10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2020

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	HGBL	Otcqb

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 August 1, 2020, there were 29,421,456 shares of common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

Part I.	Financial Information	4
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019	4
	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019 (unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2020 and 2019 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
Part II.	Other Information	28
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29

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PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements.

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	June 30, 2020			December 31, 2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,233		$	2,728
Accounts receivable		1,902			1,859
Current portion of notes receivable, net		793			1,295
Inventory – equipment		609			104
Other current assets		1,787			784
Total current assets		7,324			6,770
Property and equipment, net		180			221
Non-current portion of notes receivable, net		651			1,366
Equity method investments		3,361			2,516
Right-of-use assets		1,225			1,483
Identifiable intangible assets, net		3,257			3,392
Goodwill		5,585			5,585
Deferred tax assets		1,601			372
Other assets		241			212
Total assets	$	23,425		$	21,917
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	7,739		$	8,113
Current portion of debt		240			403
Current portion of lease liabilities		543			577
Total current liabilities		8,522			9,093
Non-current portion of debt		—			35
Non-current portion of lease liabilities		735			942
Other long-term liabilities		55			—
Total liabilities		9,312			10,070
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and    outstanding 568 shares of Series N at June 30, 2020 and December 31, 2019		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued    and outstanding 29,421,456 shares at June 30, 2020 and 29,339,101 at    December 31, 2019		295			293
Additional paid-in capital		285,286			285,099
Accumulated deficit		(271,397	)		(273,474	)
Accumulated other comprehensive loss		(77	)		(77	)
Total stockholders’ equity		14,113			11,847
Total liabilities and stockholders’ equity	$	23,425		$	21,917

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

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HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues:
Services revenue	$	5,565		$	5,335		$	9,653		$	9,743
Asset sales		552			2,089			708			4,232
Total revenues		6,117			7,424			10,361			13,975
Operating costs and expenses:
Cost of services revenue		1,188			1,483			1,739			2,214
Cost of asset sales		330			1,866			368			3,026
Selling, general and administrative		3,666			3,698			7,138			7,623
Depreciation and amortization		90			76			180			152
Total operating costs and expenses		5,274			7,123			9,425			13,015
Earnings of equity method investments		181			1,269			182			1,269
Operating income		1,024			1,570			1,118			2,229
Interest and other expense, net		(8	)		(22	)		(35	)		(45	)
Income before income tax (benefit) expense		1,016			1,548			1,083			2,184
Income tax (benefit) expense		(1,023	)		54			(994	)		78
Net income	$	2,039		$	1,494		$	2,077		$	2,106
Weighted average common shares outstanding – basic		28,751,689			28,653,278			28,760,893			28,653,278
Weighted average common shares outstanding – diluted		30,961,261			28,842,509			30,630,713			29,017,377
Net income per share – basic	$	0.07		$	0.05		$	0.07		$	0.07
Net income per share – diluted	$	0.07		$	0.05		$	0.07		$	0.07

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

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HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS 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, 2019		568	$	6		29,339,101	$	293	$	285,099		$	(273,474	)	$	(77	)	$	11,847
Issuance of common stock from stock option awards		—		—		19,805		1		(3	)		—			—			(2	)
Stock-based compensation expense		—		—		—		—		75			—			—			75
Net income		—		—		—		—		—			38			—			38
Balance at March 31, 2020		568		6		29,358,906		294		285,171			(273,436	)		(77	)		11,958
Issuance of common stock from stock option awards		—		—		62,550		1		29			—			—			30
Stock-based compensation expense		—		—		—		—		86			—			—			86
Net income		—		—		—		—		—			2,039			—			2,039
Balance at June 30, 2020		568	$	6		29,421,456	$	295	$	285,286		$	(271,397	)	$	(77	)	$	14,113

									Additional					Accumulated other
	Preferred stock				Common stock				paid-in		Accumulated			comprehensive
	Shares		Amount		Shares		Amount		capital		deficit			loss			Total
Balance at December 31, 2018		569	$	6		29,253,278	$	293	$	284,751	$	(277,373	)	$	(77	)	$	7,600
Stock-based compensation expense		—		—		—		—		71		—			—			71
Net income		—		—		—		—		—		612			—			612
Balance at March 31, 2019		569		6		29,253,278		293		284,822		(276,761	)		(77	)		8,283
Stock-based compensation expense		—		—		—		—		76		—			—			76
Net income		—		—		—		—		—		1,494			—			1,494
Balance at June 30, 2019		569	$	6		29,253,278	$	293	$	284,898	$	(275,267	)	$	(77	)	$	9,853

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

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HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(unaudited)

	Six Months Ended June 30,
	2020			2019
Cash flows (used in) provided by operating activities:
Net income	$	2,077		$	2,106
Adjustments to reconcile net income to net cash (used in) provided by operating    activities:
Amortization of deferred issuance costs and fees		48			—
Earnings of equity method investments		(182	)		(1,269	)
Noncash lease expense		258			235
Depreciation and amortization		180			152
Deferred taxes		(1,229	)		—
Stock-based compensation expense		161			147
Changes in operating assets and liabilities:
Accounts receivable		(43	)		(2,369	)
Inventory		(505	)		1,865
Other assets		(1,032	)		(47	)
Lease liabilities		(241	)		(246	)
Accounts payable and accrued liabilities		(377	)		112
Other liabilities		58			—
Net cash (used in) provided by operating activities		(827	)		686
Cash flows provided by (used in) investing activities:
Purchase of property and equipment		(5	)		(40	)
Investment in equity method investments		(831	)		(365	)
Cash distributions from equity method investments		169			188
Investment in notes receivable		(4,490	)		—
Payments received on notes receivable		662			—
Cash received on transfer of notes receivable to partners		4,997			—
Net cash provided by (used in) investing activities		502			(217	)
Cash flows used in financing activities:
Proceeds from issuance of common stock from stock option awards		28			—
Proceeds from debt payable to third party		5,625			500
Repayment of debt payable to third party		(5,823	)		(1,486	)
Net cash used in financing activities		(170	)		(986	)
Net decrease in cash and cash equivalents		(495	)		(517	)
Cash and cash equivalents at beginning of period		2,728			4,268
Cash and cash equivalents at end of period	$	2,233		$	3,751
Supplemental cash flow information:
Cash paid for taxes	$	39		$	94
Cash paid for interest		35			32

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

7

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”), National Loan Exchange, Inc. (“NLEX”) and Heritage Global Capital LLC (“HGC”). 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 financial and capital asset solutions:  auction and appraisal services, traditional asset disposition sales, and specialty financing solutions.  

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, 2019, filed with the SEC on March 9, 2020 (the “Form 10-K”).

The results of operations for the six month period ended June 30, 2020 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2020. The accompanying condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated balance sheet at December 31, 2019, contained in the Company’s Form 10-K.  

COVID-19

The spread of the novel coronavirus (“COVID-19”) had a minor negative impact on the Company’s first and second quarter performance resulting from evolving travel and work restrictions as well as a delay in the sale of certain assets.  Going forward, the Company does not believe COVID-19 and the recent developments surrounding the global pandemic will have material negative impacts on the Company’s financial performance as its asset liquidation business is highly concentrated in distressed and surplus assets and the Company expects that there will be an increased supply of distressed and surplus assets as a result of COVID-19 and any downward trends in the overall economy.  The Company believes that the continuing disruptions to the global supply chain, particularly those involving manufacturing and other capital assets, will further increase demand for U.S.-based surplus assets. However, the Company cautions that for certain of its business units that rely on travel and field work, the continuation of travel and work restrictions may result in decreased revenues depending on the scope and duration of such restrictions.  

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, right-of-use assets, goodwill and intangible assets, liabilities, 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.

8

Reclassifications

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

Revenue Recognition

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 are 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 income, 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 (0% of total revenues for the six month period ended June 30, 2020) 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 June 30, 2020, the deferred revenue balance was $5,500. 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.

The Company evaluates revenue from asset liquidation transactions in accordance with the accounting guidance to determine whether to report such revenue on a gross or net basis.  The Company has determined that it acts as an agent for the Company’s fee based asset liquidation transactions, and, therefore, the Company reports the revenue from transactions in which it acts 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, in which the Company’s ownership share meets the criteria for the equity method investments under ASC 323, 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.

In 2019, the Company began providing specialty financing solutions to investors in charged-off and nonperforming asset portfolios. Fees collected in relation to the issuance of loans, which are included within services revenue, includes loan origination fees, interest income, portfolio monitoring fees, and a backend profit share percentage related to the underlying asset portfolio.

The loan origination fees are offset with any direct origination costs and are deferred upon issuance of the loan and amortized over the lives of the related loans, as an adjustment to interest income. The interest method is used to arrive at a periodic interest cost (including amortization) that will represent a level effective rate on the sum of the face amount of the debt and (plus or minus) the unamortized premium or discount and expense at the beginning of each period.

The monitoring fees and the backend profit share are considered a separate earnings process as compared to the origination fees and interest income. Monitoring fees are recorded at the agreed upon rate, and at the moment in which payments are made by the borrower. The backend profit share is recognized in accordance with the agreed upon rate at the time in which the amount is realizable and earned. The recognition policy was established due to the uncertainty of timing of the amount of backend profit share which will be realized, and the lack of historical precedence as this is a new business for the Company.

During the six months ended June 30, 2020 and 2019, the Company had generated revenues specific to one customer representing 15% and 12% of total revenues for the respective periods. During the three months ended June 30, 2020 and 2019, the Company generated revenues specific to the same customer representing 12% and 11% of total revenues for the respective periods.

9

Leases

The Company is obligated to make future payments under existing lease agreements which (1) specifically identify the asset, and (2) convey the right to control the use of the identified asset in exchange for consideration for a period of time. The Company determines whether a contract is a lease at the inception of the arrangement. We evaluate leasing arrangements in accordance with the accounting guidance to determine whether the contract is operating or financing in nature. Leases with an initial term of 12 months or less, or under predefined thresholds, are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The critical accounting policies used in the preparation of the Company’s audited consolidated financial statements are discussed in the Company’s Form 10-K. There have been no changes to these policies in the six months ended June 30, 2020.

Recent Accounting Pronouncements

In 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We are currently evaluating the impact of the new guidance on our 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 applies to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. ASU 2017-04 became effective January 1, 2020 and did not have a material impact on our consolidated financial statements.

In 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which applies a current expected credit loss model which is a new impairment model based on expected losses rather than incurred losses. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from, or added to, the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected. ASU 2016-13 eliminates the current accounting model for loans and debt securities acquired with deteriorated credit quality under ASC 310-30, which provides authoritative guidance for the accounting of the Company’s notes receivable. With respect to smaller reporting companies, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

10

Note 3 – Notes Receivable, net

The Company’s notes receivable balance consists of loans to buyers of charged-off receivable portfolios which resulted in a total outstanding principal balance at June 30, 2020 of approximately $1.4 million, net of unamortized deferred fees and costs on originated loans. At December 31, 2019 the Company’s notes receivable balance was $2.7 million. The activity during the six months ended June 30, 2020 includes the issuance of additional notes of approximately $4.5 million, principal payments made by borrowers of approximately $0.7 million, adjustments to our deferred fees and costs balance of approximately $0.1 million, and the transfer of notes to partners as detailed below.

