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Heritage Global Inc. Reports 2014 Q1 Operating Results

Heritage Global Inc. (OTCQB:HGBL, CSE:HGP), a leader in distressed and surplus capital assets valuations and transactions, today reported financial results for the first quarter ended March 31, 2014 as summarized below.

               
      Summary Financial Data      
      (unaudited)        
($ in thousands, except per share amounts)            

Three months

ended

March 31,

2014         2013
Total asset liquidation revenue(1) $   1,985 $   1,392
Earnings (loss) of equity accounted asset liquidation investments(2) (30 ) 802
Operating loss (777 ) (905 )
Net loss (25,571 ) (647 )
      Loss per diluted common share             $   (0.91 )         $   (0.02 )        
 
(1)     Represents revenue generated from activities where Heritage Global acted in a principal capacity or had majority interest in a transaction.
(2) Represents equity income from activities where Heritage Global acted as a member of a syndicate in a transaction. Figure is net of tax of $0.
 

2014 Q1 Summary:

  • The Company’s operating loss was $777,000, down from an operating loss of $905,000 in the 2013 period.
  • Combined asset liquidation revenue and earnings (loss) of equity accounted asset liquidation investments (pre-tax) was approximately $2.0 million, compared to $2.2 million in the prior year period.
  • The Company did not record intellectual property licensing revenue during Q1 2014, but did receive $200,000 related to settlement of a patent infringement lawsuit in Q1 2013.
  • SG&A expenditures, including expenses paid to related parties, declined 19% to $2.1 million, versus $2.6 million in the year-ago quarter, principally reflecting the salaries and forfeiture of options by the former Co-CEOs and other employees that departed the Company effective June 30, 2013.
  • Total operating costs and expenses declined 18% to $2.7 million, largely due to the aforementioned SG&A reduction.
  • Net loss for the period was $25.6 million, or $0.91 per diluted common share. The Company decided to set up a valuation reserve, amounting to approximately $24.7 million, against its deferred income tax assets. The deferred income tax assets represent the future tax benefits of loss carryforwards from prior years. The reserve was a one-time, non-cash item.

Heritage Global Partners Managing Partner Ross Dove stated, “Heritage Global’s asset liquidation, advisory, going concern and investment banking businesses are all showing positive signs of growth. Successfully completed recent auctions included the assets of a GE Energy Management Division Plant in MN as well as ongoing online sales for Pfizer Inc. A sampling of upcoming auctions includes: a unique sale of the mobile fleet of PET and CT imaging equipment and trailers on behalf of Radiology Corporation of America in late May; North America’s two largest apparel manufacturing auctions on behalf of Riverside Manufacturing Company in early June; and also in early June, an equipment sale for Deluxe Laboratories, Inc.’s Hollywood film processing facility. Our European operation is starting to win significant contracts, with the most notable being the auction of the assets of Lufthansa Technik Airmotive Ireland’s Dublin plant. Our forward flow contract business is also growing as we sign new clients and expand our programs with existing clients. And our strategic alliance with Colliers International, to jointly pursue opportunities for turnkey brokerage of distressed manufacturing facilities, is generating new business.”

Heritage Global Partners Managing Partner Kirk Dove added, “On the expense side, we are benefitting from a streamlined operating structure with reduced corporate overhead as we integrate all of our operating platforms. Lastly, we wish to extend a warm welcome to our many new shareholders – many of them residing in Canada – as a result of Counsel Corporation’s recent move to dividend their entire Heritage Global holding to their shareholders as they turn their focus exclusively to their financial services business. Our shares were recently also listed on the Canadian Securities Exchange under the stock symbol HGP.”

About Heritage Global Inc. (www.heritageglobalinc.com)

Heritage Global Inc. (OTCQB:HGBL, CSE:HGP) is a value-driven, innovative leader in distressed and surplus capital assets valuations and transactions. The Company focuses on identifying, valuing, acquiring and monetizing distressed and surplus capital assets in 25 global manufacturing and technology sectors. It specializes in both acting as an advisor as well as acquiring turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, accounts receivable portfolios and related intellectual property.

