GLOBAL HERITAGE INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)

The following discussion and analysis should be read in conjunction with the
information contained in the unaudited condensed consolidated interim financial
statements of Heritage Global Inc. (together with its consolidated subsidiaries,
"we", "us", "our" or the "Company") and the related notes thereto for the three
and three month periods ended March 31, 2022 and 2021, appearing elsewhere
herein, and in conjunction with the Management's Discussion and Analysis of
Financial Condition and Results of Operations set forth in the Company's Annual
Report on Form 10-K for the year ended December 31, 2021, filed with the
Securities and Exchange Commission ("SEC") on March 17, 2022 (the "Form 10-K").

Forward-looking information

This Quarterly Report on Form 10-Q (the "Report") contains certain
"forward-looking statements" as defined by the Private Securities Litigation
Reform Act of 1995 that are based on management's exercise of business judgment
as well as assumptions made by, and information currently available to,
management. When used in this document, the words "may," "will," "anticipate,"
"believe," "estimate," "expect," "intend," and words of similar import, are
intended to identify any forward-looking statements. You should not place undue
reliance on these forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and trends that we believe may affect our financial
condition, results of operations, business strategy, short-term and long-term
business operations and objectives, and financial needs. These statements are
subject to certain risks, uncertainties, and assumptions, including the
important factors noted under Item 1A "Risk Factors" in our Form 10-K, and as
noted below. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, our actual results could differ
materially from those anticipated in these forward-looking statements. We
undertake no obligation, and do not intend, to update, revise or otherwise
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof, or to reflect the occurrence of
any unanticipated events. Although we believe that our expectations are based on
reasonable assumptions, we can give no assurance that our expectations will
materialize.

Overview, history and recent developments

Heritage Global Inc. ("HGI") was incorporated in the State of Florida in 1983
under the name "MedCross, Inc." The Company's name was changed to "I-Link
Incorporated" in 1997, to "Acceris Communications Inc." in 2003, to "C2 Global
Technologies Inc." in 2005, to "Counsel RB Capital Inc." in 2011, and to
"Heritage Global Inc." effective in 2013. The most recent name change more
closely identifies the Company with its core auction business, Heritage Global
Partners, Inc. ("HGP").

In 2014, HGI acquired all of the issued and outstanding capital stock in
National Loan Exchange, Inc. ("NLEX"), a broker of charged-off receivables in
the United States and Canada. As a result of this acquisition, NLEX operates as
one of our wholly-owned divisions.

In 2019, the Company created Legacy Global Capital LLC (“HGC”), a wholly owned subsidiary of HGI, to provide specialist financing solutions to investors in portfolios of written-off and non-performing assets.

In 2021, HGI acquired certain assets and liabilities of American Laboratory
Trading, one of the largest suppliers of premium refurbished lab equipment in
North America and a key provider of surplus asset services for the life
sciences. As a result of this acquisition, American Laboratory Trading operates
as one of our wholly-owned divisions, ALT.


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The organization chart below outlines our basic domestic corporate structure as
of March 31, 2022.


                              Heritage Global
                                   Inc.
                               (Florida) (1)

            100%                      100%                 100%                    100%
      Heritage Global         Heritage Global         National Loan          Heritage Global
       Partners, Inc.               LLC              Exchange, Inc.            Capital LLC
      (California) (2)        (Delaware) (3)         (Illinois) (5)           (Delaware)(6)

                                      100%
                               Heritage ALT
                                    LLC
                              (Delaware) (4)



(1) Registrant.
(2) Full service global auction, appraisal and asset advisory company that also
acquires and monetizes distressed and surplus assets.
(3) Holding Company.
(4) Supplier of refurbished lab equipment.
(5) Broker of charged-off and nonperforming receivables.
(6) Specialty financing solutions for charged-off and nonperforming asset
portfolios.

COVID-19[feminine]

The novel coronavirus ("COVID-19") pandemic had a negative impact on our
performance during 2021 due to evolving travel and work restrictions, stimulus
payments and credit policies impacting debt sales by financial institutions, and
a delay in the typical process for the sale of certain industrial assets by
manufacturing companies.

Going forward, and subject to the caveat below, we do not believe the COVID-19
pandemic will have material negative impacts on our financial performance, as we
expect that the supply of surplus industrial assets will return to pre-pandemic
levels and the continuing disruptions to the global supply chain, particularly
those involving industrial assets, will further increase demand for U.S.-based
surplus assets. Further, as stimulus payments conclude, we expect that the
COVID-19 pandemic will have the following positive impacts:

increased activity for NLEX and HGC due to increased volumes of non-performing and written-off consumer loans;

increased funding opportunities for HGC as lenders begin to increase loan volume
while loosening underwriting standards, which will subsequently increase loans
available to debt buyers of charged-off accounts; and

additional valuation opportunities for our valuation business due to the collateral focus on bank balance sheets.