In March 2020, the Company closed a $6.0 million receivables purchasing agreement with a partner, an alternative asset manager focused on asset-based lending transactions, for the purpose of funding a portion of loans to debt purchasing clients. In March 2020, approximately $1.0 million of the notes receivable balance for certain loans was transferred to the partner.

Also in March 2020, HGC Funding I LLC was formed as a joint venture with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. In March 2020, approximately $3.0 million of the notes receivable balance for certain loans was transferred into the joint venture. In May 2020, an additional $1.0 million of the notes receivable balance for certain loans was transferred into the joint venture. Refer to Note 6 for further information.

As of June 30, 2020, the Company has not recorded an allowance for credit losses related to notes receivable outstanding.

Note 4 – Stock-based Compensation

Options

At June 30, 2020 the Company had four stock-based compensation plans, which are described more fully in Note 18 to the audited consolidated financial statements for the year ended December 31, 2019, contained in the Company’s Form 10-K.

During the six months ended June 30, 2020, the Company issued options to purchase 314,750 shares of common stock to certain of the Company’s employees, options to purchase 15,000 shares of common stock to an outside consultant, and options to purchase 60,000 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 127,025 shares of common stock as a result of employee resignations and natural expiration.

The following summarizes the changes in common stock options for the six months ended June 30, 2020:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2019		3,611,850		$	0.46
Granted		329,750		$	1.21
Exercised		(106,425	)	$	0.46
Forfeited		(127,025	)	$	0.64
Outstanding at June 30, 2020		3,708,150		$	0.57
Options exercisable at June 30, 2020		2,143,161		$	0.46

The Company recognized stock-based compensation expense related to stock options of $0.2 million for the six months ended June 30, 2020. As of June 30, 2020, there is approximately $0.4 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

11

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 Addenda 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 $25,800 for the six months ended June 30, 2020. The unrecognized stock-based compensation expense as of June 30, 2020 was approximately $0.2 million.

Warrants

On March 19, 2019, the Company entered into a Warrant Agreement (the “Warrant Agreement”) with Napier Park Industrial Asset Acquisition LP, a Delaware limited partnership (“Napier Park”). Pursuant to the Warrant Agreement, Napier Park is entitled to receive warrants to acquire shares of Company common stock with a fair market value of $71,368 for each $500,000 increment in excess of $2.5 million of Cumulative Gross Profit (as defined in the Warrant Agreement) to which the Company may become entitled in connection with its equity joint venture with Napier Park, achieved prior to December 19, 2022. During 2019 and the six months ended June 30, 2020, Napier Park did not receive any warrants.

Note 5 – Lessor Arrangement

On June 27, 2019, the Company, with certain partners, entered into agreements to lease, with a purchase option, a fully functional manufacturing building, including all machinery and equipment held within. The assets under lease relate to the Company’s purchase, with certain partners, of a pharmaceutical campus in Huntsville, Alabama, which was finalized in 2018, as disclosed in the Company’s Form 10-K. The lessee is obligated to make monthly lease payments over a ten year period, totaling approximately $13.2 million for the real estate portion, and monthly lease payments over a six year period totaling approximately $9.7 million for the machinery and equipment. The purchase option for both the real estate and machinery and equipment can be exercised at any time on or after December 1, 2019 and before May 31, 2021 for a total purchase price of $20.0 million; of which $12.0 million and $8.0 million are allocated to the real estate and machinery and equipment, respectively. The lessor arrangement is classified as a sales-type lease, and, therefore, the present value of future lease payments has been recognized as revenue and a lease receivable as of the effective date.  

The real estate portion of the arrangement is held by CPFH LLC, the joint venture, and is accounted for under the equity method where the Company’s share in earnings from equity method investments is shown in one line item on the income statement. Refer to Note 6 for further information.

The machinery and equipment portion of the arrangement is jointly owned by all the partners of CPFH LLC, apart from the joint venture entity. Therefore, the Company has derecognized the leased asset of approximately $0.9 million and recognized as revenue approximately $1.2 million, which represents the present value of future lease payments and a lease receivable included in the accounts receivable line item on the balance sheet, consistent and reflective of its business model for asset sales. The Company expects to recognize approximately $0.5 million in interest income prior to the exercise of the purchase option, which is the difference between the present value (at a 5.50% discount rate) and the undiscounted lease payments.

In November 2019, the partnership entered into agreements to lease a second building of the pharmaceutical campus in Huntsville, Alabama. The lessee is obligated to make monthly lease payments over a ten year period commencing on March 1, 2020. The Company has determined the lease to be classified as an operating lease held by CPFH LLC, the joint venture, and is accounted for under the equity method where the Company’s share in earnings from equity method investments is shown in one line item on the income statement. Refer to Note 6 for further information.

Note 6 – Equity Method Investments

In November 2018, CPFH LLC was formed to purchase certain real estate assets among partners in a joint venture. The Company’s share of the Joint Venture is 25%. During 2019, the Company held a 50% share in the Oak Grove Asset Acquisitions LP, an entity formed for the execution of auction deals with Napier Park. In March 2020, the HGC Funding I LLC joint venture was formed with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. The table below details the Company’s joint venture revenues and net income during the six months ended June 30, 2020 and 2019 (in thousands):

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	Six Months Ended June 30,
	2020		2019
Revenues:
Oak Grove Asset Acquisitions LP	$	1,098	$	—
CPFH LLC		801		11,092
HGC Funding I LLC		140		—
Total Revenues	$	2,039	$	11,092
Net income:
Oak Grove Asset Acquisitions LP	$	219	$	—
CPFH LLC		42		5,057
HGC Funding I LLC		133		—
Total net income	$	394	$	5,057

The table below details the summarized components of assets and liabilities, as of June 30, 2020 and December 31, 2019, of the Company’s joint ventures at those dates (in thousands):

	June 30,		December 31,
	2020		2019
Assets:
Oak Grove Asset Acquisitions LP	$	1,865	$	1,602
CPFH LLC		21,436		20,016
HGC Funding I LLC		4,532		—
Total assets	$	27,833	$	21,618
Liabilities:
Oak Grove Asset Acquisitions LP	$	1,262	$	797
CPFH LLC		11,162		10,245
HGC Funding I LLC		38		—
Total liabilities	$	12,462	$	11,042

Note 7 – 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 shares of Series 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.

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	Three Months Ended June 30,				Six Months Ended June 30,
Weighted Average Shares Calculation:	2020		2019		2020		2019
Basic weighted average shares outstanding		28,751,689		28,653,278		28,760,893		28,653,278
Treasury stock effect of common stock options and restricted stock awards		2,209,572		189,231		1,869,820		364,099
Diluted weighted average common shares outstanding		30,961,261		28,842,509		30,630,713		29,017,377

For the six months ended June 30, 2020 and 2019 there were potential common shares totaling approximately 0.2 million and 0.7 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 June 30, 2020 and 2019 there were potential common shares totaling approximately 0.2 million and 0.6 million, respectively, that were excluded.

Note 8 – Leases

The Company leases office and warehouse space primarily in three locations: Del Mar, CA; Burlingame, CA; and Edwardsville, IL. As each contract does not meet any of the four criteria of ASC 842 for financing lease classification, the Company has determined that each lease arrangement should be classified as an operating lease. The right-of-use assets and lease liabilities for each location are as follows (in thousands):

	June 30,
Right-of-use assets:	2020
Del Mar, CA	$	678
Burlingame, CA		248
Edwardsville, IL		299
	$	1,225
	June 30,
Lease liabilities:	2020
Del Mar, CA	$	706
Burlingame, CA		272
Edwardsville, IL		300
	$	1,278

The Company’s leases generally do not provide an implicit rate, and, therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company uses its incremental borrowing rate as of January 1, 2019 for operating leases that commenced prior to that date. As of January 1, 2019, the Company’s incremental borrowing rate was 5.25%.

Lease expense for these leases is recognized on a straight-line basis over the lease term. For both six month periods ended June 30, 2020 and 2019, lease expense was approximately $0.3 million. Undiscounted future minimum lease payments as of June 30, 2020 that have initial or remaining lease terms in excess of one year are as follows (in thousands):

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2020 (remainder of year from July 1, 2020 to December 31, 2020)	$	304
2021		385
2022		278
2023		218
2024		176
Thereafter		30
Total undiscounted future minimum lease payments		1,391
Less imputed interest		113
Present value of lease liabilities	$	1,278

Note 9 – 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 three to five 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,					June 30,
Amortized Intangible Assets	2019		Amortization			2020
Customer Network (HGP)	$	92	$	(17	)	$	75
Trade Name (HGP)		642		(64	)		578
Customer Relationships (NLEX)		221		(54	)		167
Total		955		(135	)		820
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	3,392	$	(135	)	$	3,257

Amortization expense during each of the six months ended June 30, 2020 and 2019 was $0.1 million.

The estimated amortization expense as of June 30, 2020 during the remainder of the current fiscal year and the next four fiscal years is shown below (in thousands):

Year	Amount
2020 (remainder of year from July 1, 2020 to December 31, 2020)	$	134
2021		270
2022		159
2023		129
2024		128
Total	$	820

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Goodwill

The Company’s goodwill is related to its asset liquidation business and is comprised of goodwill from two 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 six months ended June 30, 2020.

Acquisition	June 30, 2020		December 31, 2019
HGP	$	2,040	$	2,040
NLEX		3,545		3,545
Total goodwill	$	5,585	$	5,585

Note 10 – Debt

Outstanding debt at June 30, 2020 and December 31, 2019 is summarized as follows (in thousands):

	June 30, 2020		December 31, 2019
Current:
Third party debt	$	240	$	403
Non-current:
Third party debt		—		35
Total debt	$	240	$	438

In September 2018, Heritage Global Inc. entered into a secured promissory note and business loan agreement (the “2018 Credit Facility”) with First Choice Bank, for a $1.5 million revolving line of credit. The 2018 Credit Facility had an initial maturity date of October 5, 2019 and replaced the Company’s prior related party secured promissory note, totaling $1.5 million. Under the 2018 Credit Facility, the Company was permitted to use the proceeds of the loan solely for its business operations. The 2018 Credit Facility accrued at a variable interest rate, which was 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 began paying interest on the 2018 Credit Facility in regular monthly payments in November 2018.

On March 29, 2019, Heritage Global Inc. entered into the Change in Terms Agreement and the First Amendment to Business Loan Agreement (collectively, the “Amendments”), which amended the Company’s 2018 Credit Facility. The Amendments, among other things, (i) increased the principal amount of the revolving line of credit to $3.0 million, (ii) extended the maturity date of the 2018 Credit Facility to April 5, 2020, and (iii) raised the floor interest rate under the 2018 Credit Facility from 5.25% to 5.50%.

