UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington,

WASHINGTON, D.C. 20549

FORM 10-K

[X]x ANNUAL REPORT PURSUANT TO SECTION 13

OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year endedDecember 31, 20142015

Commission File No.0-17973

HERITAGE GLOBAL INC.

(Exact Name of Registrant as Specified in Its Charter)

(416) 866-3000

(858) 847-0656

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:None.None.

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $0.01 par value.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  [   ]o    No  [X]x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes  [   ]o    No  [X]x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  [X]x    No  [   ]o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  [X]x    No  [   ]o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [   ]o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer [   ]           Accelerated Filer [   ]           Non-Accelerated Filer [   ]           Smaller Reporting Company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes  [   ]o    No  [X]x

The aggregate market value of Common Stock held by non-affiliates based upon the closing price of $0.38$0.30 per share on June 30, 2014,2015, as reported by the OTCQB, was approximately $8.164$7.1 million.

As of March 12, 2015,11, 2016, there were 28,167,40828,467,648 shares of Common Stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

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Forward-Looking Information

This Annual Report on Form 10-K (the “Report”) contains certain “forward-looking statements” 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”,“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. These statements reflect our current view of future events and are subject to certain risks and uncertainties, asincluding those noted under Item 1A “Risk Factors” 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.

PART I
(All dollar amounts are presented in thousands of U.S. dollars (“USD”), unless otherwise indicated, except per share amounts)

Item 1. Business.

Overview, History and Recent Developments

Heritage Global Inc. (“HGI”,HGI,” “we” or the “Company”) 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 August 22, 2013. The most recent name change more closely identifies the Company with its core auction business, Heritage Global Partners, Inc. (“HGP”).

On March 20, 2014, the Company’s former majority shareholder, Street Capital Group Inc. (formerly Counsel Corporation, (together with its subsidiaries, “Counsel”herein referred to as “Street Capital”), declared a dividend of all of its shares of the Company. This dividend was paid on April 30, 2014 to Counsel’sStreet Capital’s common shareholders of record onas of April 1, 2014.

On June 2, 2014, and effective as of May 31, 2014, the Company acquired all of the issued and outstanding equity ofcapital 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 now operates as a wholly owned division of the Company. The acquisition of NLEX is consistent with HGI’s strategy to expand the services provided by its asset liquidation business.  In connection with the acquisition, HGI entered into employment agreements with the previous owner and key employees of NLEX.  The purchase price consisted of $2,000$2.0 million cash and up to $5,000an earn-out provision (“contingent consideration”) with a cap of contingent consideration$5.0 million, based on the Net Profits (as defined by the NLEX earningsstock purchase agreement) of NLEX during the four years following the acquisition. At December 31, 20142015 the present value of the contingent consideration has beenis estimated as $4,198. The transaction is also discussed into be $3.5 million. See Note 3 to the consolidated financial statements for further information.

On March 11, 2016, the Company entered into a purchase and sale agreement with International Auto Processing Inc. (“IAP”) to sell the Company’s real estate inventory.  The purchase price of the audited consolidated financial statements.

     Duringreal estate inventory is $4.1 million.  Concurrently, the third quarterCompany entered into a five year lease agreement with an affiliate of 2014,IAP to lease the Company’s Audit Committee completed a reviewbuilding during the escrow period, which will terminate at the close of escrow.  The purchase agreement gives IAP the right to terminate its obligation to consummate the sale for any reason, but in the event the sale is not consummated, the lease agreement will continue on through the end of the Company’s independent registered public accounting firm. As a result, effective September 27, 2014, the Company engaged Squar, Milner, Peterson, Miranda & Williamson, LLPlease term.  The purchase and sale agreement is attached hereto as the Company’s independent registered public accounting firm. This changeExhibit 10.24, which exhibit is discussed in more detail in the Company’s Current Report on Form 8-K, filed with the SEC on September 27, 2014.incorporated by reference herein.  

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The organization chart on the following page outlines the basic corporate structure of the Company as of December 31, 2014.2015.

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Asset liquidation

The Company’sCompany is a value-driven, innovative leader in corporate and financial asset liquidation transactions, valuations and advisory services.  The Company specializes both in acting as an adviser, as well as acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, accounts receivable portfolios, intellectual property, and entire business is its sole operating segment, and the Company’s objective is to build a sustainable, long-term global capital asset solutions business that is the leading resource for clients requiring capital asset solutions.enterprises.

The asset liquidation business began operations in 2009 with the establishment of Heritage Global LLC (“HG LLC”). In addition to acquiring turnkey manufacturing facilities and used industrial machinery and equipment, HG LLC arranges traditional asset disposition sales, including liquidation and auction sales. In the second quarter of 2011, HG LLC acquired 100% of the business of EP USA, LLC (d/b/a Equity Partners) (“Equity Partners”), thereby expanding the Company’s operations. Equity Partners is a boutique investment bankingM&A advisory firm and provider of financial solutions for distressed businesses and properties.

In February 2012 the Company increased its in-house asset liquidation expertise via its acquisition of 100% of the outstanding equity of Heritage Global Partners, Inc. (“HGP”), a global full-service auction, appraisal and asset advisory firm, and in the fourth quarter of 2012, the Company launched Heritage Global Partners Europe (“HGP Europe”). Through its wholly-owned subsidiary Heritage Global Partners UK Limited, the Company opened three European-based offices, one each in the United Kingdom, Germany and Spain. The European operations began earning revenue in the third quarter of 2013.

     As described above, effectiveIn May 31, 2014, the Company again expanded its asset liquidation operations with the acquisition of NLEX.National Loan Exchange (‘NLEX”). NLEX is the largest volume broker of charged-off receivables in the United States and Canada, and its offerings include national, state and regional portfolios on behalf of many of the world’s top financial institutions. Prior to the acquisition, NLEX’s role was limited to being a broker or agent, but that role may expand to includeThe NLEX acting as a principal. Its acquisition is consistent with HGI’s strategy to expand and diversify the services provided by its asset liquidation business.

     At December 31, 2014, HGI is therefore positioned to provide an arrayAs a result of value-added capital asset solutions: auctionthe events and appraisal services, traditional asset disposition sales, and financial solutions for distressed businesses and properties. Managementacquisitions outlined above, management believes that HGI’s expanded global platform will allow the Company to achieve its long term industry leadership goals.

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Intellectual property licensing

The Company holds several patents, including two that relate to Voice over Internet Protocol (“VoIP”). U.S. Patent No. 6,438,124 was developed by the Company, and encompasses the technology that allows two parties to converse phone-to-phone, regardless of

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the distance, by transmitting voice/sound via the Internet. U.S. Patent No. 6,243,373 (the “VoIP Patent”) was purchased from a third party (the “Vendor”). These patents, together with related international patents and patent applications, form the Company’s international VoIP Patent Portfolio (the “Portfolio”) that covers the basic process and technology that enable VoIP communication as used in the market today. As part of the consideration for the acquisition of the VoIP Patent, the Vendor is entitled to receive 35% of the net earnings from the Portfolio.  To date the Company has recognized aggregate revenue of $17,825 from settlement and licensing agreements and paid $2,630 to the vendor. At this time, although the Company expects to continue to incur costs relating to maintaining ownership of these patents, it is not expected that either these costs or related revenue will be material.

OtherEmployees

 In July 2013, the Company recorded intellectual property licensing revenue of $624 upon the sale of a licensing agreement to the Company’s former Co-CEOs. This transaction is discussed in more detail in Note 12 of the audited consolidated financial statements.

Employees

As of December 31, 2014, in addition to its President,2015, HGI had forty-four employees. Twenty-six52 employees: 29 are employed by HGP, thirteen15 by NLEX, and fiveeight by Equity Partners. In addition, five employees of Counsel provideStreet Capital provided management and administrative services to HGI during the first eight months of 2015 under the terms of a management services agreement (the “Agreement”“Services Agreement”) that is described in Item 13 of this Report and Note 12 of14 to the audited consolidated financial statements.  The Services Agreement was terminated effective August 31, 2015.  Refer to Note 14 to the consolidated financial statements for more information.  

Industry and Competition

Asset liquidation 
The asset liquidation business is involvedconsists primarily inof the auction, appraisal and asset advisory services provided by HGP, mergers and beginning in the second quarter of 2014,acquisitions advisory services provided by Equity Partners, and the accounts receivable brokerage services provided by NLEX. It 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, HGI competes with other liquidators, auction companies, dealers and brokers. It also competes with them for potential purchasers, as well as with equipment manufacturers, distributors, dealers and equipment rental companies. Some competitors have significantly greater financial and marketing resources and name recognition.

HGI’s business strategy includes the option of partnering with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company agreement (collectively, “Joint Ventures”). These Joint Ventures give the Company access to more opportunities, helping to mitigate some of the competition from the market’s larger participants and contribute to the Company’s objective to be the leading resource for clients requiring capital asset solutions.

Government Regulation

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, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, 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. The mandatory adoption of XBRL reporting in 2011 has also increased the Company’s costs paid to third party service providers. As regulatory and compliance guidelines continue to evolve, we expect to continue to incur costs, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.

Available Information

HGI is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires that HGI file periodic reports, proxy statements and other information with the SEC. The SEC maintains a website athttp://www.sec.govthat contains periodic reports, proxy and information statements, and other information regarding issuers, including HGI, which file electronically with the SEC. In addition, HGI’s Exchange Act filings may be viewed at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company makes available free of charge through its web site,http://www.heritageglobalinc.com(follow Investor Relations tab to link to “SEC Filings”) its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material has been electronically filed with, or furnished to, the SEC. The information on the Company’s corporate website is not a part of this Annual Report on Form 10-K.

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Item 1A. Risk Factors.

You should carefully consider and evaluate these risk factors, as any of them could materially and adversely affect our business, financial condition and results of operations, which, in turn, can adversely affect the price of our securities.

We face significant competition in our asset liquidation business.

Our asset liquidation business depends on our ability to successfully obtain a continuous supply of auction or appraisal contracts, or distressed and surplus assets for profitable resale to third parties. In this regard, we compete with numerous other organizations, some of which are much larger and better-capitalized, with greater resources available for both asset acquisition and associated marketing to potential customers. Additionally, some competitors have a longer history of activity in the asset liquidation business, and may have advantages with respect to accessing both deals and capital.

Our asset liquidation business is subject to inventory risk and credit risk.

Under our business model, when not acting solely as an auctioneer, we assume the general and physical inventory and credit risks associated with purchasing assets for subsequent resale. Although we do enter into transactions for which a subsequent purchaser has already been identified, in most cases we purchase assets and assume the risk that they may sell for less than our forecasted price. As well, we may miscalculate demand or resale value, and subsequently sell the assets for less than their original purchase price. Either situation could have a material adverse effect upon our use of working capital and our results of operations.

Our operating results are subject to significant fluctuation.

Our revenue and operating results are subject to fluctuation from quarter to quarter and from year to year due to the nature of the asset liquidation business, which involves discrete deals of varying size that are very difficult to predict. The timing of revenue recognition related to significant transactions can materially affect quarterly and annual operating results. Despite the accompanying variability of direct asset liquidation costs, quarterly fixed costs that are largely composed of salaries and benefits could exceed operating margins.our gross profit. There can therefore be no assurance that we can achieve or sustain profitability on a quarterly or annual basis.

We are subject to the risks associated with managing growth.

Since the establishment of our asset liquidation business in 2009, we have experienced significant growth.  This has occurred through the acquisitions of Equity Partners in 2011, HGP in 2012 and NLEX in 2014, as well as through the expansion of our operations to Europe during the second half of 2012. This growth requires an increased investment in personnel, systems and facilities. In the absence of continued revenue growth, the Company’s operating margins could decline from current levels. Additional acquisitions will be accompanied by such risks as exposure to unknown liabilities of acquired businesses, unexpected acquisition expenses, greater than anticipated investments in personnel, systems and facilities, the expense of integrating new and existing operations, diversion of senior management resources, and dilution to existing shareholders. Failure to anticipate and manage these risks could have a material adverse effect upon our business and results of operations.

A portion of our asset liquidation business is conducted through Joint Ventures.

Conducting business through Joint Ventures, as described above under “Industry and Competition”,Competition,” allows us to participate in significantly larger deals than those we could fund independently. If we ceased entering into Joint Ventures, or our Joint Venture partners decide not to partner with us, the pool of potential transactions would be reduced. Further, upon entering into Joint Ventures, we become exposed to the uncertainties of the activities of our partners.  This could negatively impact our ability to obtain a continuous supply of assets for resale, and could have a material adverse effect upon our use of working capital and our results of operations.