Further surges in COVID-19 infection rates could result in the continuation of
stimulus payments and the implementation of additional credit policies impacting
debt sales that may result in delayed revenues depending on the scope and
magnitude of such policies.




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Industry and Competition

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 and 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. The market for these services and assets is
highly fragmented. To acquire auction or appraisal contracts, or assets for
resale, we compete with other liquidators, auction companies, dealers and
brokers. We also compete with them for potential purchasers. 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 ability to partner with one or more additional buyers pursuant to a partnership, joint venture, or limited liability company agreement (collectively, “Joint Ventures”). These joint ventures giving us access to more opportunities, helping to mitigate some of the competition from larger players in the market and contributing to our goal of being the primary resource for clients requiring financial and industrial asset solutions.

Our competitive strengths

We believe that we have attributes that differentiate us from our competitors and provide us with significant competitive advantages. Our main 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. Consumer lending and resulting charge-offs are
expected to continue their upward trend to meet, and possibly exceed,
pre-pandemic levels which we believe will drive 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 to improve the economics of auctions by more frequently playing the role of principal in industrial asset transactions, rather than the role of low-margin broker.

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. Mr. 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 transactions. 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 continued his employment with us in an advisory capacity,
and is expected to do so until December 31, 2024. Also, during 2020, Nick Dove
was appointed as President, Industrial Assets Division, and David Ludwig was
appointed as President, 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 NLEX, 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.

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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 lenders,
peer-to-peer lending and Buy Now Pay Later 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.

Through HGC, we provide specialty financing solutions to investors in
charged-off and nonperforming asset portfolios. Since the inception of HGC in
2019, we have issued $44.6 million in total loans to investors by both
self-funded loans and in partnership with senior lenders. Our portion of the
total loans funded since inception is $16.4 million. Our income from secured
lending consists of upfront fees, interest income, monthly monitoring fees and
backend profit share. In general, we expect to earn an annual rate of return on
our share of notes receivable outstanding of approximately 20% or more based on
established terms of the loans funded and performance of collections.

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. The acquisition of ALT further strengthens our service offering in
the biotech and pharma sectors, which have been key verticals over the past
decade.

Our management team has decades of domain expertise with the ability to leverage
extensive industry relationships, real time access to databases of buyers and
sales, as well as a deep understanding of the underlying asset value across the
more than 25 industrial sectors in which we operate. We believe we have the
opportunity for growth in our auction services through our ability to secure
ongoing contracts with large multinational sellers, to be a first mover in
emerging sectors, and to gain market share in sectors in which we are currently
less active. Our extensive network and ability to find and source new
opportunities are key factors for expansion. 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 regulations

We are subject to federal, state and local consumer protection laws, including
laws protecting the privacy of customer non-public information and regulations
prohibiting unfair and deceptive trade practices. Many jurisdictions also
regulate "auctions" and "auctioneers" and may regulate online auction services.
These consumer protection laws and regulations could result in substantial
compliance costs and could interfere with the conduct of our business.

Legislation in the United States has increased public companies' regulatory and
compliance costs as well as the scope and cost of work provided by independent
registered public accountants and legal advisors. As regulatory and compliance
guidelines continue to evolve, we 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.

Critical accounting policies

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

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Significant estimates required in the preparation of the unaudited condensed
consolidated interim financial statements included in this Report include the
assessment of collectability of revenue recognized, and the valuation of
accounts receivable, inventory, other assets, right-of-use assets, goodwill,
intangible assets, liabilities, deferred income tax assets and liabilities and
stock-based compensation. These estimates are considered significant either
because of the significance of the financial statement items to which they
relate, or because they require judgment and estimation due to the uncertainty
involved in measuring, at a specific point in time, events that are continuous
in nature.

We have no off-balance sheet arrangements.

We have not paid any dividends and do not expect to pay any in the future.

The significant accounting policies used in the preparation of our audited consolidated financial statements are described in our Form 10-K. No changes have been made to these policies in the past three months March 31, 2022.

Management’s analysis of the financial situation

Cash and capital resources

Liquidity

We had a working capital of $8.8 million and $9.1 million from March 31, 2022 and
December 31, 2021respectively.

