and restricted stock awards		170,640		1,148		344,982		10,362
Diluted weighted average common shares outstanding		28,823,918		28,481,296		28,902,499		28,474,997

For the nine months ended September 30, 2018 and 2017 there were potential common shares totaling approximately 1.0 million and 5.0 million, respectively, that were excluded from the computation of diluted EPS as the inclusion of such shares would have been anti-dilutive. For the three months ended September 30, 2018 and 2017 there were potential common shares totaling approximately 1.0 million and 5.0 million, respectively, that were excluded.

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Intangible Assets and Goodwill

9 Months Ended

Sep. 30, 2018

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 remaining estimated useful lives of one to eight 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
	December 31,					September 30,
Amortized Intangible Assets	2017		Amortization			2018
Customer Network (HGP)	$	136	$	(17	)	$	119
Trade Name (HGP)		850		(78	)		772
Customer Relationships (NLEX)		440		(82	)		358
Website (NLEX)		14		(9	)		5
Total		1,440		(186	)		1,254
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	3,877	$	(186	)	$	3,691

Amortization expense during the nine months ended September 30, 2018 and 2017 was $0.2 million.

The estimated amortization expense as of September 30, 2018 during the next five fiscal years and thereafter is shown below (in thousands):

Year	Amount
2018 (remainder of year from October 1, 2018 to December 31, 2018)	$	63
2019		236
2020		236
2021		236
2022		128
Thereafter		355
Total	$	1,254

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 additions to goodwill and no impairment losses to the carrying amount of goodwill during the three or nine months ended September 30, 2018 and 2017.

Acquisition	September 30, 2018		December 31, 2017
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

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Debt

Note 6 – Debt

Outstanding debt at September 30, 2018 and December 31, 2017 is summarized as follows (in thousands):

	September 30, 2018		December 31, 2017
Current:
Related party debt	$	-	$	382
Third party debt		372		356
Non-current:
Third party debt		535		786
Total debt	$	907	$	1,524

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%.  During the period ending September 30, 2018, the Company terminated the existing Street Capital Loan with repayment of all principal and interest outstanding. 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 was charged at a variable rate, and the Entity was 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. In connection with the Company entering into a new credit facility with a third party bank on September 27, 2018, the Company terminated the related party secured promissory note with the Entity.

On September 27, 2018, Heritage Global, Inc. entered into a secured promissory note and business loan agreement (the “Credit Facility”) with First Choice Bank, for a $1.5 million revolving line of credit. The Credit Facility matures on October 5, 2019 and replaced the Line of Credit. The Company is permitted to use the proceeds of the loan solely for its business operations. The Credit Facility accrues at a variable interest rate, which is equal to the rate of interest last quoted by The Wall Street Journal as the “prime rate,” not to be less than 5.25% per annum, with a minimum interest charge of $100.00 per month. The Company will pay interest on the Credit Facility in regular monthly payments, beginning on November 5, 2018. The Company may prepay the Credit Facility without penalty, subject to the minimum monthly interest charge. The Company is the borrower, with certain of the subsidiaries of the Company as guarantors under the Credit Facility. The Credit Facility is secured by a first priority security interest in all of the Company’s and its certain subsidiaries’ current and future tangible and intangible assets, inventory, chattel paper, accounts, equipment and general intangibles. The availability of draws under the Credit Facility is conditioned, among other things, on the compliance with certain customary representations and warranties, including the preparation of timely financial statements, payment of taxes and disclosure of all material legal or administrative proceedings. The agreement governing the Credit Facility also contains customary affirmative covenants regarding, among other things, the maintenance of records, compliance with governmental requirements, timely submission of all filings with the Securities and Exchange Commission and payment of taxes. The Credit Facility contains certain customary financial covenants and negative covenants that, among other things, include restrictions on the Company’s ability to create, incur or assume indebtedness for borrowed money, including capital leases or to sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of the Company’s assets. As of September 30, 2018, the Company had not drawn on the line of credit.