We are subject to foreign currency exchange rate risk.

During the last half of 2012, we expanded our operations to the United Kingdom (“UK”), Spain, and Europe.Germany. Our UK and European operations are conducted in pounds sterling (£) and Europeanour Spain and Germany operations are conducted in euros (€), respectively, rather than in $US. Although we expect the European operations to ultimately generate sufficient revenue to cover all local operating expenses, toU.S. dollars. To date we have been required to use funds generated by our US operations to meet a portion of European obligations as they come due. We thereby incur exchange rate risk. We conduct some of our asset liquidation transactions in currencies other than the U.S. dollar, which exposes us to foreign exchange risk.  Although this risk has not had a material impact on our business and operations to date, failure to anticipate and continue to manage this risk could have a material adverse effect.

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The auction portion of our asset liquidation business may be subject to a variety of additional costly government regulations.

Many states and other jurisdictions have regulations governing the conduct of traditional “auctions” and the liability of traditional “auctioneers” in conducting auctions, which may also apply to online auction services. In addition, certain states have laws or regulations that expressly apply to online auction services. We expect to continue to incur costs in complying with these laws and could be subject to fines or other penalties for any failure to comply with these laws. We may be required to make changes in our business to comply with these laws, which could increase our costs, reduce our revenue, and cause us to prohibit the listing of certain items, or otherwise adversely affect our financial condition or operating results.

Certain categories of merchandise that we sell are subject to government restrictions.

We sell merchandise, such as scientific instruments, that is subject to export control and economic sanctions laws, among other laws, imposed by the United States and other governments. Such restrictions include the U.S. Export Administration regulations, the International Traffic in Arms regulations, and economic sanctions and embargo laws administered by the Office of the Foreign Assets Control regulations. These restrictions prohibit us from, among other things, selling property to (1) persons or entities that appear on lists of restricted or prohibited parties maintained by the United States or other governments or (2) countries, regimes, or nationals that are the target of applicable economic sanctions or other embargoes.

We may incur significant costs or be required to modify our business to comply with these requirements. If we are alleged to have violated any of these laws or regulations we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or prohibition from doing business with U.S. federal government agencies. In addition, we could suffer serious harm to our reputation if allegations of impropriety are made against us, whether or not true.

We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”).

We are subject to the FCPA, which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. Our 2012 expansion into Europe has increased the risk of non-compliance with the FCPA. Failure to comply with the FCPA could subject the Company to, among other things, penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.

Our asset liquidation business is subject to environmental risk.

Our asset liquidation business at times includes the purchase and resale of buildings and land. Although our purchase process includes due diligence to determine that there are no material adverse environmental issues, it is possible that such issues could be discovered subsequent to a completed purchase. Any remediation and related costs could have a material adverse effect upon our business and results of operations.

We are dependent upon key personnel.

Our operations are substantially dependent on the knowledge, skills and performance of several of our executive officers, particularly the our Chief Executive Officer and Chief Operating Officer/President, of HGI, both Managing Partners of HGP, the President of NLEX, and the Senior Managing Director of Equity Partners. The loss of any of these officers could damage key relationships and result in the loss of essential information and expertise. As our operations expand, we will be required to hire additional employees, and may face competition for them. Therefore, either the loss of the services of the above existing officers, or the inability to attract and retain appropriately skilled new employees, could have a material adverse effect upon our business and results of operations.

We may require additional financing in the future, which may not be available, or may not be available on favorable terms.

We may need additional funds to finance ourthe operations particularlyof our asset liquidation business, to make additional investments, or to acquire complementary businesses or assets. We may be unable to generate these funds from our operations. If funds are not available, or not available on acceptable terms, we could experience a material adverse effect upon our business.

Provisions in our Articles of Incorporation, as amended, could prevent or delay stockholders' attempts to replace or remove current management.

Our Articles of Incorporation, as amended, provide for staggered terms for the members of our Board. The Board is divided into three staggered classes, and each director serves a term of three years. At eachan annual stockholders’ meeting, only those directors comprising one of the three classes will have completed their term and stand for re-election or replacement. These provisions may be beneficial

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tend to preserve our current management and the Board in a hostile tender offer, and may have an adverse impact on stockholders who may want to participate in such a tender offer, or who may want to replace some or all of the members of the Board.

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Our Board of Directors may issue additional shares of preferred stock without stockholder approval.

Our Articles of Incorporation, as amended, authorize the issuance of up to 10,000,000 shares of preferred stock, $10.00 par value per share. The Board is authorized to determine the rights and preferences of any additional series or class of preferred stock. The Board may, without stockholder approval, issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights that are senior to our shares of common stock or that could adversely affect the voting power or other rights of the existing holders of outstanding shares of preferred stock or common stock. The issuance of additional shares of preferred stock may also hamper or discourage an acquisition or change in control of HGI.

We may conduct future offerings of our common stock and preferred stock and pay debt obligations with our common and preferred stock that may diminish our investors’ pro rata ownership and depress our stock price.

We reserve the right to make future offers and sales, either public or private, of our securities including shares of our preferred stock, common stock or securities convertible into common stock at prices differing from the price of the common stock previously issued. In the event that any such future sales of securities are effectedaffected or we use our common or preferred stock to pay principal or interest on our debt obligations, an investor’s pro rata ownership interest may be reduced to the extent of any such issuances and, to the extent that any such sales are effected at consideration which is less than that paid by the investor, the investor may experience dilution and a diminution in the market price of the common stock.

There is a limited public trading market for our common stock; the market price of our common stock has been volatile and could experience substantial fluctuations.

Our common stock is currently traded in the OTC market in the United States and has a limited public trading market.market in the United States.  Our common stock is traded on the Canadian Securities Exchange, and the market there is similarly limited.  Without an active trading market, there can be no assurance regarding the liquidity or resale value of the common stock. In addition, the market price of our common stock has been, and may continue to be, volatile. Such price fluctuations may be affected by general market price movements or by reasons unrelated to our operating performance or prospects such as, among other things, announcements concerning us or our competitors, technological innovations, government regulations, and litigation concerning proprietary rights or other matters.

We may not be able to utilize income tax loss carryforwards.

Restrictions in our ability to utilize income tax loss carry forwards have occurred in the past due to the application of certain changes in ownership tax rules in the United States. There is no certainty that the application of these rules may not recur. In addition, further restrictions of, reductions in, or expiryexpiration of net operating loss and net capital loss carry forwards may occur through future merger, acquisition and/or disposition transactions or through failure to continue a significant level of business activities. Any such additional limitations could require us to pay income taxes in the future and record an income tax expense to the extent of such liability. We could be liable for income taxes on an overall basis while having unutilized tax loss carry forwards since these losses may be applicable to one jurisdiction and/or particular line of business while earnings may be applicable to a different jurisdiction and/or line of business. Additionally, income tax loss carry forwards may expire before we have the ability to utilize such losses in a particular jurisdiction and there is no certainty that current income tax rates will remain in effect at the time when we have the opportunity to utilize reported tax loss carry forwards.

We have not declared any dividends on our common stock to date and have no expectation of doing so in the foreseeable future.

The payment of cash dividends on our common stock rests within the discretion of our Board of Directors and will depend, among other things, upon our earnings, unencumbered cash, capital requirements and our financial condition, as well as other relevant factors. To date, we have not paid dividends on our common stock nor do we anticipate that we will pay dividends in the foreseeable future. As of December 31, 2014,2015, we do not have any preferred stock outstanding that has any preferential dividends.

We may fail to either adequately protect our proprietary technology and processes, or enforce our intellectual property rights.

The Company’s VoIP Patent Portfolio consists of United States Patents No. 6,243,373 and No. 6,438,124. The ultimate value of these patents has yet to be determined. If we fail to obtain or maintain adequate protections, or are unsuccessful in enforcing our patent rights, we may not be able to either realize additional value from our patents, or prevent third parties from benefiting from those patents without benefit to the Company. Any currently pending or future patent applications may not result in issued patents. In

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addition, any issued patents may not have priority over any patent applications of others or may not contain claims sufficiently broad to protect us against third parties with similar technologies, products or processes. In addition, the Company’s existing patents have finite lives (although they may be extended by filing continuations and/or divisional applications), most of which expire over the next four to sixthree years. There is no guarantee that they will be fully exploited or commercialized before expiry.expiration.

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Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties.

The Company, in connection with its asset liquidation business, leases or rents office space in several locations in the US.U.S. The principal locations are Foster City,San Diego, CA and San Diego,Foster City, CA, which are related to HGP’s operations, and Edwardsville, IL, which is related to NLEX’s operations. The Company also maintains offices in Scottsdale, AZ,AZ; Farmington Hills, MIMI; Marietta, GA and Easton, MD. The Foster City and Edwardsville offices are leased from related parties, as discussed in Note 12 of14 to the audited consolidated financial statements.

     The Company, in connection with its intellectual property licensing business, also rents approximately 200 square feet of office space in Marshall, TX on a month to month basis for a nominal amount.

     Since 2005, the majority of the accounting and reporting functions have been carried out from the corporate office of the Company’s former majority stockholder, Counsel, located in Toronto, Ontario, Canada. The Company is not required to pay rent or other occupancy costs to Counsel. These services are provided pursuant to a management services agreement (the “Agreement”). See Note 12 of the audited consolidated financial statements for further discussion of the Agreement.

Item 3. Legal Proceedings.

Intellectual Property Enforcement Litigation 
     On August 27, 2009 the Company’s wholly-owned subsidiary, C2 Communications Technologies Inc., filed a patent infringement lawsuit against PAETEC Corporation, Matrix Telecom, Inc., Windstream Corporation, and Telephone and Data Systems, Inc. The complaint was filed in the United States District Court for the Eastern District of Oklahoma and alleged that the defendants’ services and systems utilizing VoIP infringe the Company’s U.S. Patent No. 6,243,373. The complaint sought an injunction, monetary damages and costs. In the fourth quarter of 2009, the complaint against Matrix Telecom, Windstream Corporation and Telephone and Data Systems, Inc. was dismissed without prejudice. Also in the fourth quarter of 2009, the case was transferred to the Eastern District of Texas. A trial date was set for March 13, 2013, but in the first quarter of 2013 the Company entered into a settlement and license agreement with the remaining defendant and received $200.

The Company is involved in various other legal matters arising out of its operations in the normal course of business, none of which are expected, individually or in the aggregate, to have a material adverse effect on the Company.  Refer to Note 15 to the consolidated financial statements for further detail.

Item 4. Mine Safety Disclosures.
     Not applicable.

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities.

Market Information

Shares of our common stock, $0.01 par value per share, are quoted under the symbol “HGBL” in the OTC market (“OTCQB”), and under the symbol “HGBL”, and“HGP” on the Canadian Securities Exchange (“CSE”) under the symbol “HGP”.

The following table sets forth the high and low prices for our common stock, as quoted on the OTCQB, for the calendar quarters from January 1, 20132014 through December 31, 2014,2015, based on inter-dealer quotations, without retail mark-up, mark-down or commissions. These prices may not represent actual transactions:transactions, and are quoted in U.S. dollars:

On March 12, 2015,11, 2016, the closing price for a share of the Company’s common stock as quoted on the OTCQB was $0.44.

Holders$0.28.

The following table sets forth the high and low prices for our common stock, as quoted on the CSE, for the calendar quarters from January 1, 2014 through December 31, 2015, based on inter-dealer quotations, without retail mark-up, mark-down or commissions. These prices may not represent actual transactions, and are quoted in Canadian dollars:  

On March 11, 2016, the closing price for a share of the Company’s common stock as quoted on the CSE was Canadian $0.22.

Holders

As of March 12, 2015,11, 2016, the Company had approximately 419421 holders of common stock of record.

Dividends

To date, we have not paid dividends on our common stock nor do we anticipate that we will pay dividends in the foreseeable future. As of December 31, 2014,2015, we do not have any preferred stock outstanding which has any preferential dividends.

Securities Authorized for Issuance Under Equity Compensation Plans 

     The following table sets forth, as of December 31, 2014, information with respect to equity compensation plans (including individual compensation arrangements) under which the Company’s securities are authorized for issuance.

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(1) For a description of the material terms of these plans, see Note 15 in the Company’s audited consolidated financial statements included in Item 15 of this Report.