On October 6, 2020, we completed a public offering (the "2020 Public Offering")
of 5,462,500 shares of our common stock, at a public offering price of $1.75 per
share, which included a full exercise of the underwriters' option to purchase
712,500 additional shares of common stock from us. We received approximately
$8.7 million of net proceeds, after deducting underwriting discounts and
commissions, but before offering expenses. During 2021 and the three months
ended March 31, 2022, we deployed proceeds to fund the ALT acquisition, as well
as various principal transactions in both our Financial Assets and Industrial
Assets Divisions.

Our current assets as of March 31, 2022 increased to $24.1 million compared to
$23.3 million as of December 31, 2021 primarily due to an increase cash as a
result of cash provided by operating activities during the three months ended
March 31, 2022. Our current liabilities as of March 31, 2022 increased to $15.4
million compared to $14.2 million as of December 31, 2021. The most significant
change was an increase of $3.3 million in our payables to sellers due to the
timing of certain asset liquidation settlements, offset by a decrease in
accounts payable and accrued liabilities of $1.7 million and further offset by a
decrease in the current portion of third party debt of $0.5 million.

During the three months ended March 31, 2022, our primary source of cash was the
cash on hand plus the cash provided by our asset liquidation business. Cash
disbursements during the three months ended March 31, 2022 consisted primarily
of investments in equity method investments of $2.1 million, repayment on our
2021 Credit Facility of $0.5 million, payment of operating expenses, and
settlement of auction liabilities.

We believe we can fund our operations and our debt service obligations for at
least 12 months from the date of filing this quarterly report through a
combination of cash flows from our on-going asset liquidation operations,
proceeds from the 2020 Public Offering, and draws on our 2021 Credit Facility,
as needed.

Our indebtedness consists of a promissory note dated August 23, 2021 (the "ALT
Note") issued in the amount of $2.0 million as part of the aggregate purchase
price paid to acquire certain assets and liabilities of American Laboratory
Trading, as well as any amounts borrowed under our Credit Facility. We are
required to pay off the ALT Note in 48 equal installments of approximately
$44,000 with an interest rate of 3% per annum and a maturity date of August 23,
2025. On May 5, 2021, we entered into a secured promissory note, business loan
agreement, commercial security agreement and agreement to provide insurance (the
"Credit Facility") with C3bank, National Association for a $10.0 million
revolving line of credit. The Credit Facility matures on May 7, 2023 and
replaces our previous credit facility with C3bank of $5.0 million, which matured
on April 5, 2021. We are permitted to use the proceeds of the loan solely for
our business operations. As of March 31, 2022, we had an outstanding balance of
$1.4 million on the Credit Facility.


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Ownership structure and capital resources

From March 31, 2022the Company had shareholders’ equity of $33.4 millioncompared to $32.6 million from December 31, 2021.

On May 5, 2021the Company entered into the 2021 Credit Facility. The 2021 Credit Facility has a maturity date of May 7, 2023. From March 31, 2022we had an outstanding balance of $1.4 million on the credit facility.

We determine our future capital and operating requirements based upon our
current and projected operating performance and the extent of our contractual
commitments. We expect to be able to finance our future operations through cash
flows from our asset liquidation business, proceeds from the 2020 Public
Offering, and draws on the 2021 Credit Facility, as needed. Capital requirements
are generally limited to repayment of our debt obligations, investments in notes
receivables, purchases of surplus and distressed assets and payment on lease
obligations. We believe that our current capital resources are sufficient for
these requirements. In the event additional capital is needed, we will draw on
the 2021 Credit Facility.

Cash Position and Cash Flows

Cash and cash equivalents at March 31, 2022 have been $15.1 million compared to
$13.6 million from December 31, 2021an increase of approximately $1.5 million.

Cash provided by (used in) operating activities. Cash provided by operations was
$3.1 million during the three months ended March 31, 2022 as compared to cash
used in operating activities of $5.8 million during the same period in 2021. The
approximate $8.9 million change was primarily attributable to a change of $9.2
million in operating assets and liabilities during the three months ended March
31, 2022 as compared to the same period in 2021. The amount was further
attributable to a change in net income adjusted for noncash items, which was
$0.3 million lower during the three months ended March 31, 2022 as compared to
the same period in 2021.

The significant changes in operating assets and liabilities during the three
months ended March 31, 2022 as compared to the same period in 2021 are primarily
due to the nature of our operations. We earn revenue from discrete asset
liquidation deals that vary considerably with respect to their magnitude and
timing, and that can consist of fees, commissions, asset sale proceeds, or a
combination thereof. The operating assets and liabilities associated with these
deals are, therefore, subject to the same variability and can be quite different
at the end of any given period.

