What changed in this filing

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Item 1. Business

2021-03-08 compared with 2020-03-09 · 94 added, 29 removed, 37 unchanged (77% of the section changed)

1 unchanged sentence

Heritage Global Inc.

(“HGI”, and together with its consolidated subsidiaries, “we”, “us”, “our” or the “Company”) was incorporated in Florida in 1983 under the name “MedCross, Inc.” Our 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.

The most recent name change more closely identifies HGI with its core auction business, Heritage Global Partners, Inc.

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 operates as one of our wholly owned divisions.

is an asset services company specializing in financial and industrial asset transactions.

We provide a full suite of services including market making, acquisitions, dispositions, valuations and secured lending.

We focus on identifying, valuing, acquiring and monetizing underlying tangible and intangible assets across twenty-eight global sectors.

We act as an adviser, as well as a principal, acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, 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 Equity Partners HG LLC (“Equity Partners”), thereby expanding our operations.

Refer to “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Equity Partners Separation” for information regarding the separation of the Company and Ken Mann, Managing Director of Equity Partners at December 31, 2019.

In 2012, we increased our in-house asset liquidation expertise with our acquisition of 100% of the outstanding equity of Heritage Global Partners, Inc.

(“HGP”), a global full-service auction, appraisal and asset advisory firm.

In 2014, we again expanded our asset liquidation operations with the acquisition of 100% of the outstanding equity of National Loan Exchange, Inc.

NLEX is the largest volume broker of charged-off receivables in the United States and Canada, and its offerings include national, state and regional portfolios on behalf of many of the world’s top financial institutions.

The NLEX acquisition is consistent with our strategy to expand and diversify the services provided by 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.

Corporate Information

HGI was incorporated in Florida in 1983 under the name “MedCross, Inc.” Our 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.

The most recent name change more closely identifies HGI with its core industrial auction business, HGP.

Our corporate headquarters are located at 12625 High Bluff Drive, Suite 305, San Diego, CA 92130.

Our telephone number is (858) 847-0656 and our corporate website is www.h g inc.com .

The organization chart below outlines our basic domestic corporate structure as of December 31, 2020.

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Full service global auction, appraisal and asset advisory company.

Asset liquidation company which acquires and monetizes distressed and surplus assets.

Asset liquidation company that acquires and monetizes distressed and surplus assets.

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

Broker of charged-off receivables.

Broker of charged-off and nonperforming receivables.

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

Asset liquidation

We are a diversified financial services company providing acquisition, disposition, valuation and lending services for surplus and distressed assets.

We specialize both in acting as an adviser, as well as acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, real estate, accounts receivable portfolios, and intellectual property.

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 Equity Partners HG LLC f/k/a EP USA, LLC (“Equity Partners”), thereby expanding our operations.

Refer to “Item 7.

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.

In 2014, we again expanded our asset liquidation operations with the acquisition of 100% of the outstanding equity of NLEX.

The NLEX acquisition is consistent with our strategy to expand and diversify the services provided by its asset liquidation business.

As a result of the events and acquisitions outlined above, management believes that our expanded platform will allow us to achieve our long term industry leadership goals.

As of December 31, 2019, we had 46 employees:

30 are employed by HGP and 16 by NLEX.

The spread of the novel coronavirus (“COVID-19”) pandemic had a minor negative impact on our performance for the year ended December 31, 2020 due to evolving 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 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 the COVID-19 pandemic and any downward trends in the overall economy, resulting in more potential for principal and fee based deals.

We believe that the continuing disruptions to the global supply chain, particularly those involving industrial assets, will further increase demand for U.S.-based surplus assets.

Further, we expect that the COVID-19 pandemic will have the following positive impacts on our business:

• continued increase in demand for HGP’s online auctions as a result of ongoing social distancing requirements in connection with the COVID-19 pandemic;

• increased activity for NLEX and HGC due to expanding volumes of nonperforming and charged-off consumer loans;

• increased funding opportunities for HGC due to tightening underwriting standards at conventional lenders;

• incremental valuation opportunities for our valuation business as a result of greater focus on collateral on bank balance sheets.

However, positive expected impacts of the COVID-19 pandemic on our business could be offset, at least in part, by negative impacts on certain of our business units relying on travel and field work.

Any continuation of travel and work restrictions may result in decreased revenues depending on the scope and duration of such restrictions.

As of December 31, 2020, we had 46 total and full-time employees:

29 are employed by HGP, 14 by NLEX, and three by HGC.

Industry and Competition

Our asset liquidation business consists primarily of the auction, appraisal and asset advisory services provided by HGP and the accounts receivable brokerage services provided by NLEX.

Our asset liquidation business consists primarily of the auction, appraisal and asset advisory services provided by our Industrial Assets division and the accounts receivable brokerage specialty financing services provided by our Financials Assets division, each of which is further described below.

Our asset liquidation business also includes the purchase and sale, including at auction, of industrial machinery and equipment, real estate, inventories, accounts receivable and distressed debt.

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Some competitors have significantly greater financial and marketing resources and name recognition.

We believe that 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 intend to 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 financial metrics reflected on our 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 capital asset solutions.

Our Competitive Strengths

We believe we have attributes that differentiate us from our competitors and provide us with significant competitive advantages.