On February 10, 2020, the Company entered into a secured promissory note, business loan agreement, commercial security agreement and agreement to provide insurance (the “Credit Facility”) with C3bank, National Association for a $5.0 million revolving line of credit. The Credit Facility matures on February 5, 2021 and replaced the 2018 Credit facility, as amended. 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 5.50% per annum. The Company will pay interest on the Credit Facility in regular monthly payments, beginning on March 5, 2020. The Company may prepay the Credit Facility without penalty. The Company is the borrower under the Credit Facility. The Credit Facility is secured by a first priority security interest in certain 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 additional draws under the Credit Facility is conditioned, among other things, on the compliance with certain customary representations and warranties, including default, insolvency or bankruptcy, material adverse change in financial condition and any guarantor’s attempt to revise its guarantee. The agreement governing the Credit Facility also contains customary affirmative covenants regarding, among other things, the maintenance of records, maintenance of certain insurance coverage, compliance with governmental requirements and maintenance of a debt to equity ratio. 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. During the six months ended June 30, 2020, the Company drew on the line of credit for a total of $5.6 million and made repayments of principal totaling $5.6 million resulting in a zero balance as of June 30, 2020.

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In January 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%. 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 the Company repudiates or revokes, or purports to repudiate or revoke, any obligation under the Note or the Guaranty, or the obligation of the Company under the Guaranty is limited or terminated by operation of law or by the Company, or (e) HG LLC or the Company shall be or become insolvent, however defined, or admit in writing its inability to pay debts as they mature, or make a general assignment for the benefit of its creditors, or shall institute any bankruptcy, insolvency or similar proceeding under the laws of any jurisdiction, or shall take any action to authorize such proceeding. During the six months ended June 30, 2020, the Company made the scheduled payments on the Note totaling $210,000. The outstanding balance on the Note as of June 30, 2020 was $240,000.

Note 11 – Income Taxes

At June 30, 2020 the Company has aggregate tax net operating loss carry forwards of approximately $82.1 million ($61.6 million of unrestricted net operating tax losses and approximately $20.5 million of restricted net operating tax losses). Substantially all of the net operating loss carry forwards expire between 2024 and 2037. 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, offset by an increase in state tax expense of approximately $0.1 million due to California’s three-year net operating loss carryforward suspension effective June 29, 2020.

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 partial valuation allowance against its net deferred tax assets as of June 30, 2020 and December 31, 2019. As of June 30, 2020, management determined that there is sufficient positive evidence to conclude that is it more likely than not that additional deferred taxes of $1.3 million are realizable. As a result the valuation allowance was reduced accordingly.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, including changes which may enable a greater potential for utilizing net operating loss carry forwards. While the Company continues to evaluate the impact of the CARES Act, it does not currently believe it will have a material impact on the Company's consolidated financial statements or related disclosures.

Note 12 – Related Party Transactions

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 $55,000 for both six month periods ended June 30, 2020 and 2019, respectively, and is included in selling, general and administrative expenses in the condensed consolidated income statements. All of the payments in both 2020 and 2019 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. 

Pursuant to an agreement reached between Mr. Dove and former board member Mr. Emmett DeMoss, and further approved by the remaining board members, one-half of Mr. Dove’s 2019 bonus was paid to Mr. Dove and the other half was paid directly to Mr. Emmett DeMoss from the Company in consideration of Mr. DeMoss’ ongoing strategic consulting services.

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Note 13 – Subsequent Events

The Company has evaluated events subsequent to June 30, 2020 for potential recognition or disclosure in its condensed consolidated financial statements. There have been no material subsequent events requiring recognition or disclosure in this Quarterly Report on Form 10-Q.

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

The following discussion and analysis should be read in conjunction with the information contained in the unaudited condensed consolidated interim financial statements of Heritage Global Inc. (together with its consolidated subsidiaries, “we”, “us”, “our” or the “Company”) and the related notes thereto for the three and six month periods ended June 30, 2020 and 2019, 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, 2019, filed with the Securities and Exchange Commission (“SEC”) on March 9, 2020 (the “Form 10-K”).

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, including those noted under Item 1A “Risk Factors” in our Form 10-K, 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.

In 2019, the Company formed Heritage Global Capital LLC (“HGC”), a wholly owned subsidiary of HGI, in order to provide specialty financing solutions to investors in charged-off and nonperforming asset portfolios.

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The organization chart below outlines our basic domestic corporate structure as of June 30, 2020.

(1) Registrant.

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

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

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

(5) Broker of charged-off receivables.

(6) Specialty financing solutions for charged-off and nonperforming asset portfolios.

COVID-19

The spread of the novel coronavirus (“COVID-19”) had a minor negative impact on our first and second quarter performance resulting from new and expanding travel and work restrictions as well as a delay in the sale of certain assets.  Going forward, we do not believe COVID-19 and the recent developments surrounding the global pandemic will have any ongoing material negative impacts on our financial performance as our asset liquidation business is highly concentrated in distressed and surplus assets and we expect that there will be an increased supply of distressed and surplus assets as a result of COVID-19 and any downward trends in the overall economy. We believe that the continuing disruptions to the global supply chain, particularly those involving manufacturing and other capital assets, will further increase demand for U.S.-based surplus assets. However, we caution that for certain of our business units that rely on travel and field work, the continuation of travel and work restrictions may result in decreased revenues depending on the scope and duration of such restrictions.  

Asset liquidation

We are a value-driven, innovative leader in financial and capital 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.

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.

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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 withour strategy to expand and diversify the services provided by our asset liquidation business.

In 2019, the Company formed Heritage Global Capital LLC (“HGC”), a wholly owned subsidiary of HGI, in order to provide specialty financing solutions to investors in charged-off and nonperforming asset portfolios.

As a result of the events and acquisitions outlined above, management believes that our expanded 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, the accounts receivable brokerage services provided by NLEX,and the specialty financing solutions provided by HGC. 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 is positioned to grow in all economic cycles. As the economy encounters situations of recession, flattening yield curves and rising credit costs, the asset liquidation business may experience wider margins on principal asset sales, a favorable lending cycle for charged-off and nonperforming asset portfolios, higher volumes of nonperforming assets and building surplus inventories and bankruptcies. In times of economic growth, our asset liquidation business has demonstrated its ability to experience growth based on our competitive advantages in the industry, including our domain expertise related to deal sourcing and execution capabilities, our diversification of integrated service platforms and our experience across underserved markets. We will continue to leverage our competitive advantages to grow within each service line and across platforms through increasing synergies, maintaining high incremental margins, improving earnings predictability, strengthening the balance sheet and managing expenses.

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 financial and capital 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 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. As regulatory and compliance guidelines continue to evolve, we expect to continue to incur costs, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.

Critical Accounting Policies

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

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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, right-of-use 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 Form 10-K. There have been no changes to these policies in the six months ended June 30, 2020.

Management’s Discussion of Financial Condition

Liquidity and Capital Resources

Liquidity

At December 31, 2019 and June 30, 2020 we had a working capital deficit of $2.3 million and $1.2 million, respectively. Our current assets at June 30, 2020 increased to $7.3 million compared to $6.8 million at December 31, 2019. Our current liabilities at June 30, 2020 decreased to $8.5 million compared to $9.1 million at December 31, 2019.

During the six months ended June 30, 2020, our primary source of cash was the cash provided by our asset liquidation business including cash received on transfer of notes receivable to partners in connection with our new specialty finance unit of HGC. Cash disbursements during the six months ended June 30, 2020 consisted primarily of lending activity of $4.5 million under HGC, payment of operating expenses, settlement of auction liabilities and investments in equity method investments.

We believe we can fund our operations, our working capital deficit, and our debt service obligations during 2020 and beyond through a combination of cash flows from our on-going asset liquidation operations and accessing financing from our existing line of credit.  

Our indebtedness consists of a promissory note dated January 30, 2018 (the “Note”) issued in the amount of $1.3 million, as well as any amounts borrowed under our Credit Facility. We are required to pay off the Note in 36 equal installments of $35,000, and any remaining outstanding balance thereunder shall be due and payable in full on January 30, 2021. On February 10, 2020, we entered into a secured promissory note, business loan agreement, commercial security agreement and agreement to provide insurance (the “Credit Facility”) with C3bank, National Association for a $5.0 million revolving line of credit. The Credit Facility matures on February 5, 2021 and replaces a secured promissory note, as amended, totaling $3.0 million. We are permitted to use the proceeds of the loan solely for our business operations. As of June 30, 2020, we had an outstanding balance of zero on the Credit Facility.

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Ownership Structure and Capital Resources

• At June 30, 2020 the Company had stockholders’ equity of $14.1 million, as compared to $11.8 million at December 31, 2019.

• In February 2020 we amended our revolving line of credit with our bank to provide for aggregate loans of up to $5.0 million.  Refer to Note 10 to 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, investments in notes receivables, purchases of surplus and distressed assets and payment on lease obligations. 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 June 30, 2020 were $2.2 million as compared to $2.7 million at December 31, 2019, a decrease of approximately $0.5 million.

Cash (used in) provided by operating activities.  Cash used in operating activities was $0.8 million during the six months ended June 30, 2020 as compared to $0.7 million cash provided by operating activities in the same period in 2019. The approximate $1.5 million decrease was primarily attributable to a net unfavorable change of $1.5 million in the operating assets and liabilities in the six months June 30, 2020 compared to the same period in 2019. The most significant unfavorable changes in operating assets related to a refundable deposit payment of $0.5 million for a potential inventory purchase, which was refunded in July 2020, and advance guarantee payments totaling $0.5 million for auctions to be conducted in the third quarter of 2020.

The significant changes in operating assets and liabilities during the six months ended June 30, 2020 as compared to 2019 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 provided by (used in) investing activities.  Cash provided by investing activities during the six months ended June 30, 2020 was $0.5 million compared to cash used of $0.2 million in the same period in 2019. The approximate $0.7 million change was primarily attributable to net cash received from the transfer of and payments on notes receivable in excess of investments in notes receivable offset by increased investment in joint ventures.

Cash used in financing activities.  Cash used in financing activities was $0.2 million during the six months ended June 30, 2020 and $0.1 million during the same period in 2019. The activity during the six months ended June 30, 2020 consisted of draws on the Credit Facility of $5.6 million and repayments to unrelated third parties of $5.8 million (including $5.6 million on the Credit Facility). The activity during the same period in 2019 consisted of draws on the Credit Facility of $0.5 million and repayments to unrelated third parties of $1.5 million (including $1.3 million on the Credit Facility).

23

Contractual Obligations

Our significant contractual obligations are our third party loans, client and partner asset liquidation settlement payments and lease obligations. The loan and lease obligations are fully described in the notes to the financial statements included in our Form 10-K.

Management’s Discussion of Results of Operations

The following table sets out the Company’s condensed consolidated results of operations for the three and six months ended June 30, 2020 and 2019 (dollars in thousands).