Cash used in investing activities. Cash used in investing activities during the
three months ended March 31, 2022 was $1.0 million compared to cash used in
investing activities of $1.6 million during the same period in 2021. The
approximate $0.6 million change was attributable to investing activities related
to our specialty lending division, in both notes receivable and equity method
investments.

Cash used in financing activities. Cash used in financing activities was
approximately $0.6 million during the three months ended March 31, 2022 compared
to cash used in financing activities of $0.1 million during the three months
ended March 31, 2021. Financing activities during the three months ended March
31, 2022 consisted primarily of a $0.5 million repayment to our 2021 Credit
Facility, $0.1 million in repayments to our ALT Note, and payments of tax
withholdings related to cashless exercises of stock option awards, in excess of
proceeds from issuance of common stock related to standard exercises of stock
option awards. Financing activities during the three months ended March 31, 2021
consisted primarily of payments of tax withholdings related to cashless
exercises of stock option awards, in excess of proceeds from issuance of common
stock related to standard exercises of stock option awards.

Share buyback program

On May 5, 2022, the Company's Board of Directors authorized the repurchase of up
to $4.0 million of the Company's outstanding shares of common stock over a
three-year period following the effective date of the share repurchase program
("2022 Repurchase Program"). The timing and actual number of shares repurchased
will depend on a variety of factors, including price, general business and
market conditions, and the existence of opportunities in the Company's business.
Under the repurchase program, repurchases can be made from time to time using a
variety of methods, including open market purchases. The repurchase program does
not obligate the Company to acquire any particular amount of common shares, and
the repurchase program may be suspended or discontinued at any time at the
Company's discretion.

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Contractual obligations

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

On August 23, 2021, a wholly-owned subsidiary ("ALT Purchaser") of HGI acquired
(the "Transaction") certain assets and liabilities of American Laboratory
Trading, pursuant to the terms and conditions of an Asset Purchase Agreement
(the "Asset Purchase Agreement"), dated August 18, 2021, among the Company,
American Laboratory Trading and certain individuals named therein. The aggregate
purchase price paid to American Laboratory Trading was approximately $4.3
million, consisting of $2.3 million in cash and 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"). The Asset Purchase Agreement contains
customary representations and warranties and covenants by each party. American
Laboratory Trading and ALT Purchaser are obligated, subject to certain
limitations, to indemnify the other under the Asset Purchase Agreement for
losses arising from certain breaches of the Asset Purchase Agreement and for
certain other liabilities, subject to applicable limitations set forth in the
Asset Purchase Agreement. HGI has guaranteed the obligations of ALT Purchaser
under the terms of the Asset Purchase Agreement and the ALT Note.

Management comments on operating results

The following table sets out the Company's condensed consolidated results of
operations for the three months ended March 31, 2022 and 2021 (dollars in
thousands).

                                           Three Months Ended March 31,                 Change
                                             2022                2021           Dollars        Percent
Revenues:
Services revenue                         $       4,168       $       5,030     $     (862 )          (17 )%
Asset sales                                      5,189               2,071          3,118            151 %
Total revenues                                   9,357               7,101          2,256             32 %

Operating costs and expenses:
Cost of services revenue                           754               1,175           (421 )          (36 )%
Cost of asset sales                              3,402                 820          2,582            315 %
Selling, general and administrative              4,275               3,969            306              8 %
Depreciation and amortization                      133                  91             42             46 %
Total operating costs and expenses               8,564               6,055          2,509             41 %
Earnings of equity method investments               82                   -             82            100 %
Operating income                                   875               1,046           (171 )          (16 )%
Interest and other expense, net                    (38 )                 3            (41 )         1367 %
Income before income tax expense                   837               1,049           (212 )          (20 )%
Income tax expense                                 192                  17            175           1029 %
Net income                               $         645       $       1,032     $     (387 )          (38 )%


Our asset liquidation business model has several components: (1) traditional
fee-based asset disposition services, such as commissions from on-line and
webcast auctions, liquidations and negotiated sales, and commissions from the
NLEX charged-off receivables business, (2) the acquisition and subsequent
disposition of distressed and surplus assets, including industrial machinery and
equipment and real estate, and (3) fees earned for appraisal, management
advisory services and specialty finance services.

We report segment information based on the "management" approach. The management
approach designates the internal reporting used by management for making
decisions and assessing performance as the source of our reportable segments. We
manage our business primarily on differentiated revenue streams for services
offered. Our reportable segments consist of the Industrial Asset Division and
Financial 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. 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.