On January 30, 2018, HG LLC, a wholly owned subsidiary of HGI, settled a long-standing litigation matter that was commenced against the predecessor in interest of HG LLC. The settlement, which also involved several other co-defendant parties, included a complete release of HG LLC’s predecessor in interest and its successors and affiliates by the plaintiffs from all claims arising from or relating to the facts and circumstances underlying the litigation. The portion of the settlement attributable to HG LLC’s predecessor in interest was paid on behalf of HG LLC by 54 Finance, LLC (“54 Finance”) (an affiliate of a co-defendant in the litigation) in consideration of a Promissory Note dated January 30, 2018 (the “Note”) from HG LLC in the amount of $1,260,000. Pursuant to a Guaranty dated January 30, 2018, HGI has guaranteed the obligations of HG LLC under the Note, which are required to be paid in 36 equal installments of $35,000, with any remaining outstanding balance due and payable in full on January 30, 2021. As of December 31, 2017, the Company accrued the present value of the Note based on the payment terms noted above and at an interest rate of 6.5%. The Note was recorded as this was determined to be a recognized subsequent event pursuant to ASC 855, Subsequent Events. Upon the occurrence of any Event of Default (as defined below), in the sole discretion of 54 Finance, the outstanding principal balance of the Note will bear interest at a rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to 12%. An “Event of Default” means: (a) any failure of HG LLC to pay when due any amount thereunder, when and as due, (b) any failure on the part of HG LLC to pay upon 54 Finance’s demand any fees, costs, expenses or other charges hereunder or otherwise due to HG LLC under the Note or the Guaranty, (c) any breach, failure or default under the Guaranty, (d) HG LLC or HGI repudiates or revokes, or purports to repudiate or revoke, any obligation under the Note or the Guaranty, or the obligation of HGI under the Guaranty is limited or terminated by operation of law or by HGI, or (e) HG LLC or HGI are insolvent or admit in writing its inability to pay debts as they mature, or make a general assignment for the benefit of its creditors, or institute any bankruptcy, insolvency or similar proceeding under the laws of any jurisdiction, or take any action to authorize such proceeding. During the nine months ended September 30, 2018, the Company made the scheduled payments on the Note totaling $280,000. The outstanding balance on the Note as of September 30, 2018 was $907,000.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2018

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 September 30, 2018 and December 31, 2017, the Company had no Level 1 or Level 2 assets or liabilities measured at fair value.  As of December 31, 2017, the Company’s contingent consideration from the 2014 acquisition of NLEX was the only Level 3 liability measured at fair value on a recurring basis which had a fair value of $2,774,000.  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. As of September 30, 2018, the contingent consideration had been fully satisfied in accordance with terms stated within the NLEX stock purchase agreement.  

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 did not 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 nine months ended September 30, 2018 (in thousands):

Balance at December 31, 2017	$	2,774
Payment of contingent consideration		(2,618	)
Fair value adjustment of contingent consideration		(157	)
Balance at September 30, 2018	$	-

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Income Taxes

9 Months Ended

Sep. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Note 8 – Income Taxes

At September 30, 2018 the Company has aggregate tax net operating loss carry forwards of approximately $73.0 million ($57.8 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 2036. 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 September 30, 2018 and December 31, 2017.

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Related Party Transactions

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

Related Party Transactions

Note 9 – Related Party Transactions

Debt with Street Capital

During the period ending September 30, 2018, the Company terminated the existing Street Capital Loan with repayment of all principal and interest outstanding. The Company’s loan from Street Capital was previously 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.

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 was approximately $78,000 and $75,000 for the nine months ended September 30, 2018 and 2017, respectively, and is included in selling, general and administrative expenses in the consolidated financial statements.  All of the payments in both 2018 and 2017 were made to David Ludwig. On June 1, 2018, the Company amended its lease agreement with David Ludwig, whereby the term of the agreement extends to May 31, 2023 and the rent amounts were agreed upon for the new term. 

