What changed in this filing

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Item 9A. Controls and Procedures

2026-03-12 compared with 2025-03-13 · 214 added, 194 removed, 946 unchanged (30% of the section changed)

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The information required by this Item regarding the identity and business experience of our directors and executive officers is set forth under the heading “Proposal No.

Election of Class I Directors” in the definitive proxy materials of Heritage Global Inc.

Election of Class II Directors” in the definitive proxy materials of Heritage Global Inc.

to be filed in connection with our 2026 Annual Meeting of Stockholders with respect to our directors and is set forth under the heading “Information About Our Executive Officers” in the definitive proxy materials to be filed in connection with our 2026 Annual Meeting of Stockholders, as well as in Item 1 of Part I of this Report with respect to our executive officers.

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hginc.com/governance-documents/ , or a copy of the Code can be requested, free of charge, by writing to the following address:

Heritage Global Inc., 12625 High Bluff Drive, Suite 305, San Diego, California 92130, Attention:

Heritage Global Inc., 6130 Nancy Ridge Drive, San Diego, California 92121, Attention:

Investor Relations.

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001-39471) filed on September 30, 2020).

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).

Description of Securities (filed as Exhibit 4.2 to the Company's Annual Report on form 10-K filed on March 8, 2021 (File No.

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Loan Modification Agreement and Reaffirmation of Loan, by and between Heritage Global Inc.

and C3bank, National Association, effective as of December 27, 2024 and incorporated herein by reference).

and C3bank, National Association, effective as of December 27, 2024 (filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed on March 13, 2025 (File No.

001-39471) and incorporated herein by reference).

Business Loan Agreement, dated February 6, 2025, by and between Heritage Global Inc.

and C3bank, National Association (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2025 (File No.

001-39471), and incorporated herein by reference).

Promissory Note, dated February 6, 2025, by and between Heritage Global Inc.

and C3bank, National Association (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2025 (File No.

001-39471), and incorporated herein by reference)

Commercial Security Agreement, dated February 6, 2025, by and between Heritage Global Inc.

and C3bank, National Association (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2025 (File No.

001-39471), and incorporated herein by reference)

Asset Purchase Agreement, dated August 18, 2021, by and among Heritage ALT LLC, American Laboratory Trading, Inc., Dante LaTerra and Heritage Global Inc.

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001-39471), and incorporated herein by reference).

Subordinated Promissory Note, dated August 23, 2021, by and among Heritage ALT LLC, American Laboratory Trading, Inc., and Heritage Global Inc.

(filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 24, 2021 (File No.

001-39471), and incorporated herein by reference).

2022 Heritage Global Inc.

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Form of Restricted Stock Grant for Restricted Stock Granted Under 2022 Heritage Global Inc.

Equity Incentive Plan (Employee).

Statement of Company Policy Regarding Insider Trading and Company Policy Regarding Special Trading Procedures

Equity Incentive Plan (Employee) (filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K on March 13, 2025 (File No.

001-39471), and incorporated herein by reference).

Statement of Company Policy Regarding Insider Trading and Company Policy Regarding Special Trading Procedures (filed as Exhibit 19 to the Company’s Annual Report on Form 10-K on March 13, 2025 (File No.

001-39471), and incorporated herein by reference).

List of subsidiaries.

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Critical Audit Matter

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation Allowance for Deferred Tax Assets

As described in Notes 2 and 13 to the financial statements, the Company recognizes deferred tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse.

The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized.

The valuation allowance was $3.5 million as of December 31, 2024.

We identified the valuation allowance on deferred tax assets as a critical audit matter due to the high degree of judgment in projecting the realization of net operating losses.

The primary procedures we performed to address this critical audit matter include the following:

• Obtained an understanding of management’s estimate regarding the valuation allowance on the net operating losses including the method, assumptions, and data used to develop the estimate by reviewing managements prepared memorandum and supporting schedules.

• Examined the underlying data used in determining the valuation allowance on the net operating losses, including historical financial data and prior utilization of net operating losses.

• Evaluated the Company’s projections of future taxable income for reasonableness.

• Reviewed tax provision and other disclosures related to the tax provision

Allowance for Credit Losses over Notes Receivable

Allowance for Credit Losses over Nonaccrual Loans

As described in Notes 2 and 3, the Company has recognized an allowance for credit losses for notes receivable of $0.4 million and within the Company’s portion of equity method investments of $1.0 million.

The allowance is a valuation account that is deducted from the carrying amount of notes receivable and equity method investments to present the net amount of notes receivable and equity method investments expected to be collected.

The Company’s analysis uses forecasts of expected cash receipts provided by an external specialist, which are then applied to a cash flow waterfall to project expected cash receipts.

The Company’s analysis uses forecasts of expected cash receipts provided by an external specialist, which are then adjusted for additional assumptions based on expected future actions meant to improve collections.

The resulting cash flows are then applied to a cash flow waterfall to project expected cash receipts for the Company.

The shortfall in projected cash receipts is used as the Company’s estimate of the allowance.

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• Evaluated management’s assessment of the external specialist.

• Examined the underlying data used in determining the allowance for credit losses, including forecasts provided by the external specialist.

• Examined the underlying data used in determining the allowance for credit losses, including forecasts provided by the external specialist and additional assumptions factored in to the analysis.

• Evaluated the Company’s waterfall calculations and the application of forecasted cash receipts.

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Current portion of lease liabilities

Other current liabilities

Total current liabilities

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Non-current portion of lease liabilities

Other non-current liabilities

Total liabilities

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Common stock, $ 0.01 par value, authorized 300,000,000 shares;

37,380,944 and 37,157,616 shares as of December 31, 2024 and December

31, 2023, respectively;

and outstanding 35,718,361 and 36,761,441 shares

as of December 31, 2024 and December 31, 2023, respectively

issued 37,639,211 and 37,380,944 shares as of December 31, 2025 and December 31, 2024, respectively;

and outstanding 34,741,553 and 35,718,361 shares as of December 31, 2025 and December 31, 2024, respectively

Additional paid-in capital

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Operating income

Interest expense, net

Interest income (expense), net

Income before income tax expense

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Balance as of December 31, 2023

Cumulative change in accounting principle (Note 2)

Issuance of common stock from stock option awards

Issuance of restricted common stock

Issuance of common stock due to conversion of Series N Preferred stock

Stock-based compensation expense

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Payments received on notes receivable

Investment in participating interest

Return on investment in participating interest

Investment in equity method investments

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Purchase of property and equipment

Cash received on transfer of notes receivable to partners

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

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Repayment of debt payable to third parties

Proceeds from issuance of common stock from stock option awards

Proceeds from secured borrowing

Repayments of secured borrowing

Payments of tax withholdings related to issuance of restricted stock and cashless exercises of stock option awards

Repurchase of common stock

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

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Cash paid for interest

Noncash capital expenditures

Noncash transfer of notes receivable to equity method investments

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Repurchase Program

The Company’s Board of Directors authorized a share repurchase program on May 5, 2022 (“Repurchase Program”), which permits the Company to purchase up to an aggregate of $ 4.0 million in common shares over a three-year period ending in June of 2025.

On September 13, 2024 the Company's Board of Directors approved an amendment to the Repurchase Program which increased the authorized aggregate amount of common shares the Company may repurchase to an aggregate of $ 6.0 million in common shares.