Recent Sales of Unregistered Securities; Use of Proceeds from RegisteredSecurities.

On November 1, 2014 the Company granted restricted stock awards for 300,000 shares to two key employees (150,000 each) as part of their employment agreements.  The shares were restricted only by the continued employment of the individuals.  

 None.

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Issuer Purchases of Equity Securities.

None.

Item 6. Selected Financial Data.

As a Smaller Reporting Company, we are electing scaled reporting obligations and therefore are not required to provide the information requested by this Item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.

(All dollar amounts are presented in thousands of USD, unless otherwise indicated, except share and per share amounts)

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and Notes thereto, included in Item 15 of this Report. Our accounting policies have the potential to have a significant impact on our financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Business Overview, Recent Developments and Outlook

Please see Item 1, above, of this Report for an overview of the Company’s business and recent developments. Please see Item 1A, above, for a discussion of the risk factors that may impact the Company’s current and future operations, and financial condition.

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Liquidity and Capital Resources

Liquidity

At December 31, 20142015 the Company had a working capital deficit of $3,883,$5.1 million, as compared to a working capital deficit of $3,174$4.0 million at December 31, 2013,2014, an increaseincreased deficit of $709.$1.1 million. The Company’s current assets increased slightlydecreased to $7,575$4.3 million compared to $7,324$7.6 million at December 31, 2013.2014, however the current liabilities also decreased to $9.4 million compared to $11.5 million at December 31, 2014. Within current assets, the most significant changes were an increasechange was a decrease of $1,373$2.2 million in accounts receivable, offset by a decrease of $1,366 in deferred income taxes. Within current liabilities, an increase of $621 in accounts payable and accrued liabilitiesthe cash from which was largely offset by a decrease of $464 inused to pay down balances on the Company’s current debt.related party loan to Street Capital (the “Street Capital Loan”).  The most significant changemovements in current liabilities waswere: the inclusion,line of credit with a balance of $0.5 million at December 31, 2014 was paid off and terminated during 2015, and the Street Capital Loan was reduced by $1.3 million during 2015.

The Company believes it can fund its operations and address the working capital deficit, through a combination of $803its on-going asset liquidation operations, sale of its real estate inventory, accessing new financing from related parties and flexibility on the timing of the contingent consideration relating to the Company’s 2014 acquisitionrepayment of NLEX. This acquisition is discussed in more detail in Note 3 of the audited consolidated financial statements.its existing debt obligations with its related party creditor and third party creditor.  

The Company’s current debt payable consists of borrowings under HG LLC’s revolving credit facility (the “Credit Facility”), and a related party loan, (the “Counselthe “Street Capital Loan”). The Credit Facility is subject to significant fluctuation depending on the number and magnitude of asset liquidation transactions in process at any given date. At December 31, 2014 it2015, the third party debt had an outstanding balance of $539,$2.5 million, however consistent with the prior year the outstanding balance was classified as comparednon-current as the maturity date was extended to $1,438 at December 31, 2013.January 2017.  The CounselStreet Capital Loan is with the Company’s former majority shareholder, Counsel,Street Capital, and has also fluctuated over time. At December 31, 20142015 it had an outstanding balance of $2,985$1.7 million as compared to $2,550$3.0 million at December 31, 2013.2014.

     The Company has an additional loan payable to an unrelated third party, which had a balance of $2,580 at December 31, 2014 and matures on January 15, 2016.

     The Credit Facility was the Company’s primary source of asset liquidation financing, and was used to finance purchases of assets for resale. The facility was repaid in full in March 2015.

During 2014,2015, the Company’s primary sources of cash were the operations of its asset liquidation business, and borrowings under the associated Credit Facility. The Company also received $444cash receipts of cash distributions from$3.5 million related to its equity method investments.investments (including receipt of proceeds of $2.0 million from the sale of the Company’s investment in Polaroid in 2014), and advances of $0.8 million under the Street Capital Loan. Cash disbursements, other than those related to debt repayment of $4,371$2.9 million ($1,8660.5 million to third parties and $2,505 to a related party)$2.4 million under the Street Capital Loan), were primarily related to operating expenses andexpenses.  Additionally, the acquisitionCompany made its first payment of the contingent consideration owed to the former owner (and current president) of NLEX for net cashin the amount of $1,361.$0.5 million during 2015.  

     It should be noted that theThe Company has historically classified both real estate inventory and asset liquidation related equity method investments as non-current, although they are expected to be converted to cash within a year. At December 31, 20142015 and 2013,2014, these assets totaled $7,486approximately $3.7 million and $7,458,$7.5 million, respectively.

     In December 2014, the Company sold its investment in Polaroid to an unrelated third party, and recognized a gain of $551. Cash proceeds of $1,992 were received in January 2015 and therefore at December 31, 2014 were reported in accounts receivable in the audited consolidated financial statements. At December 31, 2014, the Company’s sole remaining portfolio investment was in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”). At December 31, 2014, the investment had a value of $156. Of this amount, $136 represented an expected distribution, and the Company received $140 in March 2015.

The Company is continuing to pursue licensing and royalty agreements with respect to its patents. However, the Company expects that its asset liquidation business will continue to be the primary source of cash required for ongoing operations for the foreseeable future. During 2014 the Company had a net positive cash flow of $420, and expects this trend to continue during 2015.

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Ownership Structure and Capital Resources

• ·

  At December 31, 2015 the Company had stockholders’ equity of $3.4 million, as compared to $13.5 million at December 31, 2014.  The decrease in the stockholders’ equity was primarily the result of the Company’s $10.4 million net loss for the year-ended December 31, 2015.

  ·

  In 2013, Street Capital, the Company’s former majority shareholder, announced that its Board of Directors had approved a plan to focus Street Capital’s operations on its core business, mortgage lending, and therefore to dispose of its other operating segments, including its interest in HGI. On March 20, 2014, Street Capital declared a dividend of all of its shares of the Company. This dividend was paid on April 30, 2014 to Street Capital’s common shareholders of record as of April 1, 2014. On May 1, 2014, HGI and Street Capital entered into a management services agreement (the “Services Agreement”) under which Street Capital continued to provide management and other services to HGI until the Services Agreement was terminated effective August 31, 2015. For more detail regarding the Services Agreement, see Note 14 to the consolidated financial statements.

  ·

  The Company determines its future capital and operating requirements based upon its current and projected operating performance and the extent of its contractual commitments.  The Company expects to be able to finance its future operations through a combination of its asset liquidation business and securing additional debt financing. The Company’s contractual requirements are limited to the outstanding loans and lease commitments with related and unrelated parties.  Capital requirements are generally limited to the Company’s purchases of surplus and distressed assets.  The Company believes that its current capital resources are sufficient for these requirements.  In the event additional capital is needed, the Company believes it can obtain additional debt financing through either related party loans or through a new credit facility.

  At December 31, 2014 the Company had stockholders’ equity of $13,477, as compared to $39,497 at December 31, 2013.

• At December 31, 2012, and until July 25, 2013, the Company was 71.3% owned, and therefore controlled, by Counsel. The Company’s Co-CEOs each owned 7.0%, the former owners of HGP and a single investor each owned 3.5%, and the remaining public stockholders owned 7.7%. Upon the departure of the Co-CEOs in the third quarter of 2013, and the associated return and cancellation of 800,000 shares on July 26, 2013, as discussed in Note 12 of the audited consolidated financial statements, Counsel’s ownership increased to 73.3%. That of the former Co-CEOs decreased to 5.8% each, that of the former owners of HGP and the single investor increased to 3.6% each, and that of the remaining public stockholders increased to 7.9%.

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• On April 1, 2013, Counsel announced that its Board of Directors had approved a plan to focus Counsel’s operations on its core business, mortgage lending, and therefore to dispose of its other operating segments, including its interest in HGI. On March 20, 2014, Counsel declared a dividend of all of its shares of the Company. This dividend was paid on April 30, 2014 to Counsel’s common shareholders of record on April 1, 2014. On May 1, 2014, HGI and Counsel entered into a management services agreement (the “Services Agreement”) under which Counsel has continued to provide management and other services to HGI. For more detail regarding the Services Agreement, see Note 12 in the audited consolidated financial statements.

Cash Position and Cash Flows

Cash and cash equivalents at December 31, 20142015 were $3,633$2.8 million compared to $3,213$3.6 million at December 31, 2013.2014.

Cash provided by or used in operating activities.Cash used in operating activities was $0.8 million during 2014 was $357,2015 as compared to $2,261$0.6 million cash provided during 2013,2014, which represents an approximate $1.4 million change in operating cash flows between the two years.  The $1.4 million change was primarily attributed to the following: the net loss adjusted for noncash items was $0.6 million greater in 2015 compared to 2014 as a decreaseresult of $2,618. In both 2014 and 2013, the operationssome general under performance of the Company’sour asset liquidation business were(with the primary sourceexception of cash receiptsNLEX) during 2015; we generated $0.3 million less of return on investment in equity method investments in 2015 compared to 2014, and disbursements. In 2014 the Companywe had a pre-tax lossnet unfavorable change of $1,792, as$0.5 million in the operating assets and liabilities in 2015 compared to 2014.  The significant noncash items in 2015 included a pre-tax loss$5.4 million impairment of $3,367 in 2013,goodwill and intangible assets charge and a decrease of $1,575. The operations of NLEX, which was acquired during$2.7 million real estate inventory write-down charge; whereas the second quarter of 2014, resulted in the inclusion of $526 of pre-tax income in 2014. Net losses for 2014 and 2013 were $26,514 and $6,396, respectively. The large increasemost significant noncash item in 2014 was primarily due to the adjustment of the $24,667 total deferred tax assets outstanding at December 31, 2013 to $0. In 2013, the Company recorded neta $24.7 million income tax expense of $3,029, of which $4,740 wasrelating primarily to recording a valuation allowance against itsour deferred tax assets.

 With respect to operations, the Company’s operating loss decreased to $1,900 in 2014 as compared to $2,937 in 2013. Gross profit from asset liquidation operations, including earnings from asset liquidation investments and NLEX operations, increased by $3,136. There was no intellectual property licensing revenue in 2014 compared to $824 in 2013, and related expenses decreased by $148, for a net decrease of $676. Operating expenses, excluding depreciation and amortization, increased by $1,329, largely due to the inclusion of $1,396 of NLEX operating expenses. Depreciation and amortization increased by $94, of which $91 represents amortization of intangible assets that are associated with the NLEX acquisition and are discussed in more detail in Note 3 of the audited consolidated financial statements.

     Interest expense in 2014 totaled $704, as compared to $556 in 2013, an increase of $148. This was primarily due to the $210 accretion of the present value of the contingent consideration associated with the NLEX acquisition, as recorded for the seven month period ending December 31, 2014. The contingent consideration is discussed in more detail in Note 3 of the audited consolidated financial statements.

The significant changes in operating assets and liabilities during 20142015 as compared to 2013, aside from those relating to tax,2014 are primarily due to the nature of the Company’s operations. The Company earns revenue from discreetdiscrete 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 of these. 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 or used in investing activities.Cash used inprovided by investing activities during 20142015 was $1,055,$2.7 million, as compared to $773$1.5 million cash providedused during 2013.2014. The 2015 activity consisted primarily of the following cash receipts related to the Company’s equity method investments: $2.0 million of proceeds from the Company’s December 2014 exit from its investment in Polaroid (received in 2015), and $0.9 million of distributions from the Company’s other equity method investments.  In 2014 the most significant item in 2014 wasitems were the net $1,361$1.4 million cash paid to acquire NLEX; there were no similar transactions during 2013. The other significant difference between the two periods was the receiptNLEX and $0.6 million of $444investments in cash distributions during 2014, primarily from the Company’s investmentequity method investments.    

Cash used in Polaroid, compared to the receipt of $839 in cash distributions during 2013, also primarily from Polaroid. In 2014, purchases of property, plant and equipment were $127, compared to $10 in 2013.

Cashor provided by orfinancing activities. Cash used in financing activities.Cash provided by financing activities was $2.7 million during 2014 was $1,832,2015, as compared to $4,135$1.3 million cash usedprovided during 2013.2014. The 2015 activity consisted of net $1.6 million of debt repaid to Street Capital, $0.5 million of debt repaid on our credit facility that we terminated in 2015, and $0.5 million of contingent consideration paid to the former owner (and current president) of NLEX. In 2014, the Company received net cash$1.6 million (net of $1,587repayments) as loans from third party lenders, as compared to repaying $9,456 net cash in 2013. With respect to related party debt, in 2014parties, primarily used for the Company received net cashpurchase of $245 from Counsel, as compared to receiving net cash of $5,311 in 2013. In 2013 the Company received $10 with respect to the exercise of 30,000 options; there were no exercises in 2014.NLEX.