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, share equally in all payments made by the Company to satisfy obligations under the loan agreement. During the nine months ended September 30, 2018, the Company made payment of approximately $34,000 to the respective parties based on the profit share provision for principal and guarantee transactions that occurred in 2017. Additionally, the Company has accrued as interest expense approximately $150,000 profit share for principal and guarantee transactions that occurred in the nine months ended September 30, 2018. In connection with the Company entering into a new credit facility with a third party bank on September 27, 2018, the Company terminated the related party loan agreement.

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Subsequent Events

9 Months Ended

Sep. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

Note 10 – Subsequent Events

The Company has evaluated events subsequent to September 30, 2018 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)

9 Months Ended

Sep. 30, 2018

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.

Revenue Recognition

Revenue Recognition

On January 1, 2018, the Company adopted the new accounting standard FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) to all contracts using the modified retrospective method. Based on the Company’s analysis of contracts with customers in prior periods, there was no cumulative effect adjustment to the opening balance of the Company’s accumulated deficit as a result of the adoption of this new standard. We expect the impact of the adoption of the new standard to be immaterial to the consolidated financial statements on an ongoing basis.

Services revenue generally consists of commissions and fees from providing auction services, appraisals, brokering of sales transactions and providing merger and acquisition advisory services. Asset sales revenue generally consists of proceeds obtained through sales of purchased assets. Revenue is recognized for both services revenue and asset sales revenue based on the ASC 606 standard recognition model, which consists of the following: (1) an agreement exists between two or more parties that creates enforceable rights and obligations, (2) the performance obligations are clearly identified, (3) the transaction price has been determined, (4) the transaction price has been properly allocated to each performance obligation, and (5) the entity satisfies a performance obligation by transferring a promised good or service to a customer for each of the entities.

All services and asset sales revenue from contracts with customers is considered to be one reporting segment – the asset liquidation business. Although the Company provides various services within the asset liquidation business, it does not disaggregate revenue streams further than that in its statement of operations, services revenue and asset sales. Generally, revenue is recognized in the asset liquidation business at the point in time in which the performance obligation has been satisfied and full consideration is received. The exception to recognition at a point in time occurs when certain contracts provide for advance payments recognized over a period of time. Services revenue recognized over a period of time is not material in comparison to total revenues (4% of total revenues for the nine month period ended September 30, 2018), and therefore not reported on a disaggregated basis. Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and the Company’s “contract liability”. As of September 30, 2018, the deferred revenue balance was approximately $10,000. The Company records receivables related to asset liquidation in certain situations based on timing of payments for asset liquidation transactions held at the end of the reporting period; however, revenue is generally recognized in the period that the Company satisfies the performance obligation and cash is collected. The Company does not record a “contract asset” for partially satisfied performance obligations.

We evaluate revenue from asset liquidation transactions in accordance with the accounting guidance to determine whether to report such revenue on a gross or net basis.  We have determined that we act as an agent for our fee based asset liquidation transactions and therefore we report the revenue from transactions in which we act as an agent on a net basis.  

The Company also earns asset liquidation income through asset liquidation transactions that involve the Company acting jointly with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company (“LLC”) agreement (collectively, “Joint Ventures”). For these transactions, the Company does not record asset liquidation revenue or expense. Instead, the Company’s proportionate share of the net income (loss) is reported as earnings of equity method investments. In general, the Joint Ventures apply the same revenue recognition and other accounting policies as the Company.

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, 2017. There have been no changes to these policies in the nine months ended September 30, 2018, except for the adoption of ASC 606 as described above.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

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 completed its assessment of the potential impact of this new guidance on its consolidated financial statements.

In 2014, the FASB issued new guidance related to revenue recognition (ASU 2014-09 Revenue from Contracts with Customers (Topic 606)). Subsequently the FASB has issued additional guidance (ASUs 2015-14; 2016-08; 2016-10; 2016-12; 2016-13; 2016-20). 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 above stated updates became effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements, except for more comprehensive disclosure requirements (see Note 2 – Revenue Recognition for further detail).

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 became effective January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.

In 2017, the FASB issued ASU 2017-01, Business Combinations (“ASU 2017-01”), which clarifies the definition of a business under ASC 805. 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 became effective January 1, 2018 and did not have a material impact on the Company’s 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.  