The Company’s Board of Directors previously authorized a share repurchase program (“2022 Repurchase Program”), which permitted the Company to purchase up to an aggregate of $ 6.0 million in common shares over a three year period ended on June 30, 2025.

The Company repurchased 1,235,075 shares in the open market for a purchase price of approximately $ 2.6 million during the year ended December 31, 2025.

As of December 31, 2024, the Company had approximately $ 3.0 million in remaining aggregate dollar value of shares that may be purchased under the program.

The 2022 Repurchase Program ended on June 30, 2025, with the Company utilizing approximately $ 5.6 million of the authorized $ 6.0 million for the repurchase of 2,897,658 common shares in the open market.

Following the expiration of the 2022 Repurchase Program on June 30, 2025, the Company’s Board of Directors authorized a new share repurchase program (the “2025 Repurchase Program”) on July 31, 2025.

The 2025 Repurchase Program authorizes the repurchase of up to $ 7.5 million of the Company’s outstanding common stock through June 30, 2028.

The timing and actual number of shares repurchased will depend on various factors, including share price, general business and market conditions, and the opportunities within the Company’s operations.

As of December 31, 2025, no shares have been repurchased under the 2025 Repurchase Program.

Note 2 – Summary of Significant Accounting Policies

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These estimates have the potential to significantly impact our consolidated financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Reclassifications

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

Nature of Business

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At the balance sheet date, any unsold assets which the Company owns are reported as inventory, any outstanding accounts receivable are included in the Company’s accounts receivable, and any associated liabilities are included in the Company’s accrued liabilities.

Equipment inventory is expected to be sold within a year and is therefore classified as a current asset.

The remaining asset sale transactions involve the Company acting jointly with one or more additional purchasers or lenders, pursuant to a partnership, joint venture or limited liability company agreement (collectively, “Joint Ventures”).

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The Company's portfolio includes one borrower’s gross notes receivable balance of approximately $ 21.5 million, representing 76 % of our total gross notes receivable balance as of December 31, 2025, as compared to 74 % as of December 31, 2024.

T he Company does not intend to hold highly concentrated balances due from one borrower as part of its long-term strategy but will in the short term have concentration risk on its path to an established and diversified portfolio.

The Company does not evaluate concentration risk solely based on balance due from specific borrowers, but also considers the number of portfolio purchases, type of charged off accounts within the portfolio, and the seller of the portfolio when determining the overall risk.

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The Company mitigates this concentration risk by requiring, and monitoring, security from each borrower consisting of their charged off and nonperforming receivable portfolios.

The Company engages in a due diligence process that leverages our valuation expertise, knowledge and experience in the underlying nonperforming receivable portfolios marketplace.

In the event of default, we are entitled to call the unpaid interest and principal balances and receive all net collections directly.

The Company may also recover its investment by engaging a third party to collect on the underlying charged off or nonperforming receivable portfolio or the underlying portfolio can be sold through its Brokerage segment.

In certain cases, the Company's recovery options may be subject to concurrence of the originator or other prior holder of the assets.

From the inception of the specialty lending program through December 31, 2024, the Company has incurred no actual credit losses.

The Company engages in a due diligence process that leverages its valuation expertise, knowledge and experience in the underlying nonperforming receivable portfolios marketplace.

In the event of default, the Company is entitled to call the unpaid interest and principal balances and receive all net collections directly.

In certain cases, the Company’s recovery options are subject to concurrence of the originator or other prior holder of the assets.

Cash and cash equivalents

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The Company does not apply a credit loss rate against its Accounts Receivable balance for accrued interest income due to the timing of collections shortly after period end and prior to the financial statement filing date.

Accrued interest on loans totaled $ 0.1 million and $ 0.2 million at December 31, 2024 and December 31, 2023, respectively.

Accrued interest on loans totaled $ 0.1 million at both December 31, 2025 and 2024.

See Note 10 for more detail regarding the Company’s accounts receivable.

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Allowance for credit losses

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 Topic 310-30, Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality, which provides authoritative guidance for the accounting of the Company’s notes receivable.

The adoption of ASU 2016-13 resulted in an adjustment to retained earnings on January 1, 2023 of $ 0.3 million, and established an expected credit loss reserve against our receivables related to loans outstanding, including those held within equity method investments.

The increase is a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio.

The Company applies a current expected credit loss model, which is an impairment model based on expected losses rather than incurred losses.

The expected credit losses, and subsequent adjustments to such losses, are 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.

The table below summarizes the allowance for credit loss balance as of, and the changes made during the years ending December 31, 2025 and 2024 (in thousands):

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Equity Method Investments

Balance as of January 1, 2023

Provision for credit losses

Balance as of December 31, 2023

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Balance as of December 31, 2024

(Recovery) provision for credit losses

Balance as of December 31, 2025

Accounts receivable

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Notes receivable

Under ASC 326, the Company evaluates notes receivable as a single pool, for individual notes receivable and borrowers with similar risk characteristics.

The Company evaluates notes receivable as a single pool, for individual notes receivable and borrowers with similar risk characteristics.

Notes receivable and borrowers that do not share risk characteristics are evaluated on an individual basis.

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however, the Company lacks sufficient data upon which to base a historical estimation.

Additionally, since the Company began recording notes receivable on the condensed consolidated balance sheets, the Company has recorded no actual credit losses to notes receivable.

Lacking historical internal data upon which to base a reserve for credit losses to notes receivable, the Company, under ASC 326, estimates its reserve using external credit loss experience data.

Lacking historical internal data upon which to base a reserve for credit losses to notes receivable, the Company estimates its reserve using external credit loss experience data.

Management observes that the Company's notes receivable are similar in character to transactions undertaken by smaller banking institutions.

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The SCALE rate methodology is endorsed by the FASB and the Conference of State Bank Supervisors.

Management determined under ASC 326 that the SCALE rate, a generally applicable rate, may be appropriately adjusted by its assessment of observable facts and relevant circumstances indicating that the factors analyzed in the determination of the SCALE rate may not conform to the Company's operations and borrower assessments.

As of December 31, 2024, the SCALE rate decreased to 1.3644 % from 1.4183 % as of December 31, 2023, and the Company's credit loss allowance rate specific to notes receivable was 3.7 %.

Management determined that the SCALE rate, a generally applicable rate, may be appropriately adjusted by its assessment of observable facts and relevant circumstances indicating that the factors analyzed in the determination of the SCALE rate may not conform to the Company's operations and borrower assessments.

As of December 31, 2025, the SCALE rate increased to 1.3767 % from 1.3644 % as of December 31, 2024, and the Company's credit loss allowance rate specific to notes receivable was 3.5 %.

The increase over the SCALE rate was due to both the above mentioned risks presented by a concentrated balance with a single borrower and declining collections industry-wide.

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Similar to notes receivable, the loans held by the joint ventures are evaluated on a quarterly basis to determine if an adjustment to the allowance for credit losses is needed.

As of December 31, 2024, the SCALE rate decreased to 1.3644 % from 1.4183 % as of December 31, 2023, and the credit loss rate specific to equity method investments was 4.5 %.

As of December 31, 2025, the SCALE rate increased to 1.3767 % from 1.3644 % as of December 31, 2024, and the credit loss rate specific to equity method investments was 4.5 %.

The increase over the SCALE rate was due to both the above mentioned risks presented by a concentrated balance with a single borrower and declining collections industry-wide.

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In 2014, as a result of incurring losses in previous years, the Company recorded a valuation allowance against all of its net deferred tax assets.