Forward-Looking Statements

The statements made in this release that are not historical facts contain forward-looking information that involves risks and uncertainties. All statements, other than statements of historical facts, which address the Company's expectations, should be considered as forward-looking statements. Such statements are based on knowledge of the environment in which the Company currently operates, but because of the factors listed herein, as well as other factors beyond the Company's control, actual results may differ materially from the expectations expressed in the forward-looking statements. Important factors that may cause actual results to differ from anticipated results include, but are not limited to, obtaining necessary approvals and other risks detailed from time to time in the Company's securities and other regulatory filings.

             
HERITAGE GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands of US dollars, except share and per share amounts)
 
Three Months Ended
March 31,
  2014         2013
Revenue:
Asset liquidation
Asset sales $ 975 $ 446
Commissions and other   1, 010     946
Total asset liquidation revenue 1, 985 1, 392
Intellectual property licensing   --     200
Total revenue   1, 985   1, 592
 
Operating costs and expenses:
Asset liquidation 404 356
Inventory maintenance 61 74
Patent licensing and maintenance 11 150
Selling, general and administrative, including expenses paid to related parties 2, 138 2, 598
Depreciation and amortization     118     121
Total operating costs and expenses   2, 732   3, 299
( 747) (1, 707)
Earnings (loss) of equity accounted asset liquidation investments (net of tax of $0)     (30)     802
Operating loss   ( 777)   ( 905)
Other income (expenses):
Interest expense – third party (71) (95)
Interest expense – related party     (67)   --
Total other income (expenses)   ( 138)     (95)
Loss before undernoted ( 915) (1, 000)
Income tax expense (recovery) 24, 667 ( 353)
Earnings of other equity accounted investments (net of $0 tax)     11   --
Net loss (25, 571) ( 647)
Other comprehensive loss:
Currency translation adjustment (net of tax of $0)     (6)     (7)
Comprehensive loss $   (25, 577) $   ( 654)
 
Weighted average common shares outstanding – basic and diluted (in thousands) 28, 167 28, 945
Net loss per share – basic and diluted $ (0 .91) $ (0 .02)
 

The notes contained in our Quarterly Report on Form 10-Q are an integral part of these condensed consolidated financial statements.

   
 
HERITAGE GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands of US dollars, except share and per share amounts)
                   
March 31,

2014

December 31,

2013

ASSETS        
Current assets:
Cash and cash equivalents $ 2,802 $ 3,213
Amounts receivable (net of allowance for doubtful accounts of $0; 2013 - $0) 868 1,670
Deposits 17 17
Inventory – equipment 441 578
Other current assets 448 479
Income taxes recoverable 22 1
Deferred income tax assets     -- 1,366
Total current assets 4,598 7,324
Non-current assets:
Inventory – real estate 6,328 6,078
Asset liquidation investments 1,011 1,380
Investments 1,747 1,769
Property, plant and equipment, net 34 32
Intangible assets, net 4,697 4,810
Goodwill 5,301 5,301
Deferred income tax assets     -- 23,301
Total assets $     23,716 $ 49,995
 
LIABILITIES AND EQUITY                                                  
Current liabilities:
Accounts payable and accrued liabilities $ 5,368 $ 6,510
Debt payable to third parties 1,248 1,438
Debt payable to a related party 3,057 2,550
Total current liabilities 9,673 10,498
Commitments and contingencies
 
Equity:

Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and

outstanding 575 Class N shares at March 31, 2014 and 579 Class N shares

at December 31, 2013, liquidation preference of $575 at March 31, 2014

and $579 at December 31, 2013

6

6

Common stock, $0.01 par value, authorized 300,000,000 shares; issued and
outstanding 28,167,408 shares at March 31, 2014 and 28,167,248 shares at
December 31, 2013 282 282
Additional paid-in capital 283,330 283,207
Accumulated deficit (269,525) (243,954)
Accumulated other comprehensive loss (50) (44)
Total equity 14,043 39,497
Total liabilities and equity $ 23,716 $ 49,995
 

 

The notes contained in our Quarterly Report on Form 10-Q are an integral part of these condensed consolidated financial statements.

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