In 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (“ASU 2018-07”), which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is still evaluating the impact of ASU 2018-07 on the consolidated financial statements.  

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Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2018

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 nine months ended September 30, 2018:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2017		5,040,450		$	0.97
Granted		526,500		$	0.43
Exercised		(173,130	)	$	0.43
Forfeited		(1,058,420	)	$	1.71
Outstanding at September 30, 2018		4,335,400		$	0.59
Options exercisable at September 30, 2018		1,800,975		$	1.17

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2018

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 September 30,				Nine Months Ended September 30,
Weighted Average Shares Calculation:	2018		2017		2018		2017
Basic weighted average shares outstanding		28,653,278		28,480,148		28,557,517		28,464,635
Treasury stock effect of common stock options and restricted stock awards		170,640		1,148		344,982		10,362
Diluted weighted average common shares outstanding		28,823,918		28,481,296		28,902,499		28,474,997

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Intangible Assets and Goodwill (Tables)

9 Months Ended

Sep. 30, 2018

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 remaining estimated useful lives of one to eight 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
	December 31,					September 30,
Amortized Intangible Assets	2017		Amortization			2018
Customer Network (HGP)	$	136	$	(17	)	$	119
Trade Name (HGP)		850		(78	)		772
Customer Relationships (NLEX)		440		(82	)		358
Website (NLEX)		14		(9	)		5
Total		1,440		(186	)		1,254
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	3,877	$	(186	)	$	3,691

Schedule of Estimated Amortization Expense, Intangible Assets

The estimated amortization expense as of September 30, 2018 during the next five fiscal years and thereafter is shown below (in thousands):

Year	Amount
2018 (remainder of year from October 1, 2018 to December 31, 2018)	$	63
2019		236
2020		236
2021		236
2022		128
Thereafter		355
Total	$	1,254

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 additions to goodwill and no impairment losses to the carrying amount of goodwill during the three or nine months ended September 30, 2018 and 2017.

Acquisition	September 30, 2018		December 31, 2017
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)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule of Debt

	September 30, 2018		December 31, 2017
Current:
Related party debt	$	-	$	382
Third party debt		372		356
Non-current:
Third party debt		535		786
Total debt	$	907	$	1,524

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

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 nine months ended September 30, 2018 (in thousands):

Balance at December 31, 2017	$	2,774
Payment of contingent consideration		(2,618	)
Fair value adjustment of contingent consideration		(157	)
Balance at September 30, 2018	$	-

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Summary of Significant Accounting Policies (Narrative) (Details)	9 Months Ended
	Sep. 30, 2018 USD ($) Segment	Jan. 01, 2018 USD ($)	Dec. 31, 2017 USD ($)
Summary Of Significant Accounting Policies [Line Items]
Cumulative effect adjustment to accumulated deficit	$ (277,781,000)		$ (281,124,000)
ASC 606 [Member]
Summary Of Significant Accounting Policies [Line Items]
Number of reporting segment | Segment	1
Percentage of service revenue that is recognized over a period of time against total revenue	4.00%
Deferred revenue	$ 10,000
ASC 606 [Member] | Difference Between Revenue Guidance in Effect Before and After Topic 606 [Member]
Summary Of Significant Accounting Policies [Line Items]
Cumulative effect adjustment to accumulated deficit		$ 0

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Stock-based Compensation (Narrative) (Details) - USD ($)			3 Months Ended	9 Months Ended
	Jul. 31, 2018	Jun. 01, 2018	Sep. 30, 2018	Sep. 30, 2018	Sep. 30, 2017
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options to purchase, Granted (in shares)				526,500
Options cancelled to purchase common stock				1,058,420
Options, Exercised				173,130
Stock-based compensation expense				$ 219,000	$ 186,000
David Ludwig And Tom Ludwig [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Restricted common stock granted		600,000
Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense			$ 100,000	200,000
Unrecognized stock-based compensation			800,000	$ 800,000
Unrecognized stock-based compensation, Period for recognition				3 years
Restricted Stock [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense			$ 12,900	$ 17,200
Weighted average grant date fair value			$ 0.43	$ 0.43
Unrecognized stock-based compensation expense			$ 200,000	$ 200,000
Restricted Stock [Member] | David Ludwig And Tom Ludwig [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares restriction term of service		5 years
Employees [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options to purchase, Granted (in shares)				441,500
Employees [Member] | NLEX [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options to purchase, Granted (in shares)		300,000
Options, Exercised				173,130
Options, Expired	126,870
Non-Employee Directors [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options to purchase, Granted (in shares)				85,000