In 2023, the Company recorded a reduction to the valuation allowance of $ 2.2 million resulting in a net deferred tax asset balance of approximately $ 9.1 million as it was more likely than not that a significant portion our net operating loss carryforwards will be utilized.

In 2024, the Company increased the valuation allowance by $ 1.3 million, resulting in a net deferred tax asset balance of approximately $ 6.0 million, to align with the Company's updated forecasts.

The change to the valuation allowance was primarily due to the application of our nonaccrual loan policy, which resulted in a decrease to our estimates related to the utilization of net operating loss carryforwards in 2025.

As of December 31, 2025, approximately $ 18.9 million of federal net operating loss carry forwards were unused and expired and the Company recorded discrete expense (tax effected at 21 %) of $ 0.5 million during 2025, reflecting the difference between our valuation allowance estimate at December 31, 2024 and actual results in 2025.

The Company expects to utilize its remaining net operating loss carry forwards, and as such has removed the valuation allowance against its deferred tax assets.

For further discussion of our income taxes, see Note 13.

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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 (less than 1% of total revenues for the year ended December 31, 2024), and therefore not reported on a disaggregated basis.

Services revenue recognized over a period of time is not material in comparison to total revenues (approximately 1% of total revenues for the year ended December 31, 2025), 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 December 31, 2024, 2023 and 2022, the deferred revenue balance was approximately $ 0.6 million, $ 0.5 million and $ 0.4 million, respectively, and is recorded within accounts payable and accrued liabilities on the consolidated balance sheet.

As of December 31, 2025, 2024 and 2023, the deferred revenue balance was approximately $ 0.9 million, $ 0.6 million and $ 0.5 million, respectively, and is recorded within other current liabilities on the consolidated balance sheet.

The deferred revenue balance is primarily related to customer deposits on asset sales within the Refurbishment & Resale segment.

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The Company considers quantitative and qualitative factors when evaluating a loan in default status to determine the likelihood of recovering the outstanding principal balance and contractual interest payments.

The Company also monitors the financial standing and performance of its borrowers on an ongoing basis and regularly updates the collection forecasts for the underlying charged off or nonperforming receivable portfolios related to each outstanding loan.

If the Company determines (1) it is not probable that the projected cash flows expected from the borrower’s collection efforts on the underlying charged off or nonperforming receivable portfolio will be sufficient to satisfy all of the outstanding principal balance and contractual interest payments, and (2) it is not probable that the borrower will be able to meet the minimum required principal and interest payments through other operational cash flows, the Company will place the loans on nonaccrual status.

The Company also monitors its borrowers’ financial standing and performance on an ongoing basis and regularly updates the collection forecasts for the underlying charged off or nonperforming receivable portfolios related to each outstanding loan.

If management determines (1) it is not probable that the projected cash flows expected from the borrower’s collection efforts on the underlying charged off or nonperforming receivable portfolio will be sufficient to satisfy all of the outstanding principal balance and contractual interest payments, and (2) it is not probable that the borrower will be able to meet the minimum required principal and interest payments through other operational cash flows, the Company will place the loans on nonaccrual status.

If, based on its analysis, the Company elects to maintain accrual status after initial payment default, the loan will generally be placed on nonaccrual status if principal or interest payments become 90 days past due.

The accrual of interest is generally discontinued and all accrued interest is reversed against interest income when a loan is placed on nonaccrual status.

The accrual of interest is generally discontinued when a loan is placed in nonaccrual status.

Interest received on such loans is accounted for using the cost-recovery or the cash-basis method, until qualifying for return to accrual.

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Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and all remaining principal and interest payments are deemed probable.

In November 2023, the Company and its affiliated Joint Ventures restructured loans (the "Restructured Loans") with its largest borrower by restructuring certain outstanding loans with an amortized cost basis of $ 51.6 million or 59 % of the amortized cost basis of the total charged-off asset portfolio loans of our and our affiliated Joint Ventures.

The Company's share of the Restructured Loans amortized cost basis was $ 22.2 million, or 57 % of HGC's share of the loan book.

All Restructured Loans were restructured by term extension, adding a weighted average of 1.5 years to the life of the Restructured Loans, which reduced the monthly payments for the borrower.

As of September 30, 2023, we increased the allowance for credit losses related to our largest borrower experiencing financial difficulties.

This resulted in an allowance for credit losses on the loans later restructured of $ 1.0 million as of September 30, 2023.

As of December 31, 2024, the Company's allowance for credit losses related to the Restructured Loans was $ 1.1 million, of which $ 0.3 million was classified as notes receivable and $ 0.8 million was recorded within equity method investments.

The Company's largest borrower continues to collect on the underlying charged off and nonperforming consumer loan portfolios and remit net collections to the Company and senior lenders, however this borrower's remittance in June of 2024 did not meet the minimum required payment amount.

The Company has determined that (1) it is not probable that the projected cash flows expected from the borrower’s collection efforts on the underlying charged off or nonperforming receivable portfolio will be sufficient to satisfy all of the outstanding principal balance and contractual interest payments, and (2) it is not probable that the borrower will be able to meet the minimum required principal and interest payments through other operational cash flows.

While the Company continues to work closely with the borrower and its senior lenders in an effort to mitigate the default in an efficient and effective manner, the impacted loans have been placed in nonaccrual status beginning in June 2024.

In addition, there was a balance of $ 1.5 million from the Company's share of other loans within its affiliated Joint Ventures that are impacted by the default with its largest borrower and have been placed in nonaccrual status in June 2024.

The Company's share of payments received from this borrower, including interest, will be applied against the outstanding loan balance.

Pursuant to the terms of existing credit agreements, the Company's largest borrower was required to collect on underlying charged off and nonperforming consumer loan portfolios and remit a required minimum monthly payment to the Company.

However, this borrower became unable to make the required minimum monthly payments beginning in June 2024 and therefore is in default.

This borrower continues to collect on the underlying charged off and nonperforming consumer loan portfolios and remit net collections to the Company and senior lenders.

The Company has determined (1) it is not probable that the projected cash flows expected from the borrower’s collection efforts on the underlying charged off or nonperforming receivable portfolio will be sufficient to satisfy all of the outstanding principal balance and contractual interest payments, and (2) it is not probable that the borrower will be able to meet the minimum required principal and interest payments through other operational cash flows.

While the Company continues to work closely with the borrower and its senior lenders in an effort to mitigate the default in an efficient and effective manner, the impacted loans were placed in nonaccrual status in June 2024.

In addition, there was a balance of $ 1.5 million from the Company’s share of other loans within its affiliated joint ventures that are impacted by the default with this borrower and were placed in nonaccrual status in June 2024.

The Company's share of payments received from the nonaccrual loans, including interest, will be applied against the outstanding loan balance.

As of December 31, 2025, the amortized cost basis of loans in nonaccrual status was $ 23.9 million, of which $ 4.9 million is recorded within notes receivable and $ 19.0 million is recorded within equity method investments.

There were no loans in nonaccrual status as of December 31, 2023.

As of December 31, 2024, the amortized cost basis of loans in nonaccrual status was $ 23.5 million, of which $ 5.3 million is recorded within notes receivable and $ 18.3 million is recorded within equity method investments.

The Company, in coordination with senior lenders, is actively engaged in a workout process with respect to loans currently in nonaccrual status, with the objective of maximizing recoveries over the remaining economic life of the underlying collateral.