	Three Months Ended June 30,						Change						Six Months Ended June 30,						Change
	2020			2019			Dollars			Percent			2020			2019			Dollars			Percent
Revenues:
Services revenue	$	5,565		$	5,335		$	230			4	%	$	9,653		$	9,743		$	(90	)		(1	)%
Asset sales		552			2,089			(1,537	)		(74	)%		708			4,232			(3,524	)		(83	)%
Total revenues		6,117			7,424			(1,307	)		(18	)%		10,361			13,975			(3,614	)		(26	)%
Operating costs and expenses:
Cost of services revenue		1,188			1,483			(295	)		(20	)%		1,739			2,214			(475	)		(21	)%
Cost of asset sales		330			1,866			(1,536	)		(82	)%		368			3,026			(2,658	)		(88	)%
Selling, general and administrative		3,666			3,698			(32	)		(1	)%		7,138			7,623			(485	)		(6	)%
Depreciation and amortization		90			76			14			18	%		180			152			28			18	%
Total operating costs and expenses		5,274			7,123			(1,849	)		(26	)%		9,425			13,015			(3,590	)		(28	)%
Earnings of equity method investments		181			1,269			(1,088	)		(86	)%		182			1,269			(1,087	)		(86	)%
Operating income		1,024			1,570			(546	)		(35	)%		1,118			2,229			(1,111	)		(50	)%
Interest and other expense, net		(8	)		(22	)		14			64	%		(35	)		(45	)		10			22	%
Income before income tax (benefit) expense		1,016			1,548			(532	)		(34	)%		1,083			2,184			(1,101	)		(50	)%
Income tax (benefit) expense		(1,023	)		54			(1,077	)		(1994	)%		(994	)		78			(1,072	)		(1374	)%
Net income	$	2,039		$	1,494		$	545			36	%	$	2,077		$	2,106		$	(29	)		(1	)%

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, management advisory services and specialty finance services.

Three-Month Period Ended June 30, 2020 Compared to Three-Month Period Ended June 30, 2019

Revenues and cost of revenues – Revenues were $6.1 million during the three months ended June 30, 2020 compared to $7.4 million during the same period in 2019. Costs of services revenue and asset sales were $1.5 million during the three months ended June 30, 2020 compared to $3.3 million during the same period in 2019. The gross profit of these items was therefore $4.6 million during the three months ended June 30, 2020 compared to $4.1 million during the same period in 2019, an increase of approximately $0.5 million, or approximately 12%. 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 $3.7 million during the three months ended June 30, 2020 and during the same period in 2019.    

24

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

	Three Months Ended June 30,
	2020		2019		% change
Compensation
HGP	$	1,436	$	1,264		14	%
Equity Partners		—		368		(100	)%
NLEX		965		826		17	%
HGI		201		129		56	%
HGC		114		—		100	%
Stock-based compensation		86		76		13	%
Consulting		61		61		0	%
Board of Directors fees		57		67		(15	)%
Accounting, tax and legal professional fees		170		173		(2	)%
Insurance		123		91		35	%
Occupancy		220		210		5	%
Travel and entertainment		22		188		(88	)%
Advertising and promotion		95		122		(22	)%
Other		116		123		(6	)%
Total selling, general & administrative expense	$	3,666	$	3,698		(1	)%

There was a decrease in selling, general and administrative expense from the elimination of the Equity Partners compensation costs as the Equity Partners team separated from the Company at December 31, 2019 as more fully described in our Form 10-K. This decrease was offset by increased compensation expense within all other entities as a result of improved financial performance and additional headcount as compared to the prior year.

Depreciation and amortization expense – Depreciation and amortization expense was $0.1 million during the three months ended June 30, 2020 and the same period in 2019, and consisted primarily of amortization expense related to intangible assets.

Six-Month Period Ended June 30, 2020 Compared to Six-Month Period Ended June 30, 2019

Revenues and cost of revenues – Revenues were $10.4million during the six months ended June 30, 2020 compared to $14.0 million during the same period in 2019. Costs of services revenue and asset sales were $2.1 million during the six months ended June 30, 2020 compared to $5.2 million during the same period in 2019.  The gross profit of these items was therefore $8.3 million during the six months ended June 30, 2020 compared to $8.7 million during the same period in 2019, a decrease of approximately $0.4 million, or approximately 5%. The decreased 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 $7.1 million during the six months ended June 30, 2020 compared to $7.6 million during the same period in 2019.    

25

	Six Months Ended June 30,
	2020		2019		% change
Compensation
HGP	$	2,481	$	2,465		1	%
Equity Partners		—		840		(100	)%
NLEX		1,910		1,780		7	%
HGI		402		258		56	%
HGC		231		—		100	%
Stock-based compensation		161		147		10	%
Consulting		109		118		(8	)%
Board of Directors fees		121		131		(8	)%
Accounting, tax and legal professional fees		398		358		11	%
Insurance		223		174		28	%
Occupancy		440		421		5	%
Travel and entertainment		198		372		(47	)%
Advertising and promotion		247		278		(11	)%
Other		217		281		(23	)%
Total selling, general & administrative expense	$	7,138	$	7,623		(6	)%

The decrease in total selling, general and administrative expenses was largely attributable to the elimination of the Equity Partners compensation costs as the Equity Partners team separated from the Company at December 31, 2019 as more fully described in our Form 10-K.

Depreciation and amortization expense – Depreciation and amortization expense was $0.2 million during the six months ended June 30, 2020 and the same period in 2019, and consisted almost entirely of amortization expense related to intangible assets. 

Key Performance Indicators

We monitor a number of financial and non-financial measures on a regular basis in order to track our underlying operational performance and trends. Other than the operating income of our liquidation business (a GAAP financial measure as shown in our consolidated income statements) which we believe is the most important measure of our operational performance and trends, we believe that EBITDA and Adjusted EBITDA (non-GAAP financial measures) are key performance indicators (KPIs) for our business. These KPIs may not be defined or calculated in the same way as similar KPIs used by other companies.

26

We prepared our unaudited condensed consolidated financial statements in accordance with GAAP. We define EBITDA as net income plus depreciation and amortization, interest and other expense, and provision for income taxes. Adjusted EBITDA reflects EBITDA adjusted further to eliminate the effects of stock-based compensation. Management uses EBITDA and Adjusted EBITDA in assessing the Company’s results, evaluating the Company’s performance and in reaching operating and strategic decisions. Management believes that the presentation of EBITDA and Adjusted EBITDA, when considered together with our GAAP financial statements and the reconciliation to the most directly comparable GAAP financial measure, is useful in providing investors a more complete understanding of the factors and trends affecting the underlying performance of the Company on a historical and ongoing basis. Our use of EBITDA and 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 EBITDA and Adjusted EBITDA for the periods presented (in thousands).

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Net income	$	2,039		$	1,494	$	2,077		$	2,106
Add back:
Depreciation and amortization		90			76		180			152
Interest and other expense, net		8			22		35			45
Income tax (benefit) expense		(1,023	)		54		(994	)		78
EBITDA		1,114			1,646		1,298			2,381
Management add back:
Stock based compensation		86			76		161			147
Adjusted EBITDA	$	1,200		$	1,722	$	1,459		$	2,528

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4. Controls and Procedures.

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

Further, there were no changes in our internal control over financial reporting during the six months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

27

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

There have been no material changes to the legal proceedings discussed in our Form 10-K.

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.

28

Item 6.  Exhibits.

(a) Exhibits

Exhibit No.	Identification of Exhibit
3.1	Amended and Restated Articles of Incorporation (restated for filing purposes only) (filed as Exhibit 3.1 Annual Report on Form 10-K filed on March 9, 2020 (File No. 000-17973), and incorporated herein by reference).
3.2	Bylaws, as amended (filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q filed on November 19, 1998 (File No. 000-17973), and incorporated herein by reference).
4.1	Warrant Agreement by and between Heritage Global Inc. and Napier Park Industrial Asset Acquisition, LP, effective as of March 19, 2019 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 25, 2019 (File No. 000-17973), and incorporated herein by reference).
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

29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.

	Heritage Global Inc.
Date: August 10, 2020	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)

30

EX-31.1

Exhibit 31.1

OFFICER’S CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ross Dove, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  August 10, 2020

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

EX-31.2

Exhibit 31.2

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

I, Scott A. West, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  August 10, 2020

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 June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), does hereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge:

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

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

August 10, 2020

/s/ Ross Dove

Ross Dove

Chief Executive Officer

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

HERITAGE GLOBAL INC.

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

The undersigned Scott A. West, duly appointed and incumbent officer of Heritage Global Inc., a Florida corporation (the “Corporation”), in connection with the Corporation’s Quarterly Report on Form 10-Q for the period ended June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), does hereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge:

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

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

August 10, 2020

/s/ Scott A. West

Scott A. West

Chief Financial Officer

(Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Aug. 01, 2020
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
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 Interactive Data Current	Yes
Document Transition Report	false
Title of 12(b) Security	Common stock, $0.01 par value
Entity Incorporation, State or Country Code	FL
Document Quarterly Report	true
Entity Common Stock, Shares Outstanding		29,421,456
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity File Number	0-17973
Entity Tax Identification Number	59-2291344
Entity Address, Address Line One	12625 High Bluff Drive
Entity Address, Address Line Two	Suite 305
Entity Address, City or Town	San Diego
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92130
City Area Code	858
Local Phone Number	847-0656

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 2,233	$ 2,728
Accounts receivable	1,902	1,859
Current portion of notes receivable, net	793	1,295
Inventory – equipment	609	104
Other current assets	1,787	784
Total current assets	7,324	6,770
Property and equipment, net	180	221
Non-current portion of notes receivable, net	651	1,366
Equity method investments	3,361	2,516
Right-of-use assets	1,225	1,483
Identifiable intangible assets, net	3,257	3,392
Goodwill	5,585	5,585
Deferred tax assets	1,601	372
Other assets	241	212
Total assets	23,425	21,917
Current liabilities:
Accounts payable and accrued liabilities	7,739	8,113
Current portion of debt	240	403
Current portion of lease liabilities	543	577
Total current liabilities	8,522	9,093
Non-current portion of debt		35
Non-current portion of lease liabilities	735	942
Other long-term liabilities	55
Total liabilities	9,312	10,070
Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 568 shares of Series N at June 30, 2020 and December 31, 2019	6	6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 29,421,456 shares at June 30, 2020 and 29,339,101 at December 31, 2019	295	293
Additional paid-in capital	285,286	285,099
Accumulated deficit	(271,397)	(273,474)
Accumulated other comprehensive loss	(77)	(77)
Total stockholders’ equity	14,113	11,847
Total liabilities and stockholders’ equity	$ 23,425	$ 21,917

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
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	568	568
Preferred stock, shares outstanding	568	568
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	29,421,456	29,339,101
Common stock, shares outstanding	29,421,456	29,339,101

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenues:
Total revenues	$ 6,117	$ 7,424	$ 10,361	$ 13,975
Operating costs and expenses:
Selling, general and administrative	3,666	3,698	7,138	7,623
Depreciation and amortization	90	76	180	152
Total operating costs and expenses	5,274	7,123	9,425	13,015
Earnings of equity method investments	181	1,269	182	1,269
Operating income	1,024	1,570	1,118	2,229
Interest and other expense, net	(8)	(22)	(35)	(45)
Income before income tax (benefit) expense	1,016	1,548	1,083	2,184
Income tax (benefit) expense	(1,023)	54	(994)	78
Net income	$ 2,039	$ 1,494	$ 2,077	$ 2,106
Weighted average common shares outstanding – basic	28,751,689	28,653,278	28,760,893	28,653,278
Weighted average common shares outstanding – diluted	30,961,261	28,842,509	30,630,713	29,017,377
Net income per share – basic	$ 0.07	$ 0.05	$ 0.07	$ 0.07
Net income per share – diluted	$ 0.07	$ 0.05	$ 0.07	$ 0.07
Services Revenue [Member]
Revenues:
Total revenues	$ 5,565	$ 5,335	$ 9,653	$ 9,743
Operating costs and expenses:
Cost of services revenue and assets sales	1,188	1,483	1,739	2,214
Asset Sales [Member]
Revenues:
Total revenues	552	2,089	708	4,232
Operating costs and expenses:
Cost of services revenue and assets sales	$ 330	$ 1,866	$ 368	$ 3,026