We assess the performance of its reportable segments primarily on the basis of net operating income. Additionally, we do not use asset segment information to assess the performance of its reportable segments and we do not include intercompany transfers between segments for management reporting purposes.

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The following table sets forth certain financial information for the Company’s reportable segments (in thousands):

                                  Three Months Ended March 31,
                                  2022                   2021
Industrial Assets Division:
Net operating income          $         846         $         1,340

Financial Assets Division:
Net operating income          $         731         $           461

Corporate and Other:
Net operating loss            $        (702 )       $          (755 )

Consolidated:
Net operating income          $         875         $         1,046



Three-month period ended March 31, 2022 Compared to the three-month period ended
March 31, 2021

Revenues and cost of revenues - Revenues were $9.4 million during the three
months ended March 31, 2022 compared to $7.1 million during the same period in
2021. Costs of services revenue and asset sales were $4.2 million during the
three months ended March 31, 2022 compared to $2.0 million during the same
period in 2021. The gross profit of these items was $5.2 million during the
three months ended March 31, 2022 compared to $5.1 million during the same
period in 2021, an increase of approximately $0.1 million, or approximately 2%.
The increased gross profit in the first quarter of 2022 reflects the vagaries of
the timing and magnitude of asset liquidation transactions.

Selling, general and administrative expenses – Selling, general and administrative expenses have been $4.3 million in the three months ended March 31, 2022 compared to $4.0 million at the same time in 2021.

Significant components of selling, general and administrative expense for the
three months ended March 31, 2022 and March 31, 2021 are shown below (dollars in
thousands):

                                                    Three Months Ended March 31,
                                                      2022                2021           % change
Compensation
HGP                                               $       1,249       $       1,613             (23 )%
ALT                                                         380                   -             100 %
NLEX                                                        867                 873              (1 )%
HGI                                                         261                 288              (9 )%
HGC                                                         145                 130              12 %
Stock-based compensation                                    106                 143             (26 )%

Consulting                                                   16                  13              23 %
Board of Directors fees                                      73                  67               9 %
Accounting, tax and legal professional fees                 311                 255              22 %
Insurance                                                   117                 121              (3 )%
Occupancy                                                   263                 222              18 %
Travel and entertainment                                    212                  39             444 %
Advertising and promotion                                   113                  87              30 %
Information technology support                               86                  68              26 %
Other                                                        76                  50              52 %

Total selling, general and administrative expenses $4,275 $

  3,969               8 %





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As compared to the first quarter of 2021, there was an increase in selling,
general and administrative expense during the first quarter of 2022 due to
increased compensation expense related to the acquisition of ALT in the third
quarter of 2021 and increased travel and entertainment as a result of lifted
travel restrictions related to the COVID-19 pandemic. The increase was offset by
decreased compensation expense within our HGP division as a result of declined
financial performance as compared to the first quarter of 2021.

Depreciation and amortization expense - Depreciation and amortization expense
was $0.1 million during the three months ended March 31, 2022 and the same
period in 2021, which consisted primarily of amortization expense related to
intangible assets.

Key Performance Indicators

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

We prepared our unaudited condensed consolidated financial statements in
accordance with GAAP. We define EBITDA as net income plus depreciation and
amortization, interest and other expense, and provision for income taxes.
Adjusted EBITDA reflects EBITDA adjusted further to eliminate the effects of
stock-based compensation. Management uses EBITDA and Adjusted EBITDA in
assessing the Company's results, evaluating the Company's performance and in
reaching operating and strategic decisions. Management believes that the
presentation of EBITDA and Adjusted EBITDA, when considered together with our
GAAP financial statements and the reconciliation to the most directly comparable
GAAP financial measure, is useful in providing investors a more complete
understanding of the factors and trends affecting the underlying performance of
the Company on a historical and ongoing basis. Our use of EBITDA and Adjusted
EBITDA is not meant to be, and should not be, considered in isolation or as a
substitute for, or superior to, any GAAP financial measure. You should carefully
evaluate the financial information below, which reconciles our GAAP reported net
income to EBITDA and Adjusted EBITDA for the periods presented (in thousands).


                                    Three Months Ended March 31,
                                      2022                2021
Net income                        $         645       $       1,032
Add back:
Depreciation and amortization               133                  91
Interest and other expense, net              38                  (3 )
Income tax expense                          192                  17
EBITDA                                    1,008               1,137

Management add back:
Stock based compensation                    106                 143
Separation Agreement                          -                 200
Adjusted EBITDA                   $       1,114       $       1,480

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