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 six month periods ended June 30, 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 June 30, 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 $54.8 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 $18.9 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.

Significant Accounting Policies and Estimates

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 June 30, 2022.

Management’s analysis of the financial situation

Cash and capital resources

Liquidity

We had a working capital of $10.5 million and $9.1 million of the June 30, 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 six months ended
June 30, 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 June 30, 2022 increased to $25.0 million compared to
$23.3 million as of December 31, 2021 primarily due to an increase in cash as a
result of cash provided by operating activities during the six months ended June
30, 2022. Our current liabilities were $14.5 million as of June 30, 2022 and
$14.2 million at December 31, 2021. Changes for the six months ended June 30,
2022 consisted of an increase in accounts payable of $1.0 million and current
portion of lease liabilities of $0.1 million, offset by a decrease in payables
to sellers of $0.3 million and a decrease in the current portion of third party
debt of $0.5 million.

During the six months ended June 30, 2022, our primary source of cash was the
cash on hand plus the cash provided by our asset liquidation business. Cash
disbursements during the six months ended June 30, 2022 consisted primarily of
investments in equity method investments of $6.1 million, repayment on our 2021
Credit Facility of $0.5 million, repayment on our ALT note of $0.2 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 June 30, 2022, we had an outstanding balance of
$1.4 million on the Credit Facility.


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Ownership structure and capital resources

Of the June 30, 2022the Company had shareholders’ equity of $36.0 millioncompared to $32.6 million of the 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. Of the June 30, 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 June 30, 2022 were $16.1 million compared to
$13.6 million of the December 31, 2021an increase of approximately $2.5 million.

Cash provided by (used in) operating activities. Cash provided by operations was
$1.1 million during the six months ended June 30, 2022 as compared to cash used
in operating activities of $4.3 million during the same period in 2021. The
approximate $5.4 million change was primarily attributable to a change of $6.9
million in operating assets and liabilities during the six months ended June 30,
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 $1.5 million
lower during the six months ended June 30, 2022 as compared to the same period
in 2021.

The significant changes in operating assets and liabilities during the six
months ended June 30, 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 provided by (used in) investing activities. Cash provided by investing
activities during the six months ended June 30, 2022 was $2.2 million compared
to cash used in investing activities of $0.8 million during the same period in
2021.

Cash provided by investing activities during the six months ended June 30, 2022
consisted primarily of payments received on notes receivable of $1.5 million as
well as return of investment and cash distributions received from equity method
investments of $6.8 million in the aggregate, of which $5.9 million resulted
from the sale of the remaining real estate assets of CPFH LLC, the joint
venture, located in Huntsville, Alabama.

Cash provided by investing activities during the six months ended June 30, 2022
was offset by cash used in equity method investments of $6.1 million, of which
$4.7 million related to specialty lending activity within our Financial Assets
Division and $1.5 million cash used in our Industrial Assets Division directly
related to the acquisition of two pharmaceutical plants, formerly of Nesher
Pharmaceuticals.

Cash used in investing activities during the six months ended June 30, 2021 of
$0.8 million related to specialty lending within our Financial Assets Division,
consisting of $0.3 million net cash used in notes receivable activities and $0.5
million cash used in equity method investments.


Cash used in financing activities. Cash used in financing activities was
approximately $0.8 million during the six months ended June 30, 2022 and June
30, 2021. Financing activities during the six months ended June 30, 2022
consisted primarily of a $0.5 million repayment to our 2021 Credit Facility,
$0.2 million in repayments to our ALT Note and $0.1 million repurchase of our
common stock. Financing activities during the six months ended June 30, 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.

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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 and six months ended June 30, 2022 and 2021 (dollars in
thousands).

                                 Three Months Ended June 30,               Change                  Six Months Ended June 30,                Change
                                   2022                2021         Dollars      Percent           2022                2021          Dollars      Percent
Revenues:
Services revenue              $        4,595       $      4,168     $    427           10 %    $       8,763       $       9,198     $   (435 )         (5 )%
Asset sales                            6,470              1,008        5,462          542 %           11,659               3,079        8,580          279 %
Total revenues                        11,065              5,176        5,889          114 %           20,422              12,277        8,145           66 %

Operating costs and
expenses:
Cost of services revenue                 910                960          (50 )         (5 )%           1,664               2,135         (471 )        (22 )%
Cost of asset sales                    5,631                375        5,256         1402 %            9,033               1,195        7,838          656 %
Selling, general and
administrative                         4,939              3,671        1,268           35 %            9,214               7,640        1,574           21 %
Depreciation and
amortization                             133                 98           35           36 %              266                 189           77           41 %
Total operating costs and
expenses                              11,613              5,104        6,509          128 %           20,177              11,159        9,018           81 %
Earnings of equity method
investments                            4,172                  1        4,171       417100 %            4,254                   1        4,253       425300 %
Operating income                       3,624                 73        3,551         4864 %            4,499               1,119        3,380          302 %
Interest and other expense,
net                                      (37 )                9          (46 )        511 %              (75 )                12          (87 )        725 %
Income before income tax
expense (benefit)                      3,587                 82        3,505         4274 %            4,424               1,131        3,293          291 %
Income tax expense
(benefit)                              1,009               (505 )      1,514         (300 )%           1,201                (488 )      1,689         (346 )%
Net income                    $        2,578       $        587     $  1,991          339 %    $       3,223       $       1,619     $  1,604           99 %