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Schedule of Changes in Common Stock Options (Details)	9 Months Ended
	Sep. 30, 2018 $ / shares shares
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options, Outstanding at the beginning of the period | shares	5,040,450
Options, Granted | shares	526,500
Options, Exercised | shares	(173,130)
Options, Forfeited | shares	(1,058,420)
Options, Outstanding at the end of the period | shares	4,335,400
Options, Exercisable at the end of the period | shares	1,800,975
Weighted Average Exercise Price, Outstanding at the beginning of the period | $ / shares	$ 0.97
Weighted Average Exercise Price, Granted | $ / shares	0.43
Weighted Average Exercise Price, Exercised | $ / shares	0.43
Weighted Average Exercise Price, Forfeited | $ / shares	1.71
Weighted Average Exercise Price, Outstanding at the end of the period | $ / shares	0.59
Weighted Average Exercise Price, Exercisable at the end of the period | $ / shares	$ 1.17

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Earnings Per Share (Narrative) (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Jun. 30, 2018
Earnings Per Share [Abstract]
Convertible Preferred Stock, Shares Issuable upon Conversion			The Company's Class N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock.
Class N preferred shares, each convertible to common shares					40
Anti-dilutive common shares	1,000,000	5,000,000	1,000,000	5,000,000

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Earnings Per Share - Schedule of Calculation of the Shares Used in Computing Diluted EPS (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Earnings Per Share [Abstract]
Basic weighted average shares outstanding	28,653,278	28,480,148	28,557,517	28,464,635
Treasury stock effect of common stock options and restricted stock awards	170,640	1,148	344,982	10,362
Diluted weighted average common shares outstanding	28,823,918	28,481,296	28,902,499	28,474,997

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Intangible Assets and Goodwill (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Finite Lived Intangible Assets [Line Items]
Amortization expense, intangible assets			$ 186,000	$ 200,000
Goodwill, additions	$ 0	$ 0	0	0
Goodwill, Impairment Loss	$ 0	$ 0	$ 0	$ 0
Minimum [Member]
Finite Lived Intangible Assets [Line Items]
Finite-Lived intangible asset, useful life			1 year
Maximum [Member]
Finite Lived Intangible Assets [Line Items]
Finite-Lived intangible asset, useful life			8 years

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Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	$ 1,440
Amortization	(186)	$ (200)
Total net amortized intangible assets	1,254
Total net intangible assets	3,877
Total net intangible assets	3,691
NLEX [Member] | Trade Name [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Unamortized intangible assets	2,437		$ 2,437
Customer Network [Member] | HGP [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	136
Amortization	(17)
Total net amortized intangible assets	119
HGP Trade Name [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	850
Amortization	(78)
Total net amortized intangible assets	772
Customer Relationships [Member] | NLEX [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	440
Amortization	(82)
Total net amortized intangible assets	358
NLEX's Website [Member] | NLEX [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	14
Amortization	(9)
Total net amortized intangible assets	$ 5

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Schedule of Estimated Amortization Expense, Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Goodwill And Intangible Assets Disclosure [Abstract]
2018 (remainder of year from October 1, 2018 to December 31, 2018)	$ 63
2019	236
2020	236
2021	236
2022	128
Thereafter	355
Total	$ 1,254	$ 1,440

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Schedule of Goodwill (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
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	Sep. 30, 2018	Dec. 31, 2017
Current:
Related party debt	$ 0	$ 382
Third party debt	372	356
Non-current:
Third party debt	535	786
Total debt	$ 907	$ 1,524