XML

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - 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, 2018	$ 7,600	$ 6	$ 293	$ 284,751	$ (277,373)	$ (77)
Begining Balance (in shares) at Dec. 31, 2018		569	29,253,278
Stock-based compensation expense	71			71
Net income	612				612
Ending Balance at Mar. 31, 2019	8,283	$ 6	$ 293	284,822	(276,761)	(77)
Ending Balance (in shares) at Mar. 31, 2019		569	29,253,278
Beginning Balance at Dec. 31, 2018	7,600	$ 6	$ 293	284,751	(277,373)	(77)
Begining Balance (in shares) at Dec. 31, 2018		569	29,253,278
Net income	2,106
Ending Balance at Jun. 30, 2019	9,853	$ 6	$ 293	284,898	(275,267)	(77)
Ending Balance (in shares) at Jun. 30, 2019		569	29,253,278
Beginning Balance at Mar. 31, 2019	8,283	$ 6	$ 293	284,822	(276,761)	(77)
Begining Balance (in shares) at Mar. 31, 2019		569	29,253,278
Stock-based compensation expense	76			76
Net income	1,494				1,494
Ending Balance at Jun. 30, 2019	9,853	$ 6	$ 293	284,898	(275,267)	(77)
Ending Balance (in shares) at Jun. 30, 2019		569	29,253,278
Beginning Balance at Dec. 31, 2019	11,847	$ 6	$ 293	285,099	(273,474)	(77)
Begining Balance (in shares) at Dec. 31, 2019		568	29,339,101
Issuance of common stock from stock option awards	(2)		$ 1	(3)
Issuance of common stock from stock options awards, shares			19,805
Stock-based compensation expense	75			75
Net income	38				38
Ending Balance at Mar. 31, 2020	11,958	$ 6	$ 294	285,171	(273,436)	(77)
Ending Balance (in shares) at Mar. 31, 2020		568	29,358,906
Beginning Balance at Dec. 31, 2019	$ 11,847	$ 6	$ 293	285,099	(273,474)	(77)
Begining Balance (in shares) at Dec. 31, 2019		568	29,339,101
Issuance of common stock from stock options awards, shares	106,425
Net income	$ 2,077
Ending Balance at Jun. 30, 2020	14,113	$ 6	$ 295	285,286	(271,397)	(77)
Ending Balance (in shares) at Jun. 30, 2020		568	29,421,456
Beginning Balance at Mar. 31, 2020	11,958	$ 6	$ 294	285,171	(273,436)	(77)
Begining Balance (in shares) at Mar. 31, 2020		568	29,358,906
Issuance of common stock from stock option awards	30		$ 1	29
Issuance of common stock from stock options awards, shares			62,550
Stock-based compensation expense	86			86
Net income	2,039				2,039
Ending Balance at Jun. 30, 2020	$ 14,113	$ 6	$ 295	$ 285,286	$ (271,397)	$ (77)
Ending Balance (in shares) at Jun. 30, 2020		568	29,421,456

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows (used in) provided by operating activities:
Net income	$ 2,077	$ 2,106
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Amortization of deferred issuance costs and fees	48	0
Earnings of equity method investments	(182)	(1,269)
Noncash lease expense	258	235
Depreciation and amortization	180	152
Deferred taxes	(1,229)	0
Stock-based compensation expense	161	147
Changes in operating assets and liabilities:
Accounts receivable	(43)	(2,369)
Inventory	(505)	1,865
Other assets	(1,032)	(47)
Lease liabilities	(241)	(246)
Accounts payable and accrued liabilities	(377)	112
Other liabilities	58	0
Net cash (used in) provided by operating activities	(827)	686
Cash flows provided by (used in) investing activities:
Purchase of property and equipment	(5)	(40)
Investment in equity method investments	(831)	(365)
Cash distributions from equity method investments	169	188
Investment in notes receivable	(4,490)	0
Payments received on notes receivable	662	0
Cash received on transfer of notes receivable to partners	4,997	0
Net cash provided by (used in) investing activities	502	(217)
Cash flows used in financing activities:
Proceeds from issuance of common stock from stock option awards	28	0
Proceeds from debt payable to third party	5,625	500
Repayment of debt payable to third party	(5,823)	(1,486)
Net cash used in financing activities	(170)	(986)
Net decrease in cash and cash equivalents	(495)	(517)
Cash and cash equivalents at beginning of period	2,728	4,268
Cash and cash equivalents at end of period	2,233	3,751
Supplemental cash flow information:
Cash paid for taxes	39	94
Cash paid for interest	$ 35	$ 32

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Basis of Presentation

6 Months Ended

Jun. 30, 2020

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”), National Loan Exchange, Inc. (“NLEX”) and Heritage Global Capital LLC (“HGC”). 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 financial and capital asset solutions:  auction and appraisal services, traditional asset disposition sales, and specialty financing solutions.  

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, 2019, filed with the SEC on March 9, 2020 (the “Form 10-K”).

The results of operations for the six month period ended June 30, 2020 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2020. The accompanying condensed consolidated balance sheet at December 31, 2019 has been derived from the audited consolidated balance sheet at December 31, 2019, contained in the Company’s Form 10-K.  

COVID-19

The spread of the novel coronavirus (“COVID-19”) had a minor negative impact on the Company’s first and second quarter performance resulting from evolving travel and work restrictions as well as a delay in the sale of certain assets.  Going forward, the Company does not believe COVID-19 and the recent developments surrounding the global pandemic will have material negative impacts on the Company’s financial performance as its asset liquidation business is highly concentrated in distressed and surplus assets and the Company expects that there will be an increased supply of distressed and surplus assets as a result of COVID-19 and any downward trends in the overall economy.  The Company believes that the continuing disruptions to the global supply chain, particularly those involving manufacturing and other capital assets, will further increase demand for U.S.-based surplus assets. However, the Company cautions that for certain of its business units that rely on travel and field work, the continuation of travel and work restrictions may result in decreased revenues depending on the scope and duration of such restrictions.  

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

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, right-of-use assets, goodwill and intangible assets, liabilities, 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.

Reclassifications

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

Revenue Recognition

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 are 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 income, 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 (0% of total revenues for the six month period ended June 30, 2020) 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 June 30, 2020, the deferred revenue balance was $5,500. 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.

The Company evaluates revenue from asset liquidation transactions in accordance with the accounting guidance to determine whether to report such revenue on a gross or net basis.  The Company has determined that it acts as an agent for the Company’s fee based asset liquidation transactions, and, therefore, the Company reports the revenue from transactions in which it acts 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, in which the Company’s ownership share meets the criteria for the equity method investments under ASC 323, 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.

In 2019, the Company began providing specialty financing solutions to investors in charged-off and nonperforming asset portfolios. Fees collected in relation to the issuance of loans, which are included within services revenue, includes loan origination fees, interest income, portfolio monitoring fees, and a backend profit share percentage related to the underlying asset portfolio.

The loan origination fees are offset with any direct origination costs and are deferred upon issuance of the loan and amortized over the lives of the related loans, as an adjustment to interest income. The interest method is used to arrive at a periodic interest cost (including amortization) that will represent a level effective rate on the sum of the face amount of the debt and (plus or minus) the unamortized premium or discount and expense at the beginning of each period.

The monitoring fees and the backend profit share are considered a separate earnings process as compared to the origination fees and interest income. Monitoring fees are recorded at the agreed upon rate, and at the moment in which payments are made by the borrower. The backend profit share is recognized in accordance with the agreed upon rate at the time in which the amount is realizable and earned. The recognition policy was established due to the uncertainty of timing of the amount of backend profit share which will be realized, and the lack of historical precedence as this is a new business for the Company.

During the six months ended June 30, 2020 and 2019, the Company had generated revenues specific to one customer representing 15% and 12% of total revenues for the respective periods. During the three months ended June 30, 2020 and 2019, the Company generated revenues specific to the same customer representing 12% and 11% of total revenues for the respective periods.

Leases

The Company is obligated to make future payments under existing lease agreements which (1) specifically identify the asset, and (2) convey the right to control the use of the identified asset in exchange for consideration for a period of time. The Company determines whether a contract is a lease at the inception of the arrangement. We evaluate leasing arrangements in accordance with the accounting guidance to determine whether the contract is operating or financing in nature. Leases with an initial term of 12 months or less, or under predefined thresholds, are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The critical accounting policies used in the preparation of the Company’s audited consolidated financial statements are discussed in the Company’s Form 10-K. There have been no changes to these policies in the six months ended June 30, 2020.

Recent Accounting Pronouncements

In 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We are currently evaluating the impact of the new guidance on our 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 applies to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. ASU 2017-04 became effective January 1, 2020 and did not have a material impact on our consolidated financial statements.

In 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which applies a current expected credit loss model which is a new impairment model based on expected losses rather than incurred losses. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from, or added to, the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected. ASU 2016-13 eliminates the current accounting model for loans and debt securities acquired with deteriorated credit quality under ASC 310-30, which provides authoritative guidance for the accounting of the Company’s notes receivable. With respect to smaller reporting companies, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

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Notes Receivable, Net

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Notes Receivable, net

Note 3 – Notes Receivable, net

The Company’s notes receivable balance consists of loans to buyers of charged-off receivable portfolios which resulted in a total outstanding principal balance at June 30, 2020 of approximately $1.4 million, net of unamortized deferred fees and costs on originated loans. At December 31, 2019 the Company’s notes receivable balance was $2.7 million. The activity during the six months ended June 30, 2020 includes the issuance of additional notes of approximately $4.5 million, principal payments made by borrowers of approximately $0.7 million, adjustments to our deferred fees and costs balance of approximately $0.1 million, and the transfer of notes to partners as detailed below.

In March 2020, the Company closed a $6.0 million receivables purchasing agreement with a partner, an alternative asset manager focused on asset-based lending transactions, for the purpose of funding a portion of loans to debt purchasing clients. In March 2020, approximately $1.0 million of the notes receivable balance for certain loans was transferred to the partner.

Also in March 2020, HGC Funding I LLC was formed as a joint venture with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. In March 2020, approximately $3.0 million of the notes receivable balance for certain loans was transferred into the joint venture. In May 2020, an additional $1.0 million of the notes receivable balance for certain loans was transferred into the joint venture. Refer to Note 6 for further information.

As of June 30, 2020, the Company has not recorded an allowance for credit losses related to notes receivable outstanding.

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Stock-based Compensation

6 Months Ended

Jun. 30, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-based Compensation

Note 4 – Stock-based Compensation

Options

At June 30, 2020 the Company had four stock-based compensation plans, which are described more fully in Note 18 to the audited consolidated financial statements for the year ended December 31, 2019, contained in the Company’s Form 10-K.

During the six months ended June 30, 2020, the Company issued options to purchase 314,750 shares of common stock to certain of the Company’s employees, options to purchase 15,000 shares of common stock to an outside consultant, and options to purchase 60,000 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 127,025 shares of common stock as a result of employee resignations and natural expiration.