Our key competitive strengths are described below.

Differentiated Business Model .

We believe we have diversified business lines serving the financial and industrial asset liquidation market.

We have multiple revenue streams in our brokerage and principal based auction services, advisory services and secured lending services.

Further, our business is event-driven and we have repeat, forward-flow contracts in place with industry leading customers.

We expect to drive growth in our revenue streams by taking different roles, and using partners as needed.

Compelling Macro Growth Drivers .

Historically, recessions drive an increased supply of surplus assets and increased demand for liquidation services, which we believe we are well-positioned to provide.

Further, we believe the trend of growth in the marketplace of lending platforms is driving an increased supply of non-performing consumer loans.

Additionally, we believe an active market for mergers and acquisitions in manufacturing industries drives demand for industrial asset liquidations and our services.

The market in which we operate is highly fragmented, presenting a continued opportunity for the Company to increase market share and drive consolidation.

High Return on Invested Capital .

We believe we have an opportunity, upon securing additional working capital, to drive improved auction economics by serving more frequently in the role of principal rather than the lower margin role of broker.

Further, we believe we have a strong growth opportunity in providing secured loans to our financial asset debt buyers, a service we are providing through HGC.

Strong Management Team .

We have built an experienced executive-level management team with deep domain expertise.

Our President and Chief Executive Officer, Ross Dove, is a third-generation auctioneer and a pioneering innovator in applying technology to the asset liquidation industry.

Dove began his career in the auction business over thirty years

ago, beginning with a small family-owned auction house and helping to expand it into a global firm, DoveBid , which was sold to a third party in 2008.

In addition, our senior management team has deep domain expertise in both industrial asset and financial asset trans actions.

On September 17, 2020, we entered into an Employment Agreement with Kirk Dove, the former President and Chief Operating Officer of the Company.

Upon his resignation , Kirk Dove will continue his employment with us in an advisory capacity until December 31, 2024.

Also during 2020, Nick Dove was appointed as Presid ent, Industrial Assets Division, and David Ludwig was appointed as Presi dent, Financial Assets Division .

Nick Dove previously served as Executive Vice President of Sales of Heritage Global Partners since August 2017.

David Ludwig previously served as President of N LEX , a wholly owned subsidiary of the Company, and has served in such capacity since the Company acquired NLEX in 2014.

Financial Assets Division

Our Financial Assets division provides liquidity to issuers of consumer credit that are looking to monetize nonperforming and charged-off loans — loans that creditors have written off as uncollectable.

Nonperforming and charged-off loans typically originate from banks that issue unsecured consumer credit.

Through NLEX, we act as an advisor for sales of charged-off and nonperforming asset portfolios via an electronic auction exchange platform for banks, the U.S.

government, and other debt holders throughout the United States and Canada.

Since the 1980s, NLEX has sold over $150 billion face value of performing, nonperforming and charged-off assets.

NLEX sales are concentrated in online, automotive, consumer credit card, student loan and real estate charge-offs.

The typical credit we broker sells at a deep discount to face value, and we typically receive a commission for these services from both buyers and sellers.

We have existing relationships with high quality, top-tier and mid-tier debt buyers.

NLEX is in the process of expanding into the FinTech and peer-to-peer lending sectors, where we believe NLEX has opportunity for significant growth.

In addition, we plan to add post-sale initiatives, making our services more attractive to our customers as compared to our competitors.

We expect that our income from secured lending will consist of upfront fees, interest income, monthly monitoring fees and backend profit share.

Our management team has decades of domain expertise with the ability to leverage extensive funding activity and widespread industry relationships.

We believe we have the opportunity for growth through increased penetration of the underserved market of mid-tier buyers of charged-off receivables, providing more economic financing options and a greater variety of funding solutions to our customers.

Industrial Assets Division

Our Industrial Assets division advises enterprise and financial customers on the sale of industrial assets mostly from surplus and sometimes distressed circumstances while acting as an agent, guarantor or principal in the sale.

The fees for our services typically range from 15–50%, depending on our role and the transaction.

This division predominantly targets sellers of surplus or distressed “inside the building” assets.

Our buyers consist of both end-users and dealers.

Our management team has decades of domain expertise with the ability to leverage extensive industry relationships and has access to a real-time database of actual sales data across 28 industrial sectors.

We believe we have the opportunity for growth in our auction services through shifting toward higher-contribution principal deals and, assuming the acceleration of mergers and acquisitions in manufacturing industries continues, increased auction services for sales of surplus equipment.

Further, we intend to increasingly leverage our Capital Asset Redeployment Enterprise (CARE) software package, which provides an internal asset redeployment management system for corporations.

We believe we have the opportunity for growth in our valuation services through the addition of incremental bank-approved vendor lists, geographic expansion and through deeper penetration with our existing bank relationships.

Government Regulation

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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.

Le gislation 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 may incur additional costs in the future , which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.

Available Information

We file certain reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

We file certain reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and any amendments to those reports.

The SEC maintains an Internet site at http://www.sec.gov that contains the reports and information statements and other information we file electronically.

Our website address is www.heritageglobalinc.com .

Through our website, we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Our website address is www.hginc.com .

Please note that our website address is provided as an inactive textual reference only.

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What changed 10-K

Item 1. Business