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Management’s Discussion of Results of Operations

The following table sets out the Company’s condensedsummarizes our consolidated quarterly results of operations for the eight quarters ended December 31,2015 and 2014 as well as for the years ended December 31, 2013 and 2014.(in thousands).

The Company’s asset liquidation revenue has several components:  1)(1) traditional fee based asset disposition services, such as commissions from on-siteon-line and webcast auctions, liquidations and negotiated sales, and commissions from the NLEX charged-off receivables business, 2)(2) the acquisition and subsequent disposition of distressed and surplus assets, including industrial machinery and equipment and real estate, inventories, accounts receivable and distressed debt, and 3)(3) fees earned for appraisal and management advisory services. The Company also earns income from its asset liquidation business through its earnings from asset liquidation investments. As a result of the acquisition of HGP in the first quarter of 2012 and the acquisition of NLEX in the second quarter of 2014, the Company’s revenues are increasingly earned from services rather than from acquisition and disposition of assets, or from asset liquidationequity method investments.

     In the near-term, the Company’s earnings have been impacted by the incremental costs associated with the acquisition and integration of HGP, the expansion of its operations into Europe, and the acquisition of NLEX, as discussed above under Overview, History and Recent Developments.

20142015 Compared to 20132014

Asset liquidationRevenues and cost of revenues - Revenues were $14,186$17.4 million in 2015 compared to $20.0 million in 2014, costs of services revenue and asset sales were $6.5 million in 2015 compared to $8,068 in 2013,asset liquidation expense was $4,631$10.3 million in 2014, compared to $2,706 in 2013, andearnings of equity accounted asset liquidationmethod investments were $143$0.3 million in 20142015 compared to $1,200$0.1 million in 2013.2014. The net earningsgross profits of these three items were therefore $9,698$11.2 million in 20142015 compared to $6,562$9.9 million in 2013,2014, an increase of $3,136approximately $1.3 million or 47.8%approximately 14%. Because the Company conducts its asset liquidation operations both independently and through partnerships, and the ratio of the two is unlikely to remain constant in each period, the operations must be considered as a whole rather than on a line-bylineline-by-line basis. The increased net earningsgross profit in 2014 reflectthe current year reflects the vagaries of the timing of asset liquidation transactions. They also reflecttransactions as well as the acquisitioninclusion of a full year of NLEX which was responsible for $1,925 of net asset liquidation earnings.

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Intellectual property licensing revenuewas $0 in 2014,gross profit as compared to $824only seven months of gross profit in 2013.2014.  NLEX generated $4.5 million of gross profit in 2015 as compared to $2.1 million of gross profit in 2014.

Real estate inventory write-down - The 2013 revenue consisted of $200 revenue fromCompany recorded a settlement and licensing agreement entered into with$2.7 million real estate inventory write-down charge during 2015.  No charge was taken in the defendant incomparable 2014 period.  The write-down represented a patent infringement lawsuit, and $624 revenue from the sale of an intellectual property licensing agreementnet realizable value adjustment to the carrying value of the Company’s former Co-CEOs.real estate inventory and was triggered by the Company’s decision to list the property for sale at a much lower price than which it had previously been listed.

Patent licensing and maintenance expense was $43 in 2014 compared to $191 in 2013. The additional costs in 2013 were associated with the revenue earned during the same period.

Selling, general and administrative expense, – Selling, general and administrative expense, including expenses paid to related parties, was $10,989$12.8 million in 20142015 as compared to $9,660$11.2 million in 2013,2014, an increase of $1,329$1.6 million or 13.8%14%. Expenses increased overall primarily due to the inclusion of NLEX expenses of $1,396$2.8 million for the entire year in 2015, compared to only $1.4 million for the seven month period from acquisition in June to December 2014. This increase was partially offset by reduced expenses of HG LLC operations in 2014 followingthrough the departureend of the former Co-CEOs and other HG LLC employees effective June 30, 2013.year.  The Company’s personnel expense also contributed to the increase, as we increased the headcount in our asset liquidation businesses to promote operational growth.

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Significant components of selling, general and administrative expense were as shown below:below (dollars in thousands):

Depreciation and amortization expense – Depreciation and amortization expense was $566 during$0.6 million in both 2015 and 2014. The increased amortization from a full year of expense on the NLEX intangible assets acquired in the second quarter of 2014 comparedwas offset by a reduction to $472the amortization on the HGP customer network resulting from the reduction in 2013, an increasecarrying value subsequent to the impairment charge at the beginning of $94 or 19.9%.the fourth quarter of 2015.  In both years $453 is amortizationthe depreciation of property and equipment was not material.

Impairment of goodwill and intangible assets – The Company recorded an impairment charge of $5.4 million to reduce the carrying value of the intangible assets recognized in connection withgoodwill and customer network, which resulted from the acquisition of HGP.HGP in 2012, to their respective fair values as of October 1, 2015 (the date at which the Company tested its goodwill and intangibles for impairment).  There was no such similar charge in 2014.  The sustained losses incurred by the Company, and the qualitative and quantitative review of the HGP reporting unit, led to the impairment charge in the fourth quarter of 2015.  Refer to Note 8 to the consolidated financial statements for further detail.  

Other income – The significant items within other income included the following: In 2014, an additional $91 is amortizationthe Company recorded $0.6 million as its gain on the sale of its investment in Polaroid. There were no similar transactions in 2015.  In 2014, the intangible assets recognized in connection with the acquisitionCompany recorded $0.3 million as its share of NLEX for the seven month period June to December. The remaining expense in both years is depreciation of property, plant and equipment.

Other income (expense) and earnings offrom its other equity accounted investments. Income from these other equity accounted investments – was not material in 2015.  In 2015 the significant items included:

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     We use the non-GAAP financial measure “EBITDA” in assessing the Company’s results. We define EBITDA as netCompany recorded other income less interest expense, provision for income taxes, depreciation and amortization. We believe that EBITDA is relevant and useful supplemental information for our investors. Management believes that the presentation of this non-GAAP financial measure, when considered together with our GAAP financial measures and the reconciliation$0.2 million related to the most directly comparable GAAP financial measure, provides a more complete understandingmark-to-market revaluation of the factorsNLEX contingent consideration.  In 2014 the mark-to-market revaluation resulted in other expense of $0.2 million.

Off-Balance Sheet Arrangements – The Company had no off balance sheet arrangements during the years ended December 31, 2015 and trends affecting the Company than could be obtained absent these disclosures. Management uses EBITDA to make operating and strategic decisions and evaluate the Company’s performance. We have disclosed this non-GAAP financial measure so that our investors have the same financial data that management uses, with the intention of assisting investors to make comparisons to our historical operating results and analyze our underlying performance. Management believes that EBITDA is a useful supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis. Our use of 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 quarterly and annual financial information, below, which reconciles EBITDA to our GAAP reported net loss for the periods presented.2014.

Future Accounting Pronouncements

     In June 2014 the FASB issued Accounting Standards Update 2014-12,Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). ASU 2014-12 requires entities to treat performance targets that can be met after the requisite service period as performance conditions that affect vesting. Therefore, an entity would not record compensation expense related to an award for which transfer to the employee is contingent on achieving a performance target until it becomes probable that the performance target will be met. No new disclosures will be required. ASU 2014-12 will be effective for all entities for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. At this time the Company has not granted any share-based payment awards that include performance targets, but will be required to adopt ASU 2014-12 should it issue any such awards when ASU 2014-12 becomes effective.

     In April 2014, the FASB issued Accounting Standards Update 2014-08,Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). ASU 2014-08 requires discontinued operations treatment for disposals of a component or group of components that represents a strategic shift that has or will have a major impact on an entity’s operations or financial results. It also expands the scope of ASC 205-20 to disposals of equity method investments and acquired businesses held for sale. With respect to disclosures, ASU 2014-08 both 1) expands disclosure requirements for transactions that meet the definition of a discontinued operation, and 2) requires entities to disclose information about individually significant components that are disposed of or held for sale and do not qualify as discontinued operations. ASU 2014-08 also requires specific presentation of various items on the face of the financial statements. ASU 2014-08 is effective for interim and annual periods beginning on or after December 15, 2014, with early adoption permitted. At the date of these consolidated financial statements the Company does not have either discontinued operations or any planned disposals that would require the expanded reporting required by ASU 2014-08, and therefore does not anticipate that its adoption will impact its consolidated financial statements.

In May 2014, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards update 2014-09,Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 specifies a comprehensive model to be used in accounting for revenue arising from contracts with customers, and supersedes most of the current revenue recognition guidance, including industry-specific guidance. It applies to all contracts with customers except those that are specifically within the scope of other FASB topics, and certain of its provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities. The core principal of the model is that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the transferring entity expects to be entitled in exchange. To apply the revenue model, an entity will:  1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5)

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recognize revenue when (or as) the entity satisfies a performance obligation. For public companies, ASU 2014-09 is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016.2017. Early adoption is not permitted. Upon adoption, entities can choose to use either a full retrospective or modified approach, as outlined in ASU 2014-09. As compared with current GAAP,Generally Accepted Accounting Principles (“GAAP”), ASU 2014-09 requires significantly more disclosures about revenue recognition. The Company has not yet assessed the potential impact of ASU 2014-09 on its consolidated financial statements.

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In August 2014, the FASB issued Accounting Standards update 2014-15,Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 requires management to determine whether substantial doubt exists regarding the entity’s going concern presumption, which generally refers to an entity’s ability to meet its obligations as they become due, and provides guidance on determining when and how to disclose going-concern uncertainties in an entity’s financial statements. It requires management to perform both interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. The ASU contains guidance on 1) how to perform a going-concern assessment, and 2) when to provide going-concern disclosures. An entity must provide specified disclosures if conditions or events raise substantial doubt about its ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company has not yet adopted ASU 2014-15 nor assessed its potential impact on its disclosures.

In November 2014,January 2015, the FASB issued Accounting Standards update 2014-16,Determining Whether2015-01, Simplifying Income Statement Presentation by Eliminating the Host Contract in a Hybrid Financial Instrument IssuedConcept of Extraordinary Items (“ASU 2015-01”). ASU 2015-01 eliminates the requirement for entities to consider whether an underlying event or transaction is extraordinary, and, if so, to separately present the item in the Formincome statement net of tax, after income from continuing operations. Instead, items that are both unusual and infrequent should be separately presented as a Share Is More Akincomponent of income from continuing operations, or be disclosed in the notes to Debtthe financial statements. ASU 2015-01 will be effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2015. Early adoption is permitted provided that the new standard is applied from the beginning of the fiscal year of adoption. The Company has not historically reported extraordinary items in its consolidated financial statements, and is not aware of any pending transactions or events that might have required reporting as extraordinary items, and therefore does not expect the adoption of ASU 2015-01 to Equityhave a material impact on its consolidated financial statements.

In March 2015, the FASB issued Accounting Standards update 2015-02, Amendments to the Consolidation Analysis (“ASU 2014-16”2015-02”). ASU 2014-16 requires an2015-02 eliminates entity to applyspecific consolidation guidance for limited partnerships, and revises other aspects of the “whole instrument” approach to determine whetherconsolidation analysis, but does not change the host contract in a hybrid instrument in the form of a share is more like debt or equity, as part of a larger analysis to determine if an embedded derivative shouldexisting consolidation guidance for corporations that are not variable interest entities (“VIEs”). For public business entities, ASU 2015-02 will be bifurcated. If so, the embedded derivative, such as a conversion feature in convertible preferred stock, should be accounted for as a liability and carried at fair value through earnings each period. ASU 2014-16 applies to issuers of and investors in hybrid financial instruments issued in the form of shares such as redeemable convertible preferred stock, and is effective for fiscal years, and interim and annual periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company has not yet adopted ASU 2014-16, but based on a preliminary analysis of its outstanding convertible preferred shares, it does not expect the adoption ofbelieve that ASU 2014-16 to2015-02 will have a material impact on its consolidated financial statements.