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 evaluate 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 June 30,               Six Months Ended June 30,
                                   2022                    2021              2022                2021
Industrial Assets Division:
Net operating income          $         3,343         $          433     $ 

4,189 $1,773

Financial Assets Division:
Net operating income          $         1,183         $          462     $       1,914       $         923

Corporate and Other:
Net operating loss            $          (902 )       $         (822 )   $      (1,604 )     $      (1,577 )

Consolidated:
Net operating income          $         3,624         $           73     $       4,499       $       1,119



Three-month period ended June 30, 2022 Compared to the three-month period ended June 30, 2021

Revenues and cost of revenues - Revenues were $11.1 million during the three
months ended June 30, 2022 compared to $5.2 million during the same period in
2021. Costs of services revenue and asset sales were $6.5 million during the
three months ended June 30, 2022 compared to $1.3 million during the same period
in 2021. The gross profit of these items was $4.5 million during the three
months ended June 30, 2022 compared to $3.8 million during the same period in
2021, an increase of approximately $0.7 million, or approximately 18%. 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 $4.9 million in the three months ended June 30, 2022 compared to $3.7 million at the same time in 2021.

Significant components of selling, general and administrative expense for the
three months ended June 30, 2022 and June 30, 2021 are shown below (dollars in
thousands):

                                                     Three Months Ended June 30,
                                                      2022                2021            % change
Compensation
HGP                                               $       1,605       $       1,286                25 %
ALT                                                         386                   -               100 %
NLEX                                                      1,006                 815                23 %
HGI                                                         480                 267                80 %
HGC                                                         143                 104                38 %
Stock-based compensation                                    108                  68                59 %

Consulting                                                   25                  11               127 %
Board of Directors fees                                      73                  58                26 %
Accounting, tax and legal professional fees                 290                 382               (24 )%
Insurance                                                   105                 126               (17 )%
Occupancy                                                   243                 262                (7 )%
Travel and entertainment                                    153                  80                91 %
Advertising and promotion                                   109                  86                27 %
Information technology support                              100                  87                15 %
Other                                                       113                  39               190 %

Total selling, general and administrative expenses $4,939 $

  3,671                35 %





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As compared to the second quarter of 2021, there was an increase in selling,
general and administrative expense during the second quarter of 2022 primarily
due to increased compensation and operation expenses related to the acquisition
of ALT in the third quarter of 2021 and as a result of our improved financial
performances in our other divisions. The increased travel and entertainment
expenses were due to the lift in travel restrictions related to the COVID-19
pandemic.

Depreciation and amortization expense - Depreciation and amortization expense
was $0.1 million during the three months ended June 30, 2022 and the same period
in 2021, which consisted primarily of amortization expense related to intangible
assets.

Six-month period ended June 30, 2022 Compared to the six-month period ended June 30, 2021

Revenues and cost of revenues - Revenues were $20.4 million during the six
months ended June 30, 2022 compared to $12.3 million during the same period in
2021. Costs of services revenue and asset sales were $10.7 million during the
six months ended June 30, 2022 compared to $3.3 million during the same period
in 2021. The gross profit of these items was $9.7 million during the six months
ended June 30, 2022 compared to $8.9 million during the same period in 2021, an
increase of approximately $0.8 million, or approximately 9%. The increased gross
profit in the current year reflects the vagaries of the timing and magnitude of
asset liquidation transactions.

Selling, general and administrative expenses – Selling, general and administrative expenses have been $9.2 million in the six months ended June 30, 2022 and $7.6 million at the same time in 2020.

Significant components of selling, general and administrative expense for the
six months ended June 30, 2022 and June 30, 2021 are shown below (dollars in
thousands):


                                                     Six Months Ended June 30,
                                                      2022               2021           % change
Compensation
HGP                                               $      2,853       $      2,898               (2 )%
ALT                                                        765                  -              100 %
NLEX                                                     1,873              1,688               11 %
HGI                                                        741                555               34 %
HGC                                                        287                234               23 %
Stock-based compensation                                   214                211                1 %

Consulting                                                  40                 24               67 %
Board of Directors fees                                    146                125               17 %
Accounting, tax and legal professional fees                601                636               (6 )%
Insurance                                                  222                247              (10 )%
Occupancy                                                  506                485                4 %
Travel and entertainment                                   365                120              204 %
Advertising and promotion                                  222                173               28 %
Information technology support                             187                155               21 %
Other                                                      192                 89              116 %

Total selling, general and administrative expenses $9,214 $7,640

               21 %


As compared to the six months ended June 30, 2021, there was an increase in
selling, general and administrative expense during the six months ended June 30,
2022 due to increased compensation and operation expenses 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.

Amortization expense – The amortization expense has been $0.3 million in the six months ended June 30, 2022 and $0.2 million
during the same period in 2021, which consisted mainly 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

                                       26
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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 June 30,            Six Months Ended June 30,
                                               2022                  2021             2022               2021
Net income                                $         2,578         $       587     $      3,223       $      1,619
Add back:
Depreciation and amortization                         133                  98              266                189
Interest and other expense, net                        37                  (9 )             75                (12 )
Income tax expense                                  1,009                (505 )          1,201               (488 )
EBITDA                                              3,757                 171            4,765              1,308

Management add back:
Stock based compensation                              108                  68              214                211
Separation Agreement                                    -                   -                -                200
Adjusted EBITDA                           $         3,865         $       239     $      4,979       $      1,719

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