Its recovery strategy is centered on the monetization of the charged-off and nonperforming consumer receivable portfolios securing these loans and is expected to occur over multiple years.

The primary component of the workout strategy involves transitioning a greater portion of the underlying consumer accounts into legal collection channels.

During the fourth quarter of 2025, the Company reached a restructuring agreement with the senior lender for HGC MPG Funding LLC.

As a result of this restructuring agreement and the Company's regular quarterly portfolio analysis, the Company has determined it appropriate to place all loans associated with its joint ventures with senior lenders in nonaccrual status given the senior lender’s priority position in cash flows generated from the underlying portfolios.

As of December 31, 2025, additional loan balances placed in nonaccrual status was approximately $ 1.7 million.

Cost of services revenue and asset sales

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The Company expenses advertising costs in the period in which they are incurred.

Advertising and promotion expense included in selling, general and administrative expense for both the years ended December 31, 2024 and 2023, was $ 0.6 million.

Advertising and promotion expense included in selling, general and administrative expense for the year ended December 31, 2025 was $ 0.7 million, as compared to $ 0.6 million for the year ended December 31, 2024.

Recently adopted accounting pronouncements

In November 2023,the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which, among other updates, requires enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption.

The Company adopted ASU 2023-07 as of December 31, 2024 and as a result has expanded its segment reporting disclosures.

See note 17 for further details.

Future accounting pronouncements

On December 14, 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures" ("ASU 2023-09"), which requires enhanced annual disclosures with respect to the rate reconciliation and income taxes paid information.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis.

Early adoption is permitted.

The Company anticipates that ASU 2023-09 will have no accounting impact but will require additional disclosure related to certain income tax calculations.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with adoption permitted on a prospective basis.

The Company adopted this standard for the year ended December 31, 2025 and applied the new disclosure requirements prospectively.

See Note 13 Income Taxes in the accompanying notes to the consolidated financial statements for further detail.

Future accounting pronouncements

On November 4, 2024, the FASB issued ASU 2024-03, "Reporting Comprehensive Income—Expense Disaggregation Disclosures" ("ASU 2024-03") which requires disaggregated disclosure of income statement expenses for public business entities.

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As of December 31, 2025 and 2024, the Company’s outstanding notes receivable balance related to loans to buyers of charged-off and nonperforming receivable portfolios, net of unamortized deferred fees and costs on originated loans and adjusted for the allowance for credit losses, was $ 8.8 million and $ 9.6 million, respectively.

The activity during 2024 includes the additional investment in notes receivable of approximately $ 5.0 million, which was offset by principal payments made by borrowers of approximately $ 10.8 million and noncash transfer of notes receivable to equity method investments of approximately $ 2.5 million.

As of December 31, 2024, the Company’s outstanding notes receivable balance related to financing of laboratory equipment sales, net of unamortized deferred fees and costs on originated loans and adjusted for the allowance for credit losses, was $ 0.4 million.

There was no notes receivable balance related to financing of laboratory equipment sales as of December 31, 2023.

The activity during 2025 includes the additional investment in notes receivable of approximately $ 5.2 million, which was offset by principal payments made by borrowers of approximately $ 6.1 million.

As of December 31, 2025 and 2024, the Company’s outstanding notes receivable balance related to financing of laboratory equipment sales, net of unamortized deferred fees and costs on originated loans and adjusted for the allowance for credit losses, was $ 0.6 million and $ 0.4 million, respectively.

The activity during 2025 includes investment in notes receivable of approximately $ 0.7 million, which was offset by principal payments made by purchasers of $ 0.5 million and an immaterial amount of deferred financing fees, and allowance for credit losses.

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In accordance with ASC 326, the Company performs a review of notes receivable on a quarterly basis.

During 2023, the Company recorded a provision for credit losses in selling, general and administrative expense on the consolidated statement of income of approximately $ 0.5 million.

As of December 31, 2024 and 2023, the allowance for credit losses was approximately $ 0.4 million and $ 0.7 million, respectively.

The change in allowance for credit losses in 2024 was primarily driven by decreases in loan balances.

The Company's credit loss reserve rate specific to its notes receivable balance as of December 31, 2024 was 3.7 %.

As of December 31, 2024, the Company has recorded no actual credit losses on notes receivable.

As of December 31, 2024, the amortized cost basis of notes receivable in nonaccrual status was approximately $ 5.3 million.

There were no notes receivable in nonaccrual status as of December 31, 2023.

Note 4 – Lessor Arrangement

In December 2023, the Company, with certain partners making up the KNFH II LLC joint venture, entered into a purchase and sale agreement for a pharmaceutical plant in Fenton, Missouri, including land, a building, and all machinery and equipment held within with a purchase price of $ 8.0 million.

In April 2024, KNFH II LLC entered into a purchase and sale agreement for the machinery and equipment within the pharmaceutical plant with a purchase price of $ 5.0 million.

Additionally, KNFH II LLC entered into a lease agreement for the lease of the real estate assets;

the building and land.

This lease agreement includes a purchase option with a purchase price of $ 8.0 million that is expected to be exercised by the lessee.

The lessor arrangement is classified as a sales-type lease, and, therefore, the present value of future lease payments, including the purchase option, has been recognized as revenue and a lease receivable as of the effective date.

As of December 31, 2024, the Company has recognized approximately $ 1.3 million in earnings from equity method investments related to the Company’s share of net income attributable to KNFH II LLC.

The Company accounts for the transaction 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 5 for further information.

During the year ended December 31, 2025, the Company recorded a recovery for credit losses related to notes receivable of approximately $ 43,000 in selling, general and administrative expense on the consolidated statement of income.

As of December 31, 2025 and 2024, the amortized cost basis of notes receivable in nonaccrual status was $ 4.9 million and $ 5.3 million, respectively.

Note 4 – Equity Method Investments

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In accordance with ASC 326, the Company performs a review of notes receivable on a quarterly basis for each of its specialty lending investments.

For the year ended December 31, 2024, the Company’s share of the joint venture’s provision for credit losses was approximately $ 1.0 million, representing a credit loss rate of 4.5 % specific to its equity method investments, which was primarily related to HGC Origination I LLC and HGC MPG Funding LLC.

The provision for credit losses was primarily driven by increases in loan balances.

As of December 31, 2023, the Company's share of the allowance for credit losses was approximately $ 0.9 million, representing a credit loss rate of 4.3 % specific to its equity method investments.

As of December 31, 2024, the Company has recorded no actual credit losses through its equity method investments.

As of December 31, 2024, the amortized cost basis of the Company's share of loans in nonaccrual status recorded in equity method investments was $ 18.3 million.

For both the years ended December 31, 2025 and 2024, the Company’s share of the joint venture’s allowance for credit losses was approximately $ 1.0 million, representing a credit loss rate of 4.5 % specific to its equity method investments, which was primarily related to HGC Origination I LLC and HGC MPG Funding LLC.

As of December 31, 2025 and 2024, the amortized cost basis of the Company's share of loans in nonaccrual status recorded in equity method investments was $ 19.0 million and $ 18.3 million, respectively.

Based on the nature of our equity method investments, the joint venture entities' revenues and gross profit are not materially different and furthermore, operating income and net income have no material differences.