In April 2015, the FASB issued Accounting Standards update 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 changes the presentation of debt issuance costs in financial statements, by requiring them to be presented in the balance sheet as a direct deduction from the related debt liability, rather than as an asset. Amortization of the costs is reported as interest expense. There is no change to the current guidance on the recognition and measurement of debt issuance costs. For public business entities, ASU 2015-03 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company does not believe that ASU 2015-03 will have a material impact on its consolidated financial statements.

In August 2015, the FASB issued Accounting Standards update 2015-15, Interest – Imputation of Interest, (“ASU 2015-15”).  ASU 2015-15 amends subtopic 835-30 of the accounting standards codification (which was previously amended by ASU 2015-03), to allow for the capitalization of debt issuance costs related to line of credit agreements.  Capitalized costs would be presented as an asset and subsequently amortized ratably over the term of the line of credit.  The Company does not believe that ASU 2015-15 will have a material impact on its consolidated financial statements.

In September 2015, the FASB issued Accounting Standards update 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”).  ASU 2015-16 changes the recognition of business combination adjustments by requiring acquirers to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined.  The acquirer is required to record the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts.  These amounts are calculated as if the accounting was completed at acquisition date.  The acquirer is also required to present separately on the face of the income statement, or disclose in the notes, the amount recorded in current-period earnings (by line item) that would have been recorded in previous reporting periods had the adjustments been recognized as of the acquisition date.  ASU 2015-16 will be effective for fiscal years, and interim

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periods within those fiscal years, beginning after December 15, 2015.  The Company does not believe ASU 2015-16 will have a material impact on its consolidated financial statements.

In November 2015, the FASB issued Accounting Standards update 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”).  ASU 2015-17 requires all deferred tax assets and liabilities to be classified as non-current on the balance sheet.  This amendment simplifies the presentation of deferred income taxes.  ASU 2015-17 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016.  The Company has not yet adopted ASU 2015-17, however its effects are not expected to have a material impact on the consolidated financial statements.  

In February 2016, the FASB issued Accounting Standards update 2016-02, Leases (“ASU 2016-02”).  ASU 2016-02 requires a lessee to recognize a lease asset representing its right to use the underlying asset for the lease term, and a lease liability for the payments to be made to lessor, on its balance sheet for all operating leases greater than 12 months.  ASU 2016-02 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  The Company has not yet adopted ASU 2016-02 nor assessed its potential impact on the financial statements.      

Critical Accounting Policies

Use of estimates
     Our audited

The preparation of the Company’s consolidated financial statements have been prepared in accordanceconformity with accounting principles generally accepted in the United States (“GAAP”), which are described in Note 2 of the audited consolidated financial statements, included in Item 15 of this Report. ThisGAAP 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 revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates required in the preparation of the audited consolidated financial statements include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, investments, goodwill and intangible assets, liabilities, contingent consideration, deferred income tax assets and liabilities, contingent consideration, and stock-based compensation. These estimates are considered significanthave the potential to significantly impact our consolidated financial statements, either because of the significance of the financial statement itemsitem 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.

Asset liquidationRevenue recognition

Services revenue
     Asset liquidationgenerally consists of commissions and fees from providing auction services, appraisals, brokering of sales transactions are classified into two broad categories: 1) the sale of distressed or surplus assets, and 2) commission or fee-basedproviding merger and acquisition advisory services. Revenue is recognized when persuasive evidence of an arrangement exists, the amount of the proceedsselling price is fixed delivery terms are arrangedand determinable, goods or services have been provided, and collectability is reasonably assured.  With respect toFor asset sales revenue is recognized atin the timeperiod in which the assets are sold. As proceeds are generally due whenasset is sold, the buyer takes delivery, there are minimal issues associatedhas assumed the risks and awards of ownership, the Company has no continuing substantive obligations and collectability is reasonably assured.

We evaluate revenue from asset liquidation transactions in accordance with determining collectability. With respectthe accounting guidance to commissiondetermine whether to report such revenue on a gross or fee-based services,net basis.  We have determined that we act as an agent for our fee based asset liquidation transactions and therefore we report the revenue is recognizedfrom transactions in which we act as the services are provided. Although the collectability of these revenues has more uncertainty than those related to asset sales, in practice the Company’s bad debt expense has been immaterial, totalling $303 since operations began in 2009. Of that amount, $67 was recognized in 2014 and $28 in 2013.an agent on a net basis.  

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The Company also earns asset liquidation income through asset liquidation transactions that involve the Company acting jointly with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company (“LLC”) agreementagreements (collectively, “Joint Ventures”). For these transactions, the Company does not record asset liquidationthe revenue or expense.expenses associated with these Joint Ventures. Instead, the Company’s proportionate share of the net income (loss) is reported as Earnings (Loss) of Asset Liquidation Investments.equity method investments. In general, the Joint Ventures apply the same revenue recognition and other accounting policies as the Company.

Cost of services revenue and asset sales

      Cost of services revenue generally includes the direct costs associated with generating commissions and fees from the Company’s auction and appraisal services, merger and acquisition advisory services, and brokering of charged-off receivable portfolios.  The Company generally recognizes these expenses in the period in which the revenue they relate to is recorded.  Cost of asset sales generally includes the cost of purchased inventory and the related direct costs of selling inventory.  The Company recognizes these expenses in the period in which title to the inventory passes to the buyer and the buyer assumes the risk and reward of the inventory.

Accounts receivable

The Company’s accounts receivable primarily relate to the operations of its asset liquidation business. They generally consist of three major categories:  fees, commissions and retainers relating to appraisals and auctions, receivables from asset sales, and

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receivables from Joint Venture partners. The initial value of an account receivable corresponds to the fair value of the underlying goods or services. To date, alla majority of the receivables have been classified as current and, due to their short-term nature, any decline in fair value would be due to issues involving collectability. At each financial statement date the collectability of each outstanding account receivable is evaluated, and an allowance is recorded if the book value exceeds the amount that is deemed collectable. As noted above, the Company has not experienced significant issues with respectSee Note 9 to the collectability of its receivables.consolidated financial statements for more detail regarding the Company’s accounts receivable.  

Inventory

The Company’s inventory consists of assets acquired for resale. Machinery and equipment inventory is classified as current, and historically is sold within a one-year operating cycle. Real estate inventory is classified as non-current due to uncertainties relating to the timing of resale. Although the Company’s experience is that smaller properties are generally sold within a one-year operating cycle, one property with a carrying value of approximately $6,500 has been held in inventory since being acquired in the fourth quarter of 2012. All inventory is recorded at the lower of cost andor net realizable value. There is a risk that assets acquired for resale may be subsequently sold for less than their cost, or may remain unsold.  However, since the commencement of operations in the second quarter of 2009,Historically, the assets’ selling prices have in generalgenerally been in excess of their cost. TheHowever, during 2015, the Company has recorded an inventory write downs totaling $8 in 2014 and $59 in 2013.down charge of $2.7 million related to its real estate inventory.  See Note 4 to the consolidated financial statements for further detail.      

Asset LiquidationEquity Method Investments

As noted above, the Company conducts a portion of its asset liquidation business through Joint Ventures. These are accounted for using the equity method of accounting whereby the Company’s proportionate share of the Joint Venture’s net income (loss) is reported in the consolidated statement of operations as Earnings (Loss) of Asset Liquidation Investments.equity method investments. At the balance sheet date, the Company’s investments in these Joint Ventures are reported in the consolidated balance sheet as Asset Liquidation Investments.equity method investments. The Company monitors the value of each Joint Ventures’ underlying assets and liabilities, and records a write down of its investments should the Company conclude that there has been a decline in the value of the net assets. In 2013 the Company recorded inventory write downs of $387, which were reported in Earnings (Loss) of Asset Liquidation Investments; there have been no other write downs. Given that the underlying transactions are identical, in all material aspects, to asset liquidation transactions that the Company undertakes independently, the net assets are similarly expected to be sold within a one-year operating cycle.  In assessing its operations and cash flows for internal reporting purposes, the Company regards Asset Liquidation Investments as a current asset. However, theythese investments have historically been classified as non-current in the audited consolidated financial statements due to the uncertainties relating to the timing of resale of the underlying assets as a result of the Joint Venture relationship.

Investments
     In 2007, the Company began investing in Internet-based e-commerce businesses and acquired minority positions in several companies, which investments were subsequently sold at a profit. In 2009, the Company made its most significant investment when it acquired an approximately 5% interest in Polaroid Corporation for a total of $2,895. This investment was accounted for using the equity method. The investment was sold in the fourth quarter of 2014, and the Company recognized a gain on sale of $551. At December 31, 2014 the Company holds one equity method investment, which is a one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”), which was acquired for an initial purchase price of $20. This investment is not traded on an open market, and therefore significant judgment is involved in estimating its fair value, which is primarily based on the value of the investments held by its own equity method investee, the Internet Fund. With one exception, these investments are also not publicly traded, and their values are estimated using Level 3 inputs, primarily investee financial statements and projections. At December 31, 2014, Knight’s Bridge GP had a book value of $156. The Company expects to receive the majority of this amount as a cash distribution during 2015, and therefore the Company’s management has concluded that the investment’s book value is a satisfactory measure of its fair value.

Identifiable intangibleIntangible assets and goodwill
     Identifiable intangible

Intangible assets are recorded at fair value upon acquisition. Those with an estimated useful life are amortized, and those with an indefinite useful life are unamortized. Subsequent to acquisition, the Company monitors events and changes in circumstances that require an assessment of intangible asset recoverability. Indefinite-lived intangible assets are assessed at least annually to determine both whetherif they remain indefiniteindefinite-lived and whetherif they are impaired,impaired.  The Company assesses whether or not there have been any events or changes in circumstances that suggest the value of the asset may not be recoverable. Amortized intangible assets are not tested annually, but are assessed when events and changes in circumstances suggest the assets may be impaired. If an assessment determines that the carrying amount of any intangible asset is not recoverable, an impairment loss is recognized in the statement of operations, determined by comparing the carrying amount of the asset to its fair value. All of the Company’s identifiable intangible assets at December 31, 2015 have been acquired as part of the acquisitions of HGP in 2012 and NLEX in 2014, and are discussed in more detail in Note 6 of8 to the audited consolidated financial statements. Based onDuring 2015 the Company recorded an impairment charge of $2.7 million related to the customer network acquired as part of the acquisition of HGP.  No impairment charges were recorded during 2014.  See Note 3 and Note 8 to the consolidated financial statements for more detail regarding the Company’s assessments at December 31, 2014 and 2013, no impairment of these assets was identified.identifiable intangible assets.  

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Goodwill, which results from the difference between the purchase price and the fair value of net identifiable tangible and intangible assets acquired in a business combination, is not amortized, but in accordance with GAAP, is tested annually at December 31least annually for impairment. The Company performs its annual impairment test on October 1.  Testing goodwill is a two-step process, in which the carrying amount of the reporting unit associated with the goodwill is first compared to the reporting unit’s estimated fair value. If the carrying amount of the reporting unit exceeds its estimated fair value, the fair values of the reporting unit’s assets and liabilities are analyzed to determine whether the goodwill of the reporting unit has been impaired. An impairment loss is recognized to the extent that the Company’s recorded goodwill exceeds its implied fair value as determined by this two-step process. Accounting Standards Update 2011-08, Testing Goodwill for Impairment, provides the option to perform a qualitative assessment prior to performing the two-step process, which may eliminate the need for further testing. Goodwill, in addition to being tested for impairment annually, is tested for impairment at interim periods if an event occurs or circumstances change such that it is more likely than not that the carrying amount of goodwill may be impaired.  

In testing goodwill, the Company initially uses a qualitative approach and analyzes relevant factors to determine if events and circumstances have affected the value of the goodwill. If the result of this qualitative analysis indicates that the value has been impaired, the Company then applies a quantitative approach to calculate the difference between the goodwill’s recorded value and its fair value. An impairment loss is recognized to the extent that the recorded value exceeds its fair value.  In addition to being tested for impairment annually, goodwill is tested for impairment between annual tests if an event occurs or circumstances change such that it is more likely than not that the carrying amount of goodwill may be impaired. All of the Company’s goodwill relates to its acquisitions of Equity Partners in 2011, HGP in 2012 and NLEX in 2014, and is discussed in more detail in

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Note 3 and Note 6 of8 to the audited consolidated financial statements. Based onDuring 2015 the Company’s assessments at December 31, 2014 and 2013, noCompany recorded an impairment charge of $2.7 million related to the goodwill was identified.from its acquisition of HGP.  No impairment charges were recorded during 2014.