The following summarizes the changes in common stock options for the six months ended June 30, 2020:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2019		3,611,850		$	0.46
Granted		329,750		$	1.21
Exercised		(106,425	)	$	0.46
Forfeited		(127,025	)	$	0.64
Outstanding at June 30, 2020		3,708,150		$	0.57
Options exercisable at June 30, 2020		2,143,161		$	0.46

The Company recognized stock-based compensation expense related to stock options of $0.2 million for the six months ended June 30, 2020. As of June 30, 2020, there is approximately $0.4 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 Addenda 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 $25,800 for the six months ended June 30, 2020. The unrecognized stock-based compensation expense as of June 30, 2020 was approximately $0.2 million.

Warrants

On March 19, 2019, the Company entered into a Warrant Agreement (the “Warrant Agreement”) with Napier Park Industrial Asset Acquisition LP, a Delaware limited partnership (“Napier Park”). Pursuant to the Warrant Agreement, Napier Park is entitled to receive warrants to acquire shares of Company common stock with a fair market value of $71,368 for each $500,000 increment in excess of $2.5 million of Cumulative Gross Profit (as defined in the Warrant Agreement) to which the Company may become entitled in connection with its equity joint venture with Napier Park, achieved prior to December 19, 2022. During 2019 and the six months ended June 30, 2020, Napier Park did not receive any warrants.

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Lessor Arrangement

6 Months Ended

Jun. 30, 2020

Lessor Disclosure [Abstract]

Lessor Arrangement

Note 5 – Lessor Arrangement

On June 27, 2019, the Company, with certain partners, entered into agreements to lease, with a purchase option, a fully functional manufacturing building, including all machinery and equipment held within. The assets under lease relate to the Company’s purchase, with certain partners, of a pharmaceutical campus in Huntsville, Alabama, which was finalized in 2018, as disclosed in the Company’s Form 10-K. The lessee is obligated to make monthly lease payments over a ten year period, totaling approximately $13.2 million for the real estate portion, and monthly lease payments over a six year period totaling approximately $9.7 million for the machinery and equipment. The purchase option for both the real estate and machinery and equipment can be exercised at any time on or after December 1, 2019 and before May 31, 2021 for a total purchase price of $20.0 million; of which $12.0 million and $8.0 million are allocated to the real estate and machinery and equipment, respectively. The lessor arrangement is classified as a sales-type lease, and, therefore, the present value of future lease payments has been recognized as revenue and a lease receivable as of the effective date.  

The real estate portion of the arrangement is held by CPFH LLC, the joint venture, and is accounted for under the equity method where the Company’s share in earnings from equity method investments is shown in one line item on the income statement. Refer to Note 6 for further information.

The machinery and equipment portion of the arrangement is jointly owned by all the partners of CPFH LLC, apart from the joint venture entity. Therefore, the Company has derecognized the leased asset of approximately $0.9 million and recognized as revenue approximately $1.2 million, which represents the present value of future lease payments and a lease receivable included in the accounts receivable line item on the balance sheet, consistent and reflective of its business model for asset sales. The Company expects to recognize approximately $0.5 million in interest income prior to the exercise of the purchase option, which is the difference between the present value (at a 5.50% discount rate) and the undiscounted lease payments.

In November 2019, the partnership entered into agreements to lease a second building of the pharmaceutical campus in Huntsville, Alabama. The lessee is obligated to make monthly lease payments over a ten year period commencing on March 1, 2020. The Company has determined the lease to be classified as an operating lease held by CPFH LLC, the joint venture, and is accounted for under the equity method where the Company’s share in earnings from equity method investments is shown in one line item on the income statement. Refer to Note 6 for further information.

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Equity Method Investments

6 Months Ended

Jun. 30, 2020

Equity Method Investments And Joint Ventures [Abstract]

Equity Method Investments

Note 6 – Equity Method Investments

In November 2018, CPFH LLC was formed to purchase certain real estate assets among partners in a joint venture. The Company’s share of the Joint Venture is 25%. During 2019, the Company held a 50% share in the Oak Grove Asset Acquisitions LP, an entity formed for the execution of auction deals with Napier Park. In March 2020, the HGC Funding I LLC joint venture was formed with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. The table below details the Company’s joint venture revenues and net income during the six months ended June 30, 2020 and 2019 (in thousands):

	Six Months Ended June 30,
	2020		2019
Revenues:
Oak Grove Asset Acquisitions LP	$	1,098	$	—
CPFH LLC		801		11,092
HGC Funding I LLC		140		—
Total Revenues	$	2,039	$	11,092
Net income:
Oak Grove Asset Acquisitions LP	$	219	$	—
CPFH LLC		42		5,057
HGC Funding I LLC		133		—
Total net income	$	394	$	5,057

The table below details the summarized components of assets and liabilities, as of June 30, 2020 and December 31, 2019, of the Company’s joint ventures at those dates (in thousands):

	June 30,		December 31,
	2020		2019
Assets:
Oak Grove Asset Acquisitions LP	$	1,865	$	1,602
CPFH LLC		21,436		20,016
HGC Funding I LLC		4,532		—
Total assets	$	27,833	$	21,618
Liabilities:
Oak Grove Asset Acquisitions LP	$	1,262	$	797
CPFH LLC		11,162		10,245
HGC Funding I LLC		38		—
Total liabilities	$	12,462	$	11,042

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Earnings Per Share

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Earnings Per Share

Note 7 – 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 shares of Series N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock. Under the two-class method, earnings for the period are allocated on a pro-rata basis to the common and preferred stockholders. The weighted-average number of common and preferred shares outstanding during the period is then used to calculate basic EPS for each class of shares.

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
Weighted Average Shares Calculation:	2020		2019		2020		2019
Basic weighted average shares outstanding		28,751,689		28,653,278		28,760,893		28,653,278
Treasury stock effect of common stock options and restricted stock awards		2,209,572		189,231		1,869,820		364,099
Diluted weighted average common shares outstanding		30,961,261		28,842,509		30,630,713		29,017,377

For the six months ended June 30, 2020 and 2019 there were potential common shares totaling approximately 0.2 million and 0.7 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 June 30, 2020 and 2019 there were potential common shares totaling approximately 0.2 million and 0.6 million, respectively, that were excluded.

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Leases

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Leases

Note 8 – Leases

The Company leases office and warehouse space primarily in three locations: Del Mar, CA; Burlingame, CA; and Edwardsville, IL. As each contract does not meet any of the four criteria of ASC 842 for financing lease classification, the Company has determined that each lease arrangement should be classified as an operating lease. The right-of-use assets and lease liabilities for each location are as follows (in thousands):

	June 30,
Right-of-use assets:	2020
Del Mar, CA	$	678
Burlingame, CA		248
Edwardsville, IL		299
	$	1,225
	June 30,
Lease liabilities:	2020
Del Mar, CA	$	706
Burlingame, CA		272
Edwardsville, IL		300
	$	1,278

The Company’s leases generally do not provide an implicit rate, and, therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company uses its incremental borrowing rate as of January 1, 2019 for operating leases that commenced prior to that date. As of January 1, 2019, the Company’s incremental borrowing rate was 5.25%.

Lease expense for these leases is recognized on a straight-line basis over the lease term. For both six month periods ended June 30, 2020 and 2019, lease expense was approximately $0.3 million. Undiscounted future minimum lease payments as of June 30, 2020 that have initial or remaining lease terms in excess of one year are as follows (in thousands):

2020 (remainder of year from July 1, 2020 to December 31, 2020)	$	304
2021		385
2022		278
2023		218
2024		176
Thereafter		30
Total undiscounted future minimum lease payments		1,391
Less imputed interest		113
Present value of lease liabilities	$	1,278

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Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2020

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Note 9 – 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 three to five 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,					June 30,
Amortized Intangible Assets	2019		Amortization			2020
Customer Network (HGP)	$	92	$	(17	)	$	75
Trade Name (HGP)		642		(64	)		578
Customer Relationships (NLEX)		221		(54	)		167
Total		955		(135	)		820
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	3,392	$	(135	)	$	3,257

Amortization expense during each of the six months ended June 30, 2020 and 2019 was $0.1 million.

The estimated amortization expense as of June 30, 2020 during the remainder of the current fiscal year and the next four fiscal years is shown below (in thousands):

Year	Amount
2020 (remainder of year from July 1, 2020 to December 31, 2020)	$	134
2021		270
2022		159
2023		129
2024		128
Total	$	820

Goodwill

The Company’s goodwill is related to its asset liquidation business and is comprised of goodwill from two 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 six months ended June 30, 2020.

Acquisition	June 30, 2020		December 31, 2019
HGP	$	2,040	$	2,040
NLEX		3,545		3,545
Total goodwill	$	5,585	$	5,585

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Debt

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Debt

Note 10 – Debt

Outstanding debt at June 30, 2020 and December 31, 2019 is summarized as follows (in thousands):

	June 30, 2020		December 31, 2019
Current:
Third party debt	$	240	$	403
Non-current:
Third party debt		—		35
Total debt	$	240	$	438

In September 2018, Heritage Global Inc. entered into a secured promissory note and business loan agreement (the “2018 Credit Facility”) with First Choice Bank, for a $1.5 million revolving line of credit. The 2018 Credit Facility had an initial maturity date of October 5, 2019 and replaced the Company’s prior related party secured promissory note, totaling $1.5 million. Under the 2018 Credit Facility, the Company was permitted to use the proceeds of the loan solely for its business operations. The 2018 Credit Facility accrued at a variable interest rate, which was 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 began paying interest on the 2018 Credit Facility in regular monthly payments in November 2018.

On March 29, 2019, Heritage Global Inc. entered into the Change in Terms Agreement and the First Amendment to Business Loan Agreement (collectively, the “Amendments”), which amended the Company’s 2018 Credit Facility. The Amendments, among other things, (i) increased the principal amount of the revolving line of credit to $3.0 million, (ii) extended the maturity date of the 2018 Credit Facility to April 5, 2020, and (iii) raised the floor interest rate under the 2018 Credit Facility from 5.25% to 5.50%.

On February 10, 2020, the Company entered into a secured promissory note, business loan agreement, commercial security agreement and agreement to provide insurance (the “Credit Facility”) with C3bank, National Association for a $5.0 million revolving line of credit. The Credit Facility matures on February 5, 2021 and replaced the 2018 Credit facility, as amended. 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 5.50% per annum. The Company will pay interest on the Credit Facility in regular monthly payments, beginning on March 5, 2020. The Company may prepay the Credit Facility without penalty. The Company is the borrower under the Credit Facility. The Credit Facility is secured by a first priority security interest in certain 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 additional draws under the Credit Facility is conditioned, among other things, on the compliance with certain customary representations and warranties, including default, insolvency or bankruptcy, material adverse change in financial condition and any guarantor’s attempt to revise its guarantee. The agreement governing the Credit Facility also contains customary affirmative covenants regarding, among other things, the maintenance of records, maintenance of certain insurance coverage, compliance with governmental requirements and maintenance of a debt to equity ratio. 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. During the six months ended June 30, 2020, the Company drew on the line of credit for a total of $5.6 million and made repayments of principal totaling $5.6 million resulting in a zero balance as of June 30, 2020.