1 unchanged sentence

Year Ended December 31, 2025

HGC Funding I LLC and Origination I LLC

DLZ Solutions LLC

HGC Origination I LLC and HGC Funding I LLC

HGC MPG Funding LLC

Operating income

Net income (loss)

The table below details the Company’s joint venture revenues, earnings, assets, and liabilities as of December 31, 2024 (in thousands):

Year Ended December 31, 2024

HGC Funding I LLC and Origination I LLC

HGC Origination I LLC and HGC Funding I LLC

HGC MPG Funding LLC

1 unchanged sentence

Net income (loss)

Note 5 - Lessor Arrangement

In April 2024, KNFH II LLC entered into a purchase and sale agreement for the machinery and equipment within the pharmaceutical plant with a purchase price of $ 5.0 million.

Additionally, KNFH II LLC entered into a lease agreement for the lease of the real estate assets;

the building and land.

This lease agreement includes a purchase option with a purchase price of $ 8.0 million that is expected to be exercised by the lessee.

As of December 31, 2025, the Company has recognized approximately $ 1.2 million in earnings from equity method investments related to the Company’s share of net income attributable to KNFH II LLC.

On January 29, 2025, DLZ, a joint venture in which the Company holds a 20 % share, entered into a purchase agreement for a pharmaceutical plant in Huntsville, Alabama, including land and a building, with a purchase price of approximately $ 7.8 million.

Simultaneously, DLZ entered into a lease agreement with the Seller, for the lease of the real estate assets, the building and land.

This lease agreement includes a purchase option exercisable prior to the end of the first 18-month lease term with a purchase price of approximately $ 9.7 million.

Concurrently, the Company sold a one-third economic interest in cash flows related to the DLZ investment, which is reflected as a secured borrowing on its balance sheet within other non-current liabilities.

As of December 31, 2025, the Company has recorded approximately $ 108,000 in earnings in equity method investments and approximately $ 36,000 in cost of services revenue related to the investment on the consolidated statement of income.

Additionally, on January 29, 2025, the Company purchased a 20 % participating interest in a financial asset for approximately $ 1.6 million.

The participants’ investment was used to purchase machinery and equipment at the same pharmaceutical plant in Huntsville, Alabama for approximately $ 7.8 million.

The participants entered into a lease agreement to lease the purchased machinery and equipment back to the seller with an 18-month lease term which includes purchase option exercisable prior to the end of the term with a purchase price of approximately $ 9.5 million.

As of December 31, 2025, the Company reflects its participating interest of $ 1.5 million on its balance sheet within other long-term assets.

Concurrently, the Company sold a one-third economic interest in cash flows related to its participating interest, which is reflected as a secured borrowing on its balance sheet within other non-current liabilities.

As of December 31, 2025, the Company has recorded approximately $ 112,000 in services revenue and approximately $ 37,000 in costs of services revenue related to the investment on the consolidated statement of income.

Note 6 – Earnings per Share

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Diluted weighted average common shares outstanding

For 2024 and 2023 there were potential common shares relating to common stock options totaling approximately 0.9 million and 0.8 million, respectively, that were excluded from the computation of diluted EPS as the inclusion of such shares would have been anti-dilutive.

For both 2025 and 2024 there were potential common shares relating to common stock options totaling approximately 0.9 million that were excluded from the computation of diluted EPS as the inclusion of such shares would have been anti-dilutive.

Note 7 – Leases

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On August 12, 2022, the Company entered into an agreement (the “Lease”) with Liberty Industrial Park, LLC (“Landlord”) pursuant to which the Company leases 6,627 square feet of industrial space in San Diego, California from Landlord.

The Lease has a commencement date of September 1, 2022.

The Lease has a commencement date of September 1, 2022 and ends on August 31, 2027 .

The Lease provides for an initial monthly base rent of $ 11,266 , which increases on an annual basis to $ 13,180 per month in the final year.

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On September 1, 2022, June 1, 2023, and September 23, 2024, the Company’s incremental borrowing rate was 5.50 %, 7.25 %, and 6.25 %, respectively.

The weighted average remaining lease term for operating leases is 3.2 years and the weighted average discount rate is 5.50 % as of December 31, 2024.

The weighted average remaining lease term for operating leases was 2.3 years and the weighted average discount rate was 5.42 % as of December 31, 2025.

The weighted average remaining lease term for operating leases was 3.2 years and the weighted average discount rate was 5.50 % as of December 31, 2024.

Lease expense for leases determined to be operating leases is recognized on a straight-line basis over the lease term.

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Expenditures for repairs and maintenance not considered to substantially lengthen the life of the asset or increase capacity or efficiency are charged to expense as incurred.

On February 11, 2025, the Company purchased real estate for $ 7.4 million consisting of land and a building which is used as the Company’s corporate headquarters and as warehouse and office space for the operations of HGP.

The Company allocated $ 2.8 million of the purchase price to the building and $ 4.6 million to the land.

The life of the building was determined to be 30 years and depreciation will begin when the building is placed into service upon the completion of construction in progress.

As of December 31, 2025, the Company capitalized $ 2.0 million of construction in progress related to ongoing building improvements.

Also included in the purchase transaction was an agreement for a short-term leaseback to the seller, which ended on March 31, 2025, and resulted in a credit within the closing statement of approximately $ 0.1 million.

This credit is considered rental income and classified as service revenue on our consolidated statement of income, and reflected as gross profit within our Corporate and other segment.

The following summarizes the components of the Company’s property and equipment (in thousands):

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Software and technology assets

Construction in process

Accumulated depreciation

Property and equipment, net

Depreciation expense related to property and equipment for the years ended December 31, 2024 and 2023 was $ 0.2 million and $ 0.1 million, respectively.

Depreciation expense related to property and equipment for both the years ended December 31, 2025 and 2024 was $ 0.2 million.

Note 9 – Intangible Assets and Goodwill

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Unamortized Trade Name (NLEX)

Amortization expense during both 2024 and 2023 was $ 0.4 million.

Amortization expense during 2025 and 2024 was $ 0.3 million and $ 0.4 million, respectively.

No significant residual value is estimated for these intangible assets.

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Due to Joint Venture partners

Deferred revenue

Construction in process

Sales and other taxes

Accounting, auditing and tax consulting

Accounting, tax and legal professional fees

Total accounts payable and accrued liabilities

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2021 credit facility

2023 credit facility

Non-current portion of third party debt:

2023 credit facility

Total third party debt

The Company's weighted average interest rate on debt borrowings as of December 31, 2025 and December 31, 2024 was 6.42 % and 8.75 %, respectively.

2021 Credit Facility

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The 2021 Credit Facility is secured by a security interest in certain of the Company’s subsidiaries’ current and future tangible and intangible assets, inventory, chattel paper, accounts, equipment and general intangibles, and a pledge of the equity of the direct and indirect subsidiaries of the Company.

On August 23, 2022, the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “2022 Modification Agreement”), effective as of April 1, 2022, by and between the Company and Lender.

The 2022 Modification Agreement modified and reaffirmed the 2021 Credit Facility to provide for, among other things, the arrangement of financial covenants, which remained unchanged, into two categories:

(i) financial covenants used to resize the maximum principal amount available to the Company as of the date of determination (as determined by Lender in its sole discretion), and (ii) financial covenants to be maintained by the Company.

On May 26, 2023, the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Modification Agreement”), effective as of May 26, 2023, by and between the Company and Lender.

The Modification Agreement modified and reaffirmed the 2021 Credit Facility to, among other things, extend the maturity date, modify the applicable interest rate, and further modify the loan covenants.