Future impairment of the Company’s intangible assets and goodwill could result from changes in assumptions, estimates or circumstances, some of which are beyond the Company’s control. The most significant items that could impact the Company’s business and result in an impairment charge are outlined above inItem 1A. Risk Factors.

Deferred income tax assets
taxes

The Company recognizes deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company periodically assesses the value of its deferred tax assets, which have been generated by a history of net operating and net capital losses, and determines the necessity for a valuation allowance that will reduce deferred tax assets to the amount expected to be realized. The Company evaluates which portion of the deferred tax assets, if any, will more likely than not be realized by offsetting future taxable income, taking into consideration any limitations that may exist on its use of its net operating and net capital loss carryforwards. In the first quarter of 2014, as a result of incurring losses in 2012, 2013 and 2014,prior years, the Company recorded a valuation allowance that reduced its deferred tax assets to $0. The Company continued to carry a full valuation allowance in 2015.  For further discussion of the Company’s income taxes, see Note 11 of13 to the audited consolidated financial statements.

Contingent consideration

At December 31, 20142015 the Company’s contingent consideration consists of the estimated fair value of an earnoutearn-out provision that was part of the consideration for the acquisition of NLEX in the second quarter of 2014. The amount assigned to the contingent consideration at the acquisition date was determined using a discounted cash flow analysis. Its present value is assessed quarterly, and any adjustments, together with the amortizationaccretion of the fair value discount, are reported as Interest Expenseother income/expense on the Company’s consolidated statement of operations. As the ultimate amount of the contingent consideration will be based on NLEX’s earnings over the relevant earnout period, it may be subject to variability over that period, the magnitude of which cannot be known at this time. See Note 3 ofto the audited consolidated financial statements for more discussion of the acquisition of NLEX and the related contingent consideration.

Liabilities and contingencies

The Company is involved from time to time in various legal matters arising out of its operations in the normal course of business. On a case by case basis, the Company evaluates the likelihood of possible outcomes for this litigation.these contingent matters. Based on this evaluation, the Company determines whether a liabilityloss accrual is appropriate. If the likelihood of a negative outcome is probable, and the amount can be estimated, the Company accounts foraccrues the liabilityestimated loss in the current period.  At this time,Refer to Note 12 to the Company is not involved in any material litigation and therefore no such liabilities have been recorded.consolidated financial statements for further detail.  

Stock-based compensation

The Company’s stock-based compensation is primarily in the form of options to purchase common shares. The fair value of stock options is calculated using the Black-Scholes Option Pricing Model,option pricing model.  The determination of the fair value of the Company’s stock options is based on a variety of factors including, but not limited to, the price of the Company’s common stock, the expected volatility of the stock price over the expected life of the award, and expected exercise behavior.  The fair value of the awards is subsequently expensed over the vesting period. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the option awards as equity. See Note 15 of16 to the audited consolidated financial statements for further discussion of the Company’s stock-based compensation.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

As a Smaller Reporting Company, we are electing scaled reporting obligations and therefore are not required to provide the information requested by this Item.

Item 8. Financial Statements and Supplementary Data.

See Consolidated Financial Statements beginning on page F-1.

Item 9. Changes In and Disagreements Withwith Accountants on Accounting andFinancial Disclosure.

     As disclosed in the Company’s Current Report on Form 8-K filed with the SEC on September 29, 2014, on September 23, 2014 the Company’s Audit Committee completed its review of the Company’s independent registered public accounting firm and recommended a change. The Company’s management accepted the recommendation, and its then-current independent registered public accounting firm, Deloitte LLP (“Deloitte”) was notified of the decision on September 23, 2014, effective immediately. Effective September 27, 2014 the Company engaged Squar, Milner, Peterson, Miranda & Williamson, LLP as its independent registered public accounting firm.

During Fiscal 20132014 and Fiscal 20142015 the Company had no disagreements with its auditors and no reportable events.

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Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, under the supervision and with the participation of management, including our PresidentChief Executive Officer and Chief Financial Officer (the “Certifying Officers”), the Company conducted an evaluation of its disclosure controls and procedures. As defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2014.2015.

Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, in accordance with Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of the Company’s management, including the Certifying Officers, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Based on its assessment using these criteria, the Company’s management concluded that the Company‘sCompany’s internal control over financial reporting was effective as of December 31, 2014.2015.

This Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this Report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth fiscal quarter of 20142015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Under our Charter documents, the Board of Directors (the “Board”) is divided into three classes, with the total number of directors to be not less than five and not more than nine. Each director is to serve a term of three years or until his or her successor is duly elected and qualified. As of the date hereof, the Board consists of sixeight members: onethree Class I director (Mr.directors (Messrs. Dove, Perlis and Shimer), three Class II directors (Messrs. Toh, Heaton, and Silber) and two Class III directors (Messrs. Turock and Ryan). The following table sets forth the names, ages and positions with HGI of our current directors and executive officers. With the exception of Ross Dove and Kirk Dove, who are brothers, there are no family relationships between any present executive officers and directors.

Set forth below are descriptions of the backgrounds of the executive officers and directors of the Company:

Allan C. Silber, Chairman of the Board and President.Board. Mr. Silber was elected to the Board as a Class II director in September 2001. He was appointed as Chairman of the Board in November 2001, a position he held until October 2004, and was again appointed as Chairman of the Board in March 2005. OnIn January 19, 2011, in connection with the appointment of Jonathan Reich and Adam Reich as Co-Chief Executive Officers of HGI, Mr. Silber resigned the position of Chief Executive Officer and assumed the position of President. On May 5, 2015 in connection with the appointment of Ross Dove as Chief Executive Officer and Kirk Dove as Chief Operating Officer and President, Mr. Silber resigned the position of President.  Mr. Silber is the Chairman and CEO of Counsel Corporation,Street Capital, which he founded in 1979,1979.  Mr. Silber sits on a number of public, private and the Chairman of Knight’s Bridge Capital Partners Inc., a wholly-owned subsidiary of Counsel that is a financial services provider.not for profit Boards. Mr. Silber attended McMaster University and received a Bachelor of Sciencebachelor’s degree from the University of Toronto.

Hal B. Heaton, Director. Dr. Heaton was appointed by the Board as a Class II director on June 14, 2000 to fill a Board vacancy. Dr. Heaton has expertise in capital markets, corporate finance, emerging markets and entrepreneurial finance, all of which have relevance to the Company as it pursues varied investment and business opportunities in both North America and foreign markets. From 1983 to the present he has been a professor of Finance at Brigham Young University and between 1988 and 1990 was a visiting professor of Finance at Harvard University. From 2001 to 2007, Dr. Heaton served on the board of Mity Enterprises Inc., and was a member of its Compensation Committee. Dr. Heaton holds a Bachelor’sbachelor’s degree in Computer Science/Mathematics and a Master’s in Business Administration from Brigham Young University, as well as a Master’smaster’s degree in Economics and a Ph.D. in Finance from Stanford University.

Henry Y.L. Toh, Director. The Board elected Mr. Toh as a Class II director and as Vice Chairman of the Board in April 1992. Mr. Toh has valuable experience as a director with a variety of technology-oriented companies, in addition to extensive hands-on experience as an executive officer of the Company. Mr. Toh became President of HGI in May 1993, Acting Chief Financial Officer in September 1995 and Chairman of the Board in May 1996, and served as such through September 1996. Mr. Toh was appointed as Chairman of the Audit Committee in March 2005. Mr. Toh currently serves as Vice Chairman/Executive Vice President and Director of NuGen Holdings Inc. (formerly InovaChem, Inc.), a research, development and production company specializing in Axio flux electric motor systems, since January 2008, and President and CEO of Amerique Investments International Corporation since 1992. He previously served as Executive Vice President and a director of NuGen Holdings Inc., from February 2008 to December 2009. Mr. Toh has served as a director of iDNA, Inc., a specialized finance and entertainment company, since 1999; a director of Teletouch Communications, Inc., a retail provider of internet, cellular and paging services, since 2002; a director of Isolagen, Inc., a

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biotechnology company, from 2003 until 2009; and a director of American Surgical Holdings, Inc. from 2007 to April 2011. Mr. Toh is a graduate of Rice University.

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Samuel L. Shimer, Director. Mr. Shimer was appointed by the Board as a Class I director on April 15, 2001 to fill a Board vacancy. Mr. Shimer has extensive expertise in mergers and acquisitions, including those transactions that occurred while he was an officer of the Company and Counsel,Street Capital, where he was initially employed as a Senior Vice President, Mergers & Acquisitions and Business Development in July 1997. He was appointed Managing Director in February 2000 and he terminated his employment with the Company in February 2004 to join J. H. Whitney & Co., a private equity fund management company, where he remained as a Partner until December 2009. Mr. Shimer is currently Managing Director of SLC Capital Partners, LP,LLC, a private equity fund management company that he co-founded in April 2010. From 1991 to 1997, Mr. Shimer worked at two merchant banking funds affiliated with Lazard Frères & Co., Center Partners and Corporate Partners, ultimately serving as a Principal. Mr. Shimer earned a Bachelor of Science in Economics degree from The Wharton School of the University of Pennsylvania, and a Master of Business Administration degree from Harvard Business School.

David L. Turock, Director. Mr. Turock was appointed by the Board as a Class III director on January 16, 2008 to fill a Board vacancy. Mr. Turock is the inventor of the Company’s VoIP Patent, and an expert on numerous technologies and their applications. Mr. Turock began his career working with AT&T Bell Laboratories in 1982 and Bell Communications Research in 1988, and subsequently founded enhanced telephone service provider, Call Sciences. He later formed Interexchange, which designed and operated one of the world’s largest debit card systems. Most recently, from 2001 to 2007, Mr. Turock was Chief Technology Officer of Therap Services, a provider of informatics services to disabled patients. Mr. Turock received his Bachelor of Science in Experimental Psychology from Syracuse University, his Master of Science and Ph.D. degrees in Cognitive Psychology from Rutgers University, and his Master of Science in Engineering in Computer Science from the Moore School of the University of Pennsylvania.

J. Brendan Ryan, Director. Mr. Ryan was appointed by the Board as a Class III director on August 8, 2011 to fill a Board vacancy. Mr. Ryan has had a distinguished career in the advertising industry, most recently serving as Chairman and Chairman Emeritus withthe global CEO of Foote Cone & Belding Worldwide (now FCB), a position he held betweenand as the Chairman and Chairman Emeritus from June 2005 andto December 2010. He has served on the boards of several public companies and currently serves as a board member of several non-profit corporations. Mr. Ryan has extensive experience at the Board level with respect to the workings of public companies as well as an extensive network of contacts that could be of benefit to the Company. Mr. Ryan received his Bachelor degree in History from Fordham College and his Master of Business Administration in Marketing from the Wharton Graduate School of the University of Pennsylvania.

Kenneth MannMorris Perlis, Senior Managing Director, Distressed M&A, Equity Partners HG LLC.Director.  Mr. Mann has been employedPerlis was appointed by the Company since March 2011, whenBoard as a Class I director on May 5, 2015.  Mr. Perlis previously served as President of Street Capital from 1992 until 2001, a period of tremendous success that included guiding the Company’s health care strategy, resulting in superior growth of three investee companies.   In addition to his past experience at Street Capital, Mr. Perlis bring a wealth of expertise gained in senior strategic and management roles with other leading organizations.  He spent 13 years with American Express Inc., including five years as President of American Express Canada.  During that time he joinedobtained approval for, and directed the launch of, the AMEX Bank of Canada, for which he served as CEO.  Among his other responsibilities with American Express, Mr. Perlis served as Executive Vice President, and was a key member of numerous senior level U.S. executive committees.  Mr. Perlis also spent four years as President and CEO of Mad Catz Interactive, during which time he completely re-engineered the Company, leading it to become the largest third party manufacturer in connection with its acquisitionindustry.  Mr. Perlis is currently the President and CEO of Equity Partners. Prior toMorris Perlis and Associates, and is active on a number of public, private and not for profit boards.

Ross Dove, Chief Executive Officer and Director. Mr. Ross Dove was appointed Chief Executive Officer of the acquisition, Mr. Mann was a Partner at Equity Partners since 1995, and a Managing Partner since September 2002. During his career, Mr. Mann has had extensive experience handling investment banking services for distressed businesses operating in a wide variety of industries. Mr. Mann holds a Bachelor of Science Degree in Business Administration from Salisbury University. He began sponsoring events with the American Bankruptcy Institute in 1995, became a member in March 2003,Company on May 5, 2015 and has served on its Asset Sales Committee since 2003.