In January 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%. 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 the Company repudiates or revokes, or purports to repudiate or revoke, any obligation under the Note or the Guaranty, or the obligation of the Company under the Guaranty is limited or terminated by operation of law or by the Company, or (e) HG LLC or the Company shall be or become insolvent, however defined, or admit in writing its inability to pay debts as they mature, or make a general assignment for the benefit of its creditors, or shall institute any bankruptcy, insolvency or similar proceeding under the laws of any jurisdiction, or shall take any action to authorize such proceeding. During the six months ended June 30, 2020, the Company made the scheduled payments on the Note totaling $210,000. The outstanding balance on the Note as of June 30, 2020 was $240,000.

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Income Taxes

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Note 11 – Income Taxes

At June 30, 2020 the Company has aggregate tax net operating loss carry forwards of approximately $82.1 million ($61.6 million of unrestricted net operating tax losses and approximately $20.5 million of restricted net operating tax losses). Substantially all of the net operating loss carry forwards expire between 2024 and 2037. 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, offset by an increase in state tax expense of approximately $0.1 million due to California’s three-year net operating loss carryforward suspension effective June 29, 2020.

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 partial valuation allowance against its net deferred tax assets as of June 30, 2020 and December 31, 2019. As of June 30, 2020, management determined that there is sufficient positive evidence to conclude that is it more likely than not that additional deferred taxes of $1.3 million are realizable. As a result the valuation allowance was reduced accordingly.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, including changes which may enable a greater potential for utilizing net operating loss carry forwards. While the Company continues to evaluate the impact of the CARES Act, it does not currently believe it will have a material impact on the Company's consolidated financial statements or related disclosures.

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Related Party Transactions

6 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

Related Party Transactions

Note 12 – Related Party Transactions

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 $55,000 for both six month periods ended June 30, 2020 and 2019, respectively, and is included in selling, general and administrative expenses in the condensed consolidated income statements. All of the payments in both 2020 and 2019 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. 

Pursuant to an agreement reached between Mr. Dove and former board member Mr. Emmett DeMoss, and further approved by the remaining board members, one-half of Mr. Dove’s 2019 bonus was paid to Mr. Dove and the other half was paid directly to Mr. Emmett DeMoss from the Company in consideration of Mr. DeMoss’ ongoing strategic consulting services.

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Subsequent Events

6 Months Ended

Jun. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

Note 13 – Subsequent Events

The Company has evaluated events subsequent to June 30, 2020 for potential recognition or disclosure in its condensed consolidated financial statements. There have been no material subsequent events requiring recognition or disclosure in this Quarterly Report on Form 10-Q.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

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, right-of-use assets, goodwill and intangible assets, liabilities, 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.

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

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 are 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 income, 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 (0% of total revenues for the six month period ended June 30, 2020) 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 June 30, 2020, the deferred revenue balance was $5,500. 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.

The Company evaluates revenue from asset liquidation transactions in accordance with the accounting guidance to determine whether to report such revenue on a gross or net basis.  The Company has determined that it acts as an agent for the Company’s fee based asset liquidation transactions, and, therefore, the Company reports the revenue from transactions in which it acts 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, in which the Company’s ownership share meets the criteria for the equity method investments under ASC 323, 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.

In 2019, the Company began providing specialty financing solutions to investors in charged-off and nonperforming asset portfolios. Fees collected in relation to the issuance of loans, which are included within services revenue, includes loan origination fees, interest income, portfolio monitoring fees, and a backend profit share percentage related to the underlying asset portfolio.

The loan origination fees are offset with any direct origination costs and are deferred upon issuance of the loan and amortized over the lives of the related loans, as an adjustment to interest income. The interest method is used to arrive at a periodic interest cost (including amortization) that will represent a level effective rate on the sum of the face amount of the debt and (plus or minus) the unamortized premium or discount and expense at the beginning of each period.

The monitoring fees and the backend profit share are considered a separate earnings process as compared to the origination fees and interest income. Monitoring fees are recorded at the agreed upon rate, and at the moment in which payments are made by the borrower. The backend profit share is recognized in accordance with the agreed upon rate at the time in which the amount is realizable and earned. The recognition policy was established due to the uncertainty of timing of the amount of backend profit share which will be realized, and the lack of historical precedence as this is a new business for the Company.

During the six months ended June 30, 2020 and 2019, the Company had generated revenues specific to one customer representing 15% and 12% of total revenues for the respective periods. During the three months ended June 30, 2020 and 2019, the Company generated revenues specific to the same customer representing 12% and 11% of total revenues for the respective periods.

Leases

Leases

The Company is obligated to make future payments under existing lease agreements which (1) specifically identify the asset, and (2) convey the right to control the use of the identified asset in exchange for consideration for a period of time. The Company determines whether a contract is a lease at the inception of the arrangement. We evaluate leasing arrangements in accordance with the accounting guidance to determine whether the contract is operating or financing in nature. Leases with an initial term of 12 months or less, or under predefined thresholds, are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The critical accounting policies used in the preparation of the Company’s audited consolidated financial statements are discussed in the Company’s Form 10-K. There have been no changes to these policies in the six months ended June 30, 2020.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We are currently evaluating the impact of the new guidance on our 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 applies to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. ASU 2017-04 became effective January 1, 2020 and did not have a material impact on our consolidated financial statements.

In 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which applies a current expected credit loss model which is a new impairment model based on expected losses rather than incurred losses. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from, or added to, the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected. ASU 2016-13 eliminates the current accounting model for loans and debt securities acquired with deteriorated credit quality under ASC 310-30, which provides authoritative guidance for the accounting of the Company’s notes receivable. With respect to smaller reporting companies, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

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Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Changes in Common Stock Options

The following summarizes the changes in common stock options for the six months ended June 30, 2020:

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2019		3,611,850		$	0.46
Granted		329,750		$	1.21
Exercised		(106,425	)	$	0.46
Forfeited		(127,025	)	$	0.64
Outstanding at June 30, 2020		3,708,150		$	0.57
Options exercisable at June 30, 2020		2,143,161		$	0.46

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Equity Method Investments (Tables)

6 Months Ended

Jun. 30, 2020

Equity Method Investments And Joint Ventures [Abstract]

Schedule of Joint Venture Revenues and Net Income

The table below details the Company’s joint venture revenues and net income during the six months ended June 30, 2020 and 2019 (in thousands):

	Six Months Ended June 30,
	2020		2019
Revenues:
Oak Grove Asset Acquisitions LP	$	1,098	$	—
CPFH LLC		801		11,092
HGC Funding I LLC		140		—
Total Revenues	$	2,039	$	11,092
Net income:
Oak Grove Asset Acquisitions LP	$	219	$	—
CPFH LLC		42		5,057
HGC Funding I LLC		133		—
Total net income	$	394	$	5,057

Schedule of the Components of Assets and Liabilities

The table below details the summarized components of assets and liabilities, as of June 30, 2020 and December 31, 2019, of the Company’s joint ventures at those dates (in thousands):

	June 30,		December 31,
	2020		2019
Assets:
Oak Grove Asset Acquisitions LP	$	1,865	$	1,602
CPFH LLC		21,436		20,016
HGC Funding I LLC		4,532		—
Total assets	$	27,833	$	21,618
Liabilities:
Oak Grove Asset Acquisitions LP	$	1,262	$	797
CPFH LLC		11,162		10,245
HGC Funding I LLC		38		—
Total liabilities	$	12,462	$	11,042

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Schedule of Calculation of the Shares Used in Computing Diluted EPS

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

	Three Months Ended June 30,				Six Months Ended June 30,
Weighted Average Shares Calculation:	2020		2019		2020		2019
Basic weighted average shares outstanding		28,751,689		28,653,278		28,760,893		28,653,278
Treasury stock effect of common stock options and restricted stock awards		2,209,572		189,231		1,869,820		364,099
Diluted weighted average common shares outstanding		30,961,261		28,842,509		30,630,713		29,017,377

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Leases (Tables)

6 Months Ended

Jun. 30, 2020

Leases [Abstract]

Schedule of Right-of-Use Assets and Lease Liabilities

The right-of-use assets and lease liabilities for each location are as follows (in thousands):

	June 30,
Right-of-use assets:	2020
Del Mar, CA	$	678
Burlingame, CA		248
Edwardsville, IL		299
	$	1,225
	June 30,
Lease liabilities:	2020
Del Mar, CA	$	706
Burlingame, CA		272
Edwardsville, IL		300
	$	1,278

Schedule of Undiscounted Future Minimum Lease Commitments

Undiscounted future minimum lease payments as of June 30, 2020 that have initial or remaining lease terms in excess of one year are as follows (in thousands):

2020 (remainder of year from July 1, 2020 to December 31, 2020)	$	304
2021		385
2022		278
2023		218
2024		176
Thereafter		30
Total undiscounted future minimum lease payments		1,391
Less imputed interest		113
Present value of lease liabilities	$	1,278

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Intangible Assets and Goodwill (Tables)

6 Months Ended

Jun. 30, 2020

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 three to five 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,					June 30,
Amortized Intangible Assets	2019		Amortization			2020
Customer Network (HGP)	$	92	$	(17	)	$	75
Trade Name (HGP)		642		(64	)		578
Customer Relationships (NLEX)		221		(54	)		167
Total		955		(135	)		820
Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	3,392	$	(135	)	$	3,257

Schedule of Estimated Amortization Expense, Intangible Assets

The estimated amortization expense as of June 30, 2020 during the remainder of the current fiscal year and the next four fiscal years is shown below (in thousands):

Year	Amount
2020 (remainder of year from July 1, 2020 to December 31, 2020)	$	134
2021		270
2022		159
2023		129
2024		128
Total	$	820

Schedule of Goodwill

The Company’s goodwill is related to its asset liquidation business and is comprised of goodwill from two 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 six months ended June 30, 2020.