The maturity date was modified to October 27, 2024 .

The applicable interest rate spread and floor was modified to be the Wall Street Journal Prime rate plus 1.00 % (such rate not to be less than 6.75 % per annum).

Per the Loan Modification Agreement and Reaffirmation of Loan (the “2023 Modification Agreement”), effective as of May 26, 2023, by and between the Company and Lender, the applicable interest rate spread and floor of the 2021 Credit Facility was modified to be the Wall Street Journal Prime rate plus 1.00 % (such rate not to be less than 6.75 % per annum).

Additionally, the 2023 Modification Agreement modified the loan covenants to provide that the Company shall pay the Lender an annual unused line fee, payable on the earlier of (a) bi-annually every six (6) months in arrears, within ten (10) days thereof, commencing on October 27, 2023, or (b) the payment in full of the 2021 Credit Facility, but only if the average balance of the 2021 Credit Facility for the respective nine months is below $ 5.0 million.

2 unchanged sentences

The 2021 Credit Facility contains certain customary financial covenants and negative covenants that, among other things, include restrictions on the Company’s ability to create, incur or assume indebtedness for borrowed money, including capital leases or to sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of the Company’s assets.

As of December 31, 2024, there was no outstanding balance on the 2021 Credit Facility.

On July 24, 2024 the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Second Modification Agreement”), effective as of July 24, 2024, to modify certain loan covenants.

On October 4, 2024 the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Third Modification Agreement”), effective as of October 4, 2024, to extend the maturity date of the 2021 Credit Facility to December 27, 2024.

The Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Fourth Modification Agreement”), effective as of December 27, 2024, to extend the maturity date of the 2021 Credit Facility to June 27, 2026.

The Fourth Modification Agreement also raises the interest rate floor by 0.25 % to 7.0 % and modifies certain compliance covenants.

As of December 31, 2024 and 2023 the Company was in compliance with all financial and negative covenants.

The Company's weighted average interest rate on short-term borrowings as of December 31, 2024 and December 31, 2023 was 8.75 % and 9.51 %, respectively.

As of December 31, 2025 and 2024 there was no outstanding balance on the 2021 Credit Facility and the Company was in compliance with all financial and negative covenants.

On August 23, 2021, the Company entered into a $ 2.0 million subordinated promissory note with an interest rate of 3 % per annum and a maturity date of August 23, 2025 (the “ALT Note”) as part of the aggregate purchase price paid to acquire certain assets and liabilities of American Laboratory Trading.

The ALT Note requires 48 equal installments of approximately $ 44,000 on the first day of each month beginning September 23, 2021 with the final payment due on August 23, 2025.

The outstanding balance of the ALT Note as of December 31, 2024 was $ 0.4 million and was classified as "current".

As of December 31, 2025, there was no outstanding balance on the ALT Note.

2023 Credit Facility

2 unchanged sentences

On July 24, 2024, the Company paid $ 5.8 million for the full remaining principal balance outstanding of $ 5.7 million on its Term Loan agreement with C3 Bank, in advance of the loan’s April 27, 2028 maturity date, and $ 0.1 million in interest accrued to July 24, 2024.

On February 6, 2025, Heritage Nancy Ridge LLC (“Heritage Nancy Ridge”), an indirect and wholly owned subsidiary of the Company entered into a promissory note, a business loan agreement and commercial security agreement (collectively, the “Mortgage Loan Agreement”) with C3bank, National Association (the “Lender”).

The Mortgage Loan Agreement provides for a $ 4.1 million term loan (the “Mortgage”).

Heritage Nancy Ridge used the proceeds of the Mortgage to purchase real property and the building located at 6130 Nancy Ridge Drive in San Diego, California (the “Nancy Ridge Property”) on February 11, 2025, which is used as the Company’s corporate headquarters and as warehouse and office space for the operations of Heritage Global Partners, Inc., a subsidiary of the Company that operates the Auction and Liquidation segment of the Company.

The maturity date of the Mortgage is February 5, 2035 .

The Mortgage Loan Agreement sets the interest rate to accrue at a rate of 6.5 % for the first three years of the Mortgage.

For the remainder of the term, the Mortgage Loan Agreement sets the interest rate spread and interest rate floor to accrue at a variable interest rate, which is based on the one-month Term SOFR (Secured Overnight Finance Rate) as published daily by CME Group, plus a margin of

Additionally, the Mortgage Loan Agreement provides that in the event of prepayment, Heritage Nancy Ridge shall pay the Lender a prepayment fee during the first year of the Mortgage equal to three percent ( 3 %) of the amount prepaid, followed by two percent ( 2 %) of the amount prepaid in year two of the Mortgage, and one percent ( 1 %) of the amount prepaid in year three of the Mortgage.

Heritage Ridge Nancy is the borrower and the Company is the guarantor under the Mortgage Loan Agreement.

The Mortgage Loan Agreement is secured by a security interest in the Nancy Ridge Property.

The Mortgage Loan Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, maintenance of certain insurance coverage, compliance with governmental requirements and maintenance of several financial covenants.

The Mortgage Loan Agreement also contains certain customary financial covenants and negative covenants.

The outstanding balance of the Mortgage as of December 31, 2025 was $ 4.1 million.

Note 12 – Commitments and Contingencies

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As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

At December 31, 2023, management reevaluated the Company's performance and forecast for the next five years and concluded that there is sufficient positive evidence to conclude that is it more likely than not that additional deferred tax assets of $ 2.2 million are realizable.

At December 31, 2024 management reevaluated the Company's performance and forecast for the following five years and concluded that it is more likely than not that the Company will be able to use $ 24.3 million of the remaining $ 41.0 million federal NOL carryforwards.

Based on management's new estimate, the Company believes it is appropriate to increase the valuation allowance to a total of $ 3.5 million, recognizing $ 1.3 million as a discrete expense (tax effected at 21%) at December 31, 2024.

At December 31, 2024, the Company has aggregate federal net operating loss carry forwards of $ 41.0 million.

At December 31, 2024 management reevaluated the Company's performance and forecast for the following five years and concluded that it is more likely than not that the Company would be able to use $ 24.3 million of the remaining $ 41.0 million federal net operating loss carry forwards.

Based on management's estimate at December 31, 2024, the Company believed it was appropriate to increase the valuation allowance to a total of $ 3.5 million, recognizing $ 1.3 million as a discrete expense (tax effected at 21 %) at December 31, 2024.

As of December 31, 2025, approximately $ 18.9 million of federal net operating loss carry forwards were unused and expired.

The Company recorded discrete expense (tax effected at 21 %) of $ 0.5 million during 2025, reflecting the difference between the Company's valuation allowance estimate at December 31, 2024 and actual results in 2025.

As of December 31, 2025, the Company has aggregate federal net operating loss carry forwards of approximately $ 15.5 million.

These net operating loss carry forwards begin to expire in 2026.

The Company expects to utilize all remaining federal net operating loss carry forwards and no longer records a valuation allowance against its deferred tax assets.

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.

These rules, in general, provide that an ownership change occurs when the percentage shareholdings of 5% direct or indirect stockholders of a loss corporation have, in aggregate, increased by more than 50 percentage points during the immediately preceding three years.

Restrictions in net operating loss carry forwards occurred in 2001 as a result of the acquisition of the Company by Street Capital.

Pursuant to Section 382 of the Internal Revenue Code, the annual usage of the Company’s net operating loss carry forwards was limited to approximately $2.5 million per annum until 2008 and $1.7 million per annum through December 31, 2023.