Ross Dove, Managingas Co-Managing Partner of Heritage Global Partners, Inc. since its founding in October 2009. Together with his brother, Kirk Dove, Mr. Dove joined the Company when HGI acquired HGP in February 2012. 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. The Messrs. Dove remained as global presidents of the business until September 2009, and then formed HGP in October 2009. During his career, Mr. Dove has been actively involved in auction industry advances such as theatre-style auctions, which was a first step in migrating auction events onto the Internet. Mr. Dove has been a member of the National Auctioneers Associations since 1985, and a founding member of the InternationalIndustrial Auctioneers Association. He served as a director of Critical Path from January 2002 to January 2005 and has served on the boards of several venture funded companies.

Kirk Dove, ManagingChief Operating Officer and President. Mr. Kirk Dove was appointed Chief Operating Officer and President of the Company on May 5, 2015 and has served as Co-Managing Partner of Heritage Global Partners, Inc. since its founding in October 2009.  Together with his brother, Ross Dove, Mr. Dove joined the Company when HGI acquired HGP in February 2012. Mr. Dove began his career in the auction business over twenty-five years ago, including, along with his brother, the position of global president of DoveBid, which was sold to a third party in 2008. The Messrs. Dove remained as global presidents of the business until September 2009, and then formed HGP in October 2009. In addition to his experience with the auction business, Mr. Dove was employed at Merrill Lynch for several years as a Senior Account Executive. Mr. Dove holds a Bachelor of Sciences degree in Business from

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Northern Illinois University. He is a Senior ASA Member of the American Society of Appraisers, and has been a member of the National Auctioneers Associations since 1985.

Scott A. West, Chief Financial Officer.  Mr. West became the Chief Financial Officer of HGP in March 2014 and was appointed the Chief Financial Officer of HGI in May 2015.  Mr. West has over 25 years of multi-national executive financial accounting and business management experience serving various public and private equity funded companies, including a Fortune 500 company. He has expertise managing financial, technical, M&A and international accounting teams and has deep knowledge of SEC financial reporting, SOX compliance and international accounting matters.  Mr. West is responsible for all of the Company’s financial and treasury functions including financial reporting, bank relationships, conducting internal and industry analysis to support the Company’s goals for growth, investor relations, and M&A activity.  Mr. West has a bachelor’s degree in Accounting from Arizona State University.

James Sklar, Executive Vice President, General Counsel, and Corporate Secretary.  Mr. Sklar became the Executive Vice President and General Counsel of HGP in June 2013 and was appointed the Executive Vice President, General Counsel and Corporate Secretary of HGI in May 2015.  Mr. Sklar has over two decades of relevant legal expertise serving leading worldwide asset advisory and auction services firms.  Throughout his career, he has played a key role in establishing relationships with global alliance partners and implementing international contracts as well as expanding the adoption of the auction sale process in North America, Europe, Asia and Latin America.  Mr. Sklar is responsible for all of the Company’s legal matters including negotiating global transactional business alliance documents, managing relationships and contracts with worldwide clients and business partners, and providing legal representation for all of the Heritage Global companies.  Mr. Sklar has a bachelor’s degree in Economics from the Wharton School of the University of Pennsylvania and a Juris Doctorate from Wayne State University Law School.

Kenneth Mann, Senior Managing Director, Equity Partners HG LLC. Mr. Mann has been employed by the Company since March 2011, when he joined the Company in connection with its acquisition of Equity Partners. Prior to the acquisition, Mr. Mann was a Partner at Equity Partners since 1995, and a Managing Partner since September 2002. During his career, Mr. Mann has had extensive experience handling investment banking services for distressed businesses operating in a wide variety of industries. Mr. Mann holds a Bachelor of Science Degree in Business Administration from Salisbury University. He began sponsoring events with the American Bankruptcy Institute in 1995, became a member in March 2003, and has served on its Asset Sales Committee since 2003.

David Ludwig, President, National Loan Exchange Inc. (“NLEX”). Mr. Ludwig joined the Company when HGI acquired NLEX in June 2014. Mr. Ludwig has worked in the financial industry for twenty-five years, and he developed NLEX from its start as a post-RTCpost-Resolution Trust Corporation (RTC) sales outlet to the nation's leading broker of charged-off credit card and consumer debt accounts. He is considered a leading pioneer in the debt sales industry, and has been a featured speaker at many industry conferences, as well as quoted in numerous publications including the New York Times, LA Times, Collections and Credit Risk, and Collector Magazine. Mr. Ludwig also serves as consultant and expert witness within the industry.  Mr. Ludwig has a Bachelor of Science Degree in Economics from the University of Illinois.Illinois.

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Stephen A. Weintraub, Executive Vice President, Corporate Secretary and Chief Financial Officer. Mr. Weintraub was appointed Senior Vice President and Secretary of HGI in December 2002. Mr. Weintraub was elected as a Class I director on November 26, 2003, and served as a director until June 15, 2004. He became an Executive Vice President in October 2005 and was appointed Chief Financial Officer in December 2005. Mr. Weintraub joined Counsel in June 1983 as Vice President, Finance and Chief Financial Officer. He has been and is an officer and director of Counsel and various Counsel subsidiaries. He has been Secretary of Counsel since 1987 and was appointed Senior Vice President in 1989. In December 2004, Mr. Weintraub was promoted to Executive Vice President and Secretary and became Chief Financial Officer again in December 2005. Mr. Weintraub received a Bachelor’s degree in Commerce from the University of Toronto in 1969, qualified as a Chartered Accountant with Clarkson, Gordon (now Ernst & Young LLP) in 1972 and received his law degree (LL.B.) from Osgoode Hall Law School, York University in 1975.

Each officer of HGI has been appointed by the Board and holds his office at the discretion of the Board.

No director or officer of our company has, during the last ten years: (i) been subject to or involved in any legal proceedings described under Item 401(f) of Regulation S-K, including, without limitation, any criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, United States federal or state securities laws, or finding any violations with respect to such laws.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership of equity securities of HGI with the SEC. Officers, directors, and greater than ten percent stockholders are required by the SEC regulation to furnish us with copies of all Section 16(a) forms that they file.

Based solely upon a review of Forms 3 and Forms 4 furnished to us pursuant to Rule 16a-3 under the Exchange Act during our most recent fiscal year, and Forms 5 with respect to our most recent fiscal year, we believe that all such forms required to be filed pursuant to Section 16(a) were timely filed by the executive officers, directors and security holders required to file same during the fiscal year ended December 31, 2014.2015.

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Code of Ethics

HGI has adopted a code of ethics that applies to its employees, including its principal executive, financial and accounting officers or persons performing similar functions. The HGI Code of Conduct (the “Code”) can be found on the Company’s website athttp://www.heritageglobalinc.com (follow Corporate Governance link to Governance Documents tab). The Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding any amendments to, or waivers from, a provision of the Code that applies to its principal executive, financial and accounting officers or persons performing similar functions by posting such information on its website at the website address set forth above.

Corporate Governance

Board Leadership and Risk Oversight

HGI is a small organization, with a market capitalization at December 31, 20142015 of approximately $9.0$6.5 million. From 2001 until the first quarter of 2014, CounselStreet Capital was the Company’s majority shareholder. In the first quarter of 2014 CounselStreet Capital declared a dividend in kind, consisting of its 73.3% interest in HGI, which was distributedpaid to CounselStreet Capital shareholders in April 2014. The Company’s association with Counsel hasStreet Capital continued into 2015, and Counsel remainsStreet Capital remained a related party, due to a management services agreement (the “Services Agreement”) between HGI and Counsel.Street Capital. The Services Agreement is described in more detail in Item 13 of this Report and in Note 1214 to the consolidated financial statements.  The Services Agreement was terminated effective August 31, 2015, as described more fully in the Current Report on Form 8-K filed with the SEC on September 1, 2015.  After the termination of the audited consolidated financial statements.

Services Agreement, Street Capital remained a related party as a result of the Company’s Chairman of the Board, Mr. Allan Silber, the Chairman and President of HGI, is the Chairman and CEO of Counsel. Also, as noted above, Mr. Stephen Weintraub has the role of CFOalso holding a similar position for both HGI and Counsel. Therefore, despite Counsel’s distribution of its interest in HGI, the Company’s operations have been largely directed by Counsel. Prior to HGI’s entry into the asset liquidation business, HGI’s operations were principally funded by Counsel, and at December 31, 2014 HGI has $2.985 million of related party debt owing to Counsel.Street Capital.  

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HGI’s operations, even following the acquisitions of HGP in the first quarter of 2012 and NLEX in the second quarter of 2014, and HGP’s expansion into Europe in the fourth quarter of 2012, remain relatively modest. It has fewmodest, with only fifty-three employees, as detailed in Item 111 of this report, and requires limited oversight by the Board.report. Given the current size and scale of the Company’s operations, the Company believes that the Board does not require a lead independent director in order to effectively oversee the strategic priorities of the Company. The Board meets quarterly to review and approve the Company’s operating results. It meets annually to review and approve the Company’s strategy and budget. Material matters such as acquisitions and dispositions, investments and business initiatives are approved by the full Board.

Board Meetings and Committees

The Board held fivefour meetings during the fiscal year ended December 31, 2014.2015. The Board has designated two standing committees: the Audit Committee and the Compensation Committee. HGI does not have a nominating or a corporate governance committee. However, corporate governance functions are included in the Audit Committee Charter, and Board nominations are considered by the full Board. There are no specific criteria for Director nominees, and the Company does not specifically consider diversity with respect to the selection of its Board nominees. Given the Company’s limited operations, the Company believes that it would have difficulty identifying and attracting a diverse selection of candidates. To date, it has been deemed most effective to nominate and appoint individuals who are either former employees with detailed knowledge of the business, such as Mr. Toh and Mr. Shimer, individuals with expertise that is unique to the Company’s operations, such as Mr. Turock, or individuals with expertise that will be of value as the Company expands its market presence, such as Dr. Heaton, Mr. Ryan.Ryan and Mr. Perlis. There has been no material change in the procedures by which our shareholders may recommend nominees to our Board since such procedures were adopted and implemented.

Audit Committee

The Audit Committee is responsible for making recommendations to the Board concerning the selection and engagement of independent accountants and for reviewing the scope of the annual audit, audit fees, results of the audit and independent registered public accounting firm’s independence. The Audit Committee is also responsible for corporate governance, and reviews and discusses with management and the Board such matters as accounting policies, internal accounting controls and procedures for preparation of financial statements. Its membership is currently comprised of Mr. Toh (Chairman) and Dr. Heaton, both independent directors. The Audit Committee held sixfour meetings during the fiscal year ended December 31, 2014. On June 9,2015. In 2000, the Board approved HGI’s Audit Committee Charter, which was subsequently revised and amended on July 10,in 2001 and again on February 12,in 2003 in order to incorporate certain updates in light of regulatory developments, including the Sarbanes-Oxley Act of 2002. A copy of the current Audit Committee Charter is available on the Company’s websitewww.heritageglobalinc.com.

Audit Committee Financial Expert

The Board has determined that Mr. Henry Y.L. Toh is an Audit Committee financial expert as defined by Item 407(d) of Regulation S-K and is “independent” as such term is defined under Nasdaq Marketplace Rules and applicable federal securities laws and regulations.

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Item 11. ExecutiveExecutive Compensation.

Compensation Discussion and Analysis

Summary

The following sections provide an explanation and analysis of our executive compensation program and the material elements of total compensation paid to each of our named executive officers. Included in the discussion is an overview and description of:

• our compensation philosophy and program;
• the objectives of our compensation program;
• what our compensation program is designed to reward;
• each element of compensation;
• why we choose to pay each element;
• how we determine the amount for each element; and
• how each compensation element and our decision regarding that element fit into our overall compensation objectives and affect decisions regarding other elements, including the relationship between our compensation objectives and our overall risk management.

In reviewing our executive compensation program, we considered issues pertaining to policies and practices for allocating between long-term and currently paid compensation and those policies for allocating between cash and non-cash compensation. We also considered the determinations for granting awards, performance factors for our company and our named executive officers, and how specific elements of compensation are structured and taken into account in making compensation decisions. Questions related to the benchmarking of total compensation or any material element of compensation, the tax and accounting treatment of particular forms of compensation and the role of executive officers (if any) in the total compensation process also are addressed where appropriate. In addition to the named executive officers discussed below, the Company has only forty-one47 salaried employees.