Acquisition	June 30, 2020		December 31, 2019
HGP	$	2,040	$	2,040
NLEX		3,545		3,545
Total goodwill	$	5,585	$	5,585

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Debt (Tables)

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Schedule of Debt

Outstanding debt at June 30, 2020 and December 31, 2019 is summarized as follows (in thousands):

	June 30, 2020		December 31, 2019
Current:
Third party debt	$	240	$	403
Non-current:
Third party debt		—		35
Total debt	$	240	$	438

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Summary of Significant Accounting Policies (Narrative) (Details) - ASC 606 [Member]	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($)	Jun. 30, 2019	Jun. 30, 2020 USD ($) Segment	Jun. 30, 2019
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			0.00%
Deferred revenue | $	$ 5,500		$ 5,500
Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Summary Of Significant Accounting Policies [Line Items]
Revenues Specific To One Customer	12.00%	11.00%	15.00%	12.00%

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Notes Receivable, Net - Narrative (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	May 31, 2020	Feb. 29, 2020	Dec. 31, 2019
Receivables [Abstract]
Outstanding principal balance	$ 1,400			$ 2,700
Additional Notes issued	4,500
Principal payments received	700
Deferred fees and costs	100
Closing amount of revolving credit facility	6,000
Notes receivable balance of certain loans transferred to partner			$ 1,000
Notes receivable balance of certain loans transferred to joint venture		$ 1,000	$ 3,000
Allowance for credit losses	$ 0

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Stock-based Compensation (Narrative) (Details) - USD ($)			6 Months Ended
	Mar. 19, 2019	Jun. 01, 2018	Jun. 30, 2020	Jun. 30, 2019
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options to purchase, Granted (in shares)			329,750
Options cancelled to purchase common stock			127,025
Stock-based compensation expense			$ 161,000	$ 147,000
David Ludwig And Tom Ludwig [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Restricted common stock granted		600,000
Napier Park [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Warrants received to acquire shares of common stock with fair market value	$ 71,368		0
Incremental amount in excess of cumulative gross profit	500,000
Cumulative gross profit of warrants	$ 2,500,000
Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense			200,000
Unrecognized stock-based compensation			$ 400,000
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			$ 25,800
Weighted average grant date fair value			$ 0.43
Unrecognized stock-based compensation expense			$ 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)			314,750
Non-Employee Directors [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options to purchase, Granted (in shares)			60,000
Outside Consultant [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options to purchase, Granted (in shares)			15,000

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Schedule of Changes in Common Stock Options (Details) - $ / shares	6 Months Ended
	Jun. 30, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Options, Outstanding at the beginning of the period	3,611,850
Options, Granted	329,750
Options, Exercised	(106,425)
Options, Forfeited	(127,025)
Options, Outstanding at the end of the period	3,708,150
Options, Exercisable at the end of the period	2,143,161
Weighted Average Exercise Price, Outstanding at the beginning of the period	$ 0.46
Weighted Average Exercise Price, Granted	1.21
Exercised	0.46
Weighted Average Exercise Price, Forfeited	0.64
Weighted Average Exercise Price, Outstanding at the end of the period	0.57
Weighted Average Exercise Price, Exercisable at the end of the period	$ 0.46

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Lessor Arrangement (Narrative) (Details) - USD ($) $ in Millions	Jun. 27, 2019	Mar. 01, 2020
Lessor Lease Description [Line Items]
Sale leaseback transaction, date	The purchase option for both the real estate and machinery and equipment can be exercised at any time on or after December 1, 2019 and before May 31, 2021.
Total purchase price	$ 20.0
Real Estate [Member]
Lessor Lease Description [Line Items]
Lease payments term	10 years
Total monthly lease payments	$ 13.2
Total purchase price	$ 12.0
Second Building [Member]
Lessor Lease Description [Line Items]
Lease payments term		10 years
Machinery and Equipment [Member]
Lessor Lease Description [Line Items]
Lease payments term	6 years
Total monthly lease payments	$ 9.7
Total purchase price	8.0
Derecognized lease asset	0.9
Revenue from derecognized lease asset	1.2
Interest income prior to exercise of purchase option	$ 0.5
Discount rate	5.50%

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Equity Method Investments (Narrative) (Details)	Dec. 31, 2019	Nov. 14, 2018
CPFH LLC [Member]
Schedule Of Equity Method Investments [Line Items]
Equity method investment, ownership percentage		25.00%
Oak Grove Asset Acquisitions LP [Member]
Schedule Of Equity Method Investments [Line Items]
Equity method investment, ownership percentage	50.00%

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Schedule of Joint Venture Revenues and Net Income (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Schedule Of Equity Method Investments [Line Items]
Net income	$ 2,077	$ 2,106
Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member]
Schedule Of Equity Method Investments [Line Items]
Revenues	2,039	11,092
Net income	394	5,057
Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member] | Oak Grove Asset Acquisitions LP [Member]
Schedule Of Equity Method Investments [Line Items]
Revenues	1,098
Net income	219
Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member] | CPFH LLC [Member]
Schedule Of Equity Method Investments [Line Items]
Revenues	801	11,092
Net income	42	$ 5,057
Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member] | HGC Funding I LLC [Member]
Schedule Of Equity Method Investments [Line Items]
Revenues	140
Net income	$ 133

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Schedule of the Components of Assets and Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Schedule Of Equity Method Investments [Line Items]
Assets	$ 23,425	$ 21,917
Liabilities	9,312	10,070
Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member]
Schedule Of Equity Method Investments [Line Items]
Assets	27,833	21,618
Liabilities	12,462	11,042
Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member] | Oak Grove Asset Acquisitions LP [Member]
Schedule Of Equity Method Investments [Line Items]
Assets	1,865	1,602
Liabilities	1,262	797
Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member] | CPFH LLC [Member]
Schedule Of Equity Method Investments [Line Items]
Assets	21,436	20,016
Liabilities	11,162	$ 10,245
Equity Method Investment, Nonconsolidated Investee or Group of Investees [Member] | HGC Funding I LLC [Member]
Schedule Of Equity Method Investments [Line Items]
Assets	4,532
Liabilities	$ 38

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Earnings Per Share (Narrative) (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Earnings Per Share [Abstract]
Convertible Preferred Stock, Shares Issuable upon Conversion			The Company's Class N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock.
Class N preferred shares, each convertible to common shares	40		40
Anti-dilutive common shares	200,000	600,000	200,000	700,000

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Earnings Per Share - Schedule of Calculation of the Shares Used in Computing Diluted EPS (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Earnings Per Share [Abstract]
Basic weighted average shares outstanding	28,751,689	28,653,278	28,760,893	28,653,278
Treasury stock effect of common stock options and restricted stock awards	2,209,572	189,231	1,869,820	364,099
Diluted weighted average common shares outstanding	30,961,261	28,842,509	30,630,713	29,017,377

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Leases (Narrative) (Details) $ in Millions	6 Months Ended
	Jun. 30, 2020 USD ($) Location	Jun. 30, 2019 USD ($)	Jan. 01, 2019
Leases [Abstract]
Number of locations | Location	3
Lessee operating lease, incremental borrowing rate			5.25%
Lease expense | $	$ 0.3	$ 0.3

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Leases - Schedule of Right-of-Use Assets and Lease Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Lessee Lease Description [Line Items]
Right-of-use assets	$ 1,225	$ 1,483
Lease liabilities	1,278
Del Mar, CA [Member]
Lessee Lease Description [Line Items]
Right-of-use assets	678
Lease liabilities	706
Burlingame, CA [Member]
Lessee Lease Description [Line Items]
Right-of-use assets	248
Lease liabilities	272
Edwardsville, IL [Member]
Lessee Lease Description [Line Items]
Right-of-use assets	299
Lease liabilities	$ 300

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Leases - Schedule of Undiscounted Future Minimum Lease Commitments (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Operating Lease Liabilities Payments Due [Abstract]
2020 (remainder of year from July 1, 2020 to December 31, 2020)	$ 304
2021	385
2022	278
2023	218
2024	176
Thereafter	30
Total undiscounted future minimum lease payments	1,391
Less imputed interest	113
Present value of lease liabilities	$ 1,278

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Intangible Assets and Goodwill (Narrative) (Details) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Finite Lived Intangible Assets [Line Items]
Amortization expense, intangible assets	$ 135,000	$ 100,000
Goodwill, additions	0
Goodwill, Impairment Loss	$ 0
Minimum [Member]
Finite Lived Intangible Assets [Line Items]
Finite-Lived intangible asset, useful life	3 years
Maximum [Member]
Finite Lived Intangible Assets [Line Items]
Finite-Lived intangible asset, useful life	5 years

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Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	$ 955
Amortization	(135)	$ (100)
Total net amortized intangible assets	820
Total net intangible assets	3,392
Total net intangible assets	3,257
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	92
Amortization	(17)
Total net amortized intangible assets	75
HGP Trade Name [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	642
Amortization	(64)
Total net amortized intangible assets	578
Customer Relationships [Member] | NLEX [Member]
Finite And Indefinite Lived Intangible Assets By Major Class [Line Items]
Total net amortized intangible assets	221
Amortization	(54)
Total net amortized intangible assets	$ 167

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Schedule of Estimated Amortization Expense, Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Goodwill And Intangible Assets Disclosure [Abstract]
2020 (remainder of year from July 1, 2020 to December 31, 2020)	$ 134
2021	270
2022	159
2023	129
2024	128
Total	$ 820	$ 955

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Schedule of Goodwill (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Finite Lived Intangible Assets [Line Items]
Goodwill	$ 5,585	$ 5,585
HGP [Member]
Finite Lived Intangible Assets [Line Items]
Goodwill	2,040	2,040
NLEX [Member]
Finite Lived Intangible Assets [Line Items]
Goodwill	$ 3,545	$ 3,545

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Schedule of Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current:
Third party debt	$ 240	$ 403
Non-current:
Third party debt		35
Total debt	$ 240	$ 438

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Debt (Narrative) (Details)			1 Months Ended		6 Months Ended
	Feb. 10, 2020 USD ($)	Mar. 29, 2019 USD ($)	Sep. 30, 2018 USD ($)	Jan. 31, 2018 USD ($) Installment	Jun. 30, 2020 USD ($)	Jan. 30, 2018 USD ($)	Dec. 31, 2017
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%
Debt instrument, periodic payment					$ 210,000
Outstanding note balance					$ 240,000
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 the Company repudiates or revokes, or purports to repudiate or revoke, any obligation under the Note or the Guaranty, or the obligation of the Company under the Guaranty is limited or terminated by operation of law or by the Company, or (e) HG LLC or the Company shall be or become insolvent, however defined, or admit in writing its inability to pay debts as they mature, or make a general assignment for the benefit of its creditors, or shall institute any bankruptcy, insolvency or similar proceeding under the laws of any jurisdiction, or shall take any action to authorize such proceeding.
First Choice Bank [Member] | Revolving Line of Credit [Member]
Debt Instrument [Line Items]
Line of credit			$ 1,500,000		$ 0
Debt instrument, Maturity date		Apr. 05, 2020			Oct. 05, 2019
Interest rate per annum		5.50%
Frequency of payment					monthly payments
Line of credit aggregate borrowing capacity		$ 3,000,000
Line of credit, repayment					$ 5,600,000
Line of credit, drawn amount					$ 5,600,000
First Choice Bank [Member] | Revolving Line of Credit [Member] | Minimum [Member]
Debt Instrument [Line Items]
Monthly interest payment			$ 100.00
First Choice Bank [Member] | Revolving Line of Credit [Member] | Wall Street Journal prime rate [Member] | Minimum [Member]
Debt Instrument [Line Items]
Interest rate per annum			5.25%
C3bank [Member]
Debt Instrument [Line Items]
Line of credit	$ 5,000,000
Debt instrument, Maturity date	Feb. 05, 2021
C3bank [Member] | Minimum [Member]
Debt Instrument [Line Items]
Interest rate per annum	5.50%

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Income Taxes (Narrative) (Details) $ in Millions	6 Months Ended
	Jun. 30, 2020 USD ($)
Income Taxes [Line Items]
Operating loss carryforwards	$ 82.1
Operating Loss Carryforwards, Expiration Date	Substantially all of the net operating loss carry forwards expire between 2024 and 2037.
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.
Increase in state tax expense	$ 0.1
Additional deferred taxes realizable amount	1.3
Unrestricted [Member]
Income Taxes [Line Items]
Operating loss carryforwards	61.6
Restricted [Member]
Income Taxes [Line Items]
Operating loss carryforwards	$ 20.5

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Related Party Transactions (Narrative) (Details) - Senior Officer of NLEX [Member] - Lease Amounts [Member] - Edwardsville, IL [Member] - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Related Party Transaction [Line Items]
Related party transaction agreement end date	May 31, 2023
Selling, General and Administrative Expenses [Member]
Related Party Transaction [Line Items]
Payment to related party	$ 55,000	$ 55,000