As of December 31, 2023, all of the Company's restricted net operating loss carry forwards have been fully utilized.

The Company has no net operating loss carry forwards limited under Section 382 of the Internal Revenue Code as of December 31, 2024.

All loss taxation years remain open for audit pending the application of the respective tax losses against income in a subsequent taxation year.

10 unchanged sentences

Change in valuation allowance

Changes in unrecognized tax benefits

Income tax expense

Release of valuation allowance

Expiration of net operating loss carry forwards

Effective tax rate

Cash paid by the Company in 2025 related to state income tax (net of refunds received) was $ 0.7 million.

In 2025, the states and local jurisdictions that contribute to the majority (greater than 50%) of the tax effect in this category include California and Illinois.

The states and local jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received) are Illinois, where $ 0.3 million was paid for income taxes, and California where $ 0.2 million was paid for income taxes.

The Company did not incur or pay any foreign income taxes in 2025.

Income tax expense (benefit) for the years ended December 31, 2025 and 2024 was comprised of the following (in thousands):

18 unchanged sentences

Deferred tax assets, net of valuation allowance

The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022.

The IRA has not had a material impact to the Company’s financial statements for the tax years ended December 31, 2024 or 2023 and management does not believe it will have a material impact on the Company's financial statements in future tax years.

Uncertain Tax Positions

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

Upon adoption of this principle in 2007, the Company derecognized certain tax positions that, upon examination, more likely than not would not have been sustained as a recognized tax benefit.

As a result of derecognizing uncertain tax positions, the Company has recorded a cumulative reduction in its deferred tax assets of approximately $ 4.4 million associated with prior years’ tax benefits, which are not expected to be available primarily due to change of control usage restrictions, and a reduction in the rate of the tax benefit associated with all of its tax attributes.

Due to the Company’s historic policy of applying a valuation allowance against its deferred tax assets, the effect of the above was an offsetting reduction in the Company’s valuation allowance.

Accordingly, the above reduction had no net impact on the Company’s financial position, operations or cash flow.

As of December 31, 2024, the total unrecognized tax benefit has been determined to be $ 4.4 million.

In the unlikely event that these tax benefits are recognized in the future, the amount recognized at that time should result in a reduction in the Company’s effective tax rate.

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.

Because the Company has tax loss carry forwards in excess of the unrecognized tax benefits, the Company did not accrue for interest and penalties related to unrecognized tax benefits either upon the initial derecognition of uncertain tax positions or in the current period.

It is possible that the total amount of the Company’s unrecognized tax benefits will significantly increase or decrease within the next 12 months.

These changes may be the result of future audits, the application of “change in ownership” rules leading to further restrictions in tax losses arising from changes in the capital structure of the Company, reductions in available tax loss carry forwards through future merger, acquisition and/or disposition transactions, failure to continue a significant level of business activities, or other circumstances not known to management at this time.

At this time, an estimate of the range of reasonably possible outcomes cannot be made.

Note 14 – Related Party Transactions

12 unchanged sentences

The holders of shares of Series N preferred stock are entitled to liquidation preference over common stockholders equivalent to $ 1,000 per share.

During 2023, two shares of the Company’s Series N preferred stock were converted into 80 shares of the Company’s common stock.

No shares of the Company’s Series N preferred stock were converted during 2024.

No shares of the Company’s Series N preferred stock were converted during 2025 or 2024.

Stock-Based Compensation Plans

54 unchanged sentences

During 2025 and 2024, options to purchase 14,000 and 125,000 shares were exercised, respectively.

The tax benefit recognized by the Company related to these option exercises was approximately $ 0.1 million in 2024, as compared to $ 0.4 million recognized in 2023.

In connection with the stock option grants during 2024 and 2023, the fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

There was an immaterial tax benefit recognized by the Company related to these option exercises in 2025, as compared to a $ 0.1 million tax benefit recognized in 2024.

In connection with the stock option grants during 2025 and 2024, the fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Risk-free interest rate

20 unchanged sentences

At December 31, 2025 and 2024, the aggregate intrinsic value of exercisable options was $ 0.4 million and $ 0.9 million, respectively.

At December 31, 2024 and 2023, the aggregate intrinsic value of options exercised was $ 0.1 million and $ 0.2 million, respectively.

At December 31, 2025 and 2024, the aggregate intrinsic value of options exercised was approximately $ 2,500 and $ 0.1 million, respectively.

As of December 31, 2025, the total unrecognized stock-based compensation expense related to unvested stock options was $ 0.5 million, which is expected to be recognized over a weighted-average period of 1.4 years.

The total fair value of options vesting during both 2024 and 2023 was $ 0.6 million.

The total fair value of options vesting during 2025 and 2024 was $ 0.5 million and $ 0.6 million, respectively.

The unvested options have no associated performance conditions.

11 unchanged sentences

Compensation cost for these awards is based on the fair value of the shares of common stock 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 were subject to certain restrictions on transfer and a right of repurchase over five years, which ended on May 31, 2023.

Stock-based compensation expense related to the restricted stock awards, calculated by using the grant date fair value of $ 0.43 per share, was $ 21,500 for the year ended December 31, 2023.

There was no stock based compensation expense related to the restricted stock awards in 2024 and there was no unrecognized stock-based compensation expense as of December 31, 2024 or 2023.

On August 3, 2022, the Company granted 115,000 shares of Company restricted common stock to non-executive directors under the 2022 Heritage Global Inc.

Equity Incentive Plan.

Of the shares of Company restricted common stock granted during 2022, 40,000 shares were granted with a vesting term that was completed prior to the grant date due to a delay in the Company’s ability to grant such shares, and the remaining 75,000 shares vested in full on March 31, 2023.

We determined the fair value of the shares awarded by using the closing price of our common stock as of the grant date.

Stock-based compensation expense related to the restricted stock awards, calculated by using the grant date fair value of $ 1.58 per share, was $ 44,400 for the year ended December 31, 2023.

There was no stock based compensation expense related to the restricted stock awards in 2024 and there was no unrecognized stock-based compensation expense as of December 31, 2024 or 2023.

The following summarizes the restricted stock awards and related stock based compensation expense in 2025 and 2024 (in thousands, except share count and award fair value):

4 unchanged sentences

December 31, 2025

Ludwig Employment Agreements

March 1, 2023

March 1, 2024

Non-executive directors

August 3, 2022

March 31, 2023

1 unchanged sentence

March 7, 2024

March 7, 2025

Non-executive directors

1 unchanged sentence

March 7, 2025

January 1, 2025

December 31, 2028 [1]

March 6, 2025

3 unchanged sentences

March 6, 2026 [2]

[1] These restricted stock awards vest 25 % annually over four years, until fully vested on December 31, 2028.

[2] These restricted stock awards vest 25 % quarterly over one year, until fully vested on March 6, 2026.

The Company's unrecognized stock-based compensation expense related to restricted stock as of December 31, 2025 is expected to be recognized over a weighted average period of 1.4 years.

The tax benefit recognized by the Company related to restricted stock awards was approximately $ 0.4 million in 2024, as compared to $ 2.2 million recognized in 2023.

The tax benefit recognized by the Company related to restricted stock awards was approximately $ 0.4 million in both 2025 and 2024.

Note 17 – Segment Information

8 unchanged sentences

The Specialty Lending segment, through HGC, provides specialty financing solutions to investors in charged-off and nonperforming asset portfolios.