General Executive Compensation Philosophy

We compensate our executive management through a combination of base salaries, merit based performance bonuses, and long-term equity compensation. We adhere to the following compensation policies, which are designed to support the achievement of our business strategies:

• Our executive compensation program should strengthen the relationship between compensation, both cash and equity-based, and performance by emphasizing variable, at-risk earnings that are dependent upon the successful achievement of specified corporate, business unit and individual performance goals.

• A portion of each executive’s total compensation should be comprised of long-term, at-risk compensation to focus management on the long-term interests of shareholders.

• An appropriately balanced mix of at-risk incentive cash and equity-based compensation aligns the interests of our executives with that of our shareholders. The equity-based component promotes a continuing focus on building profitability and shareowner value.

• Total compensation should enhance our ability to attract, retain, motivate and develop knowledgeable and experienced executives upon whom, in large part, our successful operation and management depends.

• Total compensation should encourage our executives to ensure that the risks involved in any business decision align that executive’s potential personal return with maximal return to shareholders.

A core principle of our executive compensation program is the belief that compensation paid to executive officers should be closely aligned with our near- and long-term success, while simultaneously giving us the flexibility to recruit and retain the most qualified key executives. Our compensation program is structured so that it is related to our stock performance and other factors, direct and indirect, all of which may influence long-term shareholder value and our success.

We utilize each element of executive compensation to ensure proper balance between our short- and long-term success as well as between our financial performance and shareholder return. In this regard, we believe that the executive compensation program for our named executive officers is consistent with our financial performance and the performance of each named executive officer. We do not utilize the services of compensation consultants in determining or recommending executive or director compensation.

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Our Named Executive Officers

This analysis focuses on the compensation paid to our “named executive officers,” which is a defined term generally encompassing:

• all persons that served as our principal executive officer (“PEO”) at any time during the fiscal year
• all persons that served as our principal financial officer (“PFO”) at any time during the fiscal year
• the Company’s three most highly compensated executive officers, other than the PEO and PFO, serving in such positions at the end of the fiscal year.

During 2014,2015, our named executive officers were:

Allan C. Silber - our President and Chairman of the Board.Board and former Chief Executive Officer and President. Mr. Silber is the Chairman and CEO of Counsel Corporation,Street Capital, our former majority shareholder, which he founded in 1979.In January 2011, Mr. Silber resigned the position of Chief Executive Officer and assumed the position of President.  Mr. Silber resigned as the Company’s President effective May 5, 2015, as more fully described on the Company’s Form 8-K filed with the SEC on May 7, 2015.

Stephen A. Weintraub – our former Executive Vice President, Corporate Secretary and Chief Financial Officer since December 2005.who resigned from these positions effective May 5, 2015, as more fully described on the Company’s Form 8-K filed with the SEC on May 7, 2015.  Mr. Weintraub is the Executive Vice President, Corporate Secretary and Chief Financial Officer of Counsel Corporation.Street Capital. The Company payspaid no compensation directly to Mr. Weintraub, as his services arewere included in the management services agreements between the Company and Counsel,Street Capital, as discussed in Item 13 of this Report.

Ross Dove – Chief Executive Officer. Mr. Dove (and his brother) co-founded HGP, which was acquired by the Company in February 2012.  Effective May 5, 2015, Mr. Dove became Chief Executive Officer of the Company, as more fully described on the Company’s Form 8-K filed with the SEC on May 7, 2015.

Kirk Dove – Chief Operating Officer and President. Mr. Dove (and his brother) co-founded HGP, which was acquired by the Company in February 2012.  Effective May 5, 2015, Mr. Dove became Chief Operating Officer and President of the Company, as more fully described on the Company’s Form 8-K filed with the SEC on May 7, 2015.

Scott A. West – Chief Financial Officer.  Effective May 5, 2015, Mr. West became Chief Financial Officer of the Company, as more fully described on the Company’s Form 8-K filed with the SEC on May 7, 2015.

Kenneth Mann – Senior Managing Director, Distressed M&A, Equity Partners. Mr. Mann has held this position prior to and since the Company’s acquisition of Equity Partners in June 2011.

Ross DoveDavid Ludwig – President, National Loan Exchange. Mr. Ludwig has held this position prior to and Kirk Dove – Managing Partners, HGP. The Messrs. Dove, who are brothers, aresince the foundersCompany’s acquisition of HGP, which was acquired by the CompanyNational Loan Exchange in February 2012.June 2014.

Elements of Compensation

Base Salaries

Unless specified otherwise in their employment agreements, the base salaries of the Company’s named executive officers are evaluated annually. In evaluating appropriate pay levels and salary increases for such officers, the Compensation Committee uses a subjective analysis, considering achievement of the Company’s strategic goals, level of responsibility, individual performance, and internal equity and external pay practices. In addition, the Committee considers the scope of the executives’ responsibilities, taking into account competitive market compensation for similar positions where available, as well as seniority of the individual, our ability to replace the individual and other primarily judgmental factors deemed relevant by our Board and Compensation Committee. The Compensation Committee does not use any specific benchmark in the determination of base salaries.

Base salaries are reviewed annually by our Compensation Committee and our Board, and adjusted from time to time pursuant to such review or at other appropriate times, in order to align salaries with market levels after taking into account individual responsibilities, performance and experience.

During 20142015 and 2013,2014, all of the Company’s named executive officers, with the exception of Mr. Weintraub, were paid employees. As noted above, the Company’s President,former Chief Executive Officer, Mr. Allan Silber, is also the CEOChairman of Counsel.Street Capital. Mr. Silber’s annual salary of $137,500, and a discretionary bonus of up to 100% of his base salary, have been fixed at these amounts since 2005.2005, but neither his salary nor bonus eligibility will continue starting in 2016 due to Mr. Silber no longer being our Chief Executive Officer or President.

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Mr. Mann earns a base salary of $425,000 and is eligible for a performance bonus as described below.

The Messrs. Dove each earn base salaries of $300,000$350,000 and are eligible for discretionary bonuses of up to 50% of their base salaries.

 Bonuses

Mr. West earns a base salary of $200,000 and is eligible for a discretionary bonus.

Mr. Ludwig earns a base salary of $400,000 and is subject to the earn-out consideration from the acquisitions of NLEX in 2014, as further described in Note 3 to the consolidated financial statements.  

Bonuses

Bonus awards are designed to focus management attention on key operational goals for the current fiscal year. Our executives may earn a bonus based upon achievement of their specific operational goals and achievement by the Company or business unit of its financial targets. Cash bonus awards are distributed based upon the Company and the individual meeting performance criteria objectives. The final determination for all bonus payments is made by our Compensation Committee based on a subjective analysis of the foregoing elements.

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We set bonuses based on a subjective analysis of certain performance measures in order to maximize and align the interests of our officers with those of our shareholders. Although performance goals are generally standard for determining bonus awards, we have and will consider additional performance rating goals when evaluating the bonus compensation structure of our executive management. In addition, in instances where the employee has responsibility over a specific area, performance goals may be directly tied to the overall performance of that particular area.

Mr. Silber iswas entitled to a bonus of up to 100% of his annual salary.salary while he was our President. No bonus was awarded for 20142015 or 2013.2014.

Mr. Mann is eligible for a performance bonus calculated as follows:  after Equity Partners achieves net operating income of $175,000, the Equity Partners team receives 75% of the next $250,000, with the allocation among the Equity Partners team to be determined by Mr. Mann and the Company’s President,Chief Executive Officer, Mr. Silber.Ross Dove. After this, 50% of net operating income earned by Equity Partners (i.e.:,  net operating income in excess of $425,000) is allocated to the Equity Partners team for allocation as described above. In 20142015 Mr. Mann earned a bonus of $317,607 and in 2013$53,705.  In 2014 he earned a bonus of $151,925.$317,607.

The Messrs. Dove are eligible to receive an annual bonus of up to 50% of their annual salaries. They did not receive a bonus in either 20142015 or 2013.2014.

Mr. West is eligible to receive a discretionary bonus as determined by executive management and approved by the Compensation Committee.

As the bonuses described above, with the exception of Mr. Mann'sMann’s bonus, can only be awarded at the discretion of the Compensation Committee, they do not encourage inappropriate risk-taking on the part of the named executive officers, nor represent a risk to the Company. As Mr. Mann’s bonus is closely tied to the Company’s performance, it also does not encourage inappropriate risk-taking on his part.

Equity Incentive Grants

In keeping with our philosophy of providing a total compensation package that favors at-risk components of pay, long-term incentives can comprise a significant component of our executives’ total compensation package. These incentives are designed to motivate and reward executives for maximizing shareowner value and encourage the long-term employment of key employees. Our objective is to provide executives with above-average, long-term incentive award opportunities.

We view stock options as our primary long-term compensation vehicle for our executive officers. Stock options generally are granted at slightly above the prevailing market price on the date of grant and will have value only if our stock price increases. Grants of stock options generally are based upon our performance, the level of the executive’s position, and an evaluation of the executive’s past and expected future performance. We do not time or plan the release of material, non-public information for the purpose of affecting the value of executive compensation.

We believe that stock options will continue to be used as the predominant form of stock-based compensation. No options were granted to any of our named executive officers during 2014. During 2013,2015 or 2014, other than Mr. MannWest was granted 150,000 optionsan option to purchase 50,000 shares of common stock.stock with a strike price of $0.70 per share in 2014 when he joined the Company.

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Other Benefits

The only additional benefits provided to the named executive officers during 20142015 and 20132014 were the payment of an automobile allowance of $14,029 to Mr. Ross Dove. Mr. Kirk Dove also received a payment of $56,000 during 2015 which represented an automobile allowance for the Messrs. Dove.period from 2012 to 2015.  There were no pension or change in control benefits in either 20142015 or 2013.2014.

Upon termination of employment by the Company without cause, the Messrs. Dove and Mr. Mann are each entitled to twelve months base salary and a pro rata share of the bonus payable in the fiscal year of termination. Any bonus payable is based on the termination date (provided that, as of the termination date, the performance criteria established with respect to the bonus for the fiscal year have been met), subject to certain conditions.

Tax Considerations

Section 162(m) of the Internal Revenue Code places limits on the deductibility of compensation in excess of $1$1.0 million paid to executive officers of publicly held companies. The Compensation Committee does not believe that Section 162(m) has had or will have any impact on the compensation policies followed by the Company.

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Executive Compensation Process

Compensation Committee

Our Compensation Committee oversees and approves all compensation and awards made to the President.Chief Executive Officer, Chief Operating Officer/President, Chief Financial Officer and General Counsel. The Compensation Committee reviews the performance and compensation of the President,executive officers, without histheir participation, and establishes histheir compensation accordingly, with consultation from others when appropriate. For the additional executive officers, at this time consisting of the Senior Managing Director of Equity Partners, the two Managing Partners of HGP, and the President of NLEX, the Chairman of the Board reviews performance and determines the amount of any bonus to be awarded.

Executive and Director Compensation – Tabular Disclosure

Please note that all amounts reported in the tables below, and the accompanying notes, are in dollars (US), rounded to the nearest dollar.

Summary Compensation Table

The following table sets forth the aggregate compensation for services rendered during the fiscal years ended December 31, 20142015 and 20132014 by our named executive officers. As discussed below and in Item 13, certain employees of Counsel provideStreet Capital had provided services to HGI, and compensation for those services iswas provided and paid for under the terms and provisions of management services agreements entered into between CounselStreet Capital and HGI.

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Grants of Plan-Based Awards

     On March 11, 2013, 150,000 options, havingNo grants were made to the named executive officers of the Company noted above during 2015.  In 2014 when he joined the Company Mr. West was granted an exerciseoption to purchase 50,000 shares of common stock with a strike price of $1.00 and a fair value of $0.74, were granted to Mr. Mann. These options are part of the 2003 Stock Options and Appreciation Rights Plan. The inputs to the Black-Scholes Option Pricing Model were an expected volatility of 125%, a risk-free interest rate of 0.40%, an expected term of 4.75 years, and an expected dividend yield of zero.$0.70 per share.  

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth the detail of outstanding equity awards as regards exercisable and unexercisable options, at December 31, 2014.2015.