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Debt (Narrative) (Details)			9 Months Ended	12 Months Ended
	Sep. 27, 2018 USD ($)	Jan. 30, 2018 USD ($) Installment	Sep. 30, 2018 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2017
Affiliated Entity [Member] | Revolving Line of Credit [Member]
Debt Instrument [Line Items]
Line of credit aggregate borrowing capacity				$ 1,500,000
Heritage Global LLC [Member]
Debt Instrument [Line Items]
Litigation settlement, amount paid behalf of subsidiary		$ 1,260,000
Number of installments | Installment		36
Litigation settlement installments amount due		$ 35,000
Remaining outstanding debt balance payable date		Jan. 30, 2021
Interest rate on promissory note					6.50%
Percentage of default interest amount			12.00%
Description of event of default			An “Event of Default” means: (a) any failure of HG LLC to pay when due any amount thereunder, when and as due, (b) any failure on the part of HG LLC to pay upon 54 Finance’s demand any fees, costs, expenses or other charges hereunder or otherwise due to HG LLC under the Note or the Guaranty, (c) any breach, failure or default under the Guaranty, (d) HG LLC or HGI repudiates or revokes, or purports to repudiate or revoke, any obligation under the Note or the Guaranty, or the obligation of HGI under the Guaranty is limited or terminated by operation of law or by HGI, or (e) HG LLC or HGI are insolvent or admit in writing its inability to pay debts as they mature, or make a general assignment for the benefit of its creditors, or institute any bankruptcy, insolvency or similar proceeding under the laws of any jurisdiction, or take any action to authorize such proceeding.
Debt instrument, periodic payment			$ 280,000
Outstanding note balance			$ 907,000
Street Capital Loan [Member] | Wall Street Journal prime rate [Member]
Debt Instrument [Line Items]
Interest rate per annum				1.00%
First Choice Bank [Member] | Revolving Line of Credit [Member]
Debt Instrument [Line Items]
Line of credit	$ 1,500,000
Debt instrument, Maturity date			Oct. 05, 2019
Frequency of payment			monthly payments
First Choice Bank [Member] | Revolving Line of Credit [Member] | Minimum [Member]
Debt Instrument [Line Items]
Monthly interest payment	$ 100.00
First Choice Bank [Member] | Wall Street Journal prime rate [Member] | Revolving Line of Credit [Member] | Minimum [Member]
Debt Instrument [Line Items]
Interest rate per annum	5.25%

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Fair Value Measurements (Narrative) (Details) - Recurring [Member] - USD ($)	Sep. 30, 2018	Dec. 31, 2017
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
Fair Value, Inputs, Level 3 | NLEX [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of liabilities		$ 2,774,000

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Fair Value Measurements - Summary of Changes in the Fair Value of the Liability (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value adjustment of contingent consideration	$ (246)	$ 157	$ (536)
NLEX [Member] | Contingent Consideration [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Beginning balance		2,774
Payment of contingent consideration		(2,618)
Fair value adjustment of contingent consideration		$ (157)

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Income Taxes (Narrative) (Details) $ in Millions	9 Months Ended
	Sep. 30, 2018 USD ($)
Income Taxes [Line Items]
Operating loss carryforwards	$ 73.0
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 2036.
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	$ 57.8
Restricted [Member]
Income Taxes [Line Items]
Operating loss carryforwards	$ 15.2

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Related Party Transactions (Narrative) (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Related Party Transaction [Line Items]
Payment to related party	$ 390,000	$ 498,000
Ross Dove and Kirk Dove [Member]
Related Party Transaction [Line Items]
Payment to related party	34,000
Related party transaction accrued profit principal and guarantee transactions	$ 150,000,000
Lease Amounts [Member] | Senior Officer of NLEX [Member] | Edwardsville, IL [Member]
Related Party Transaction [Line Items]
Related party transaction agreement end date	May 31, 2023
Lease Amounts [Member] | Senior Officer of NLEX [Member] | Edwardsville, IL [Member] | Selling, General and Administrative Expenses [Member]
Related Party Transaction [Line Items]
Payment to related party	$ 78,000	$ 75,000