Our CODM evaluates the performance of the Company's reportable segments based primarily on operating income and routinely receives internal reports that analyze operating income for the reporting segments.

Our CODM evaluates the performance of the Company's reportable segments based primarily on gross profit and operating income.

The CODM routinely receives internal reports that analyze these metrics for the reporting segments.

The CODM is not routinely provided detailed information regarding significant operating expenses by segment, and such information is not considered critical for allocating resources or assessing the performance of each segment.

32 unchanged sentences

As a result, interest incurred may be charged to the segment and included in that segment’s profit or loss as a charge to operating expense.

In 2024, the total amount of interest allocated to Specialty Lending (HGC) from Corporate and other was approximately $ 0.3 million, as compared to the total amount of interest allocated to HGC in 2023 of approximately $ 0.5 million .

In 2025, no interest was allocated to Specialty Lending (HGC) from Corporate and other, as compared to the total amount of interest allocated to HGC in 2024 of approximately $ 0.3 million .

Note 18 – Subsequent Events

1 unchanged sentence

There have been no material subsequent events requiring recognition or disclosure in this Annual Report on Form 10-K, other than noted below.

On February 6, 2025, Heritage Nancy Ridge LLC (“Heritage Nancy Ridge”), an indirect and wholly-owned subsidiary of HG entered into a promissory note, a business loan agreement and commercial security agreement (collectively, the “Mortgage Loan Agreement”) with C3bank, National Association (the “Lender”).

The Mortgage Loan Agreement provides for a $ 4.1 million term loan (the “Mortgage”).

Heritage Nancy Ridge used the proceeds of the Mortgage to purchase real property and the building located at 6130 Nancy Ridge Drive in San Diego, California (the “Nancy Ridge Property”), which will be used as HG’s future corporate headquarters and as future warehouse and office space for the operations of HGP.

The maturity date of the Mortgage Loan Agreement is February 5, 2035 .

The Mortgage Loan Agreement sets the interest rate to accrue at a rate of 6.500% for the first three years of the Mortgage.

For the remainder of the term, the Mortgage Loan Agreement sets the interest rate spread and interest rate floor to accrue at a variable interest rate, which is based on the one-month Term SOFR as published daily by CME Group, plus a margin of 2.250%.

Heritage Ridge Nancy is the borrower and HG is the guarantor under the Mortgage Loan Agreement.

The Mortgage Loan Agreement is secured by a security interest in the Nancy Ridge Property.

Asset Purchase Agreement

On January 9, 2026, Heritage DebtX LLC (“Heritage DebtX LLC”), a Delaware limited liability company and wholly owned subsidiary of the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with The Debt Exchange, Inc., a Delaware corporation (“DebtX”), pursuant to which, among other things, Heritage DebtX LLC acquired, effective January 1, 2026, substantially all of the assets and certain liabilities of DebtX, including the assets utilized in the operation of DebtX’s business of providing loan-portfolio advisory and valuation, proprietary market-transaction data, and end-to-end execution support for banks, specialty-finance companies, government agencies, and institutional investors (the “Transaction”).

HG paid DebtX an aggregate purchase price of $ 8,450,000 in cash.

The source of funds used for the purchase price was cash on hand.

The Transaction closed on January 9, 2026.

Following the Transaction, Heritage DebtX LLC will operate within the Financial Assets Division of the Company.

The Purchase Agreement contains customary representations and warranties and covenants by each party.

The Company and DebtX are obligated, subject to certain limitations, to indemnify the other under the Purchase Agreement for losses arising from certain breaches of the Purchase Agreement and for certain other liabilities, subject to applicable limitations set forth in the Purchase Agreement.

The Purchase Agreement also imposes customary confidentiality, non-solicitation and non-compete obligations upon DebtX.

The above summary of certain terms and conditions of the Purchase Agreement does not purport to be a complete discussion of that agreement or related documents and is qualified in its entirety by reference to the Purchase Agreement, which is filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on January 12, 2026.

The Company is currently in the process of evaluating the fair values of the assets acquired and liabilities assumed and has not completed the initial accounting for the business combination.

Accordingly, the allocation of the purchase price to the underlying assets acquired and liabilities assumed has not yet been finalized.

For the year ended December 31, 2025, The Debt Exchange, Inc.

reported, on a standalone basis, revenues of approximately $ 6.6 million and operating income of approximately $ 0.8 million.

As the acquisition was effective on January 1, 2026, these unaudited results were not included in the Company’s consolidated results of operations for the year ended December 31, 2025.

The Company has not yet completed the information necessary to present pro forma financial information reflecting the acquisition as if it had occurred at the beginning of the periods presented.

Pro forma adjustments are expected to be primarily related to stock based and other compensation, and amortization of intangible assets.

Employment Agreement with Bruce Hounsell

In connection with the consummation of the Transaction, Heritage DebtX LLC entered into an employment agreement (the “Hounsell Employment Agreement”) on January 9, 2026 with Bruce Hounsell (“Mr.

Pursuant to the terms of the Hounsell Employment Agreement, Heritage DebtX LLC engaged Mr.

Hounsell as a consultant and independent contractor of Heritage DebtX LLC until January 26, 2026 (the “Hounsell Employment Date”).

Effective as of the Hounsell Employment Date, Heritage DebtX LLC employs Mr.

Hounsell to serve as Co-President until March 31, 2026, after which Mr.

Hounsell will transition into the role of President of Heritage DebtX LLC.

The Hounsell Employment Agreement is effective through January 26, 2029 and includes optional one-year extension periods.

The Hounsell Employment Agreement sets forth the terms of Mr.

Hounsell’s employment with Heritage DebtX LLC, including the following:

• An annual base salary of $ 400,000 .

• Eligibility to receive an annual, percentage-based performance bonus determined based on the achievement of certain net operating income metrics of Heritage DebtX LLC.

• A one-time grant of 500,000 non-qualified stock options (the “NQSOs”) pursuant to the 2022 Heritage Global Inc.

Equity Incentive Plan.

The NQSOs will vest ratably over three years.

• An arrangement among MaisieDog LLC, an entity co-owned by Mr.

Hounsell (“MaisieDog”), Heritage DebtX LLC, and Mr.

Hounsell (the “MaisieDog Arrangement”), pursuant to which (i) Heritage DebtX LLC will pay Mr.

Hounsell a commission for customer relationships that Mr.

Hounsell facilitates between Heritage DebtX LLC and certain customers of MaisieDog, or, (ii) if such customer engagements remain with MaisieDog, then Heritage DebtX LLC and MaisieDog will enter into a revenue-share arrangement in connection with such customer engagements.

In either case, the MaisieDog Arrangement will terminate once Mr.

Hounsell receives commissions or MaisieDog retains revenue that, in the aggregate, equal $ 500,000 , net of certain expenses.

• Eligibility to receive severance equal to the annual base salary upon termination by Heritage DebtX LLC without “cause” or by Mr.

Hounsell for “good reason.”

• Right to participate in other benefits and insurance plans available to HG executives in similarly-situated positions.

• Customary confidentiality, non-solicitation and non-compete obligations upon Mr.

The above summary of certain terms and conditions of the Hounsell Employment Agreement does not purport to be a complete discussion of that agreement or related documents and is qualified in its entirety by reference to the Hounsell Employment Agreement, which is filed as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed on January 12, 2026.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures