UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington,

WASHINGTON, D.C. 20549

FORM 10-K

[X]☒ ANNUAL REPORT PURSUANT TO SECTION 13

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

For the fiscal year endedDecember 31, 20142017

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  [   ]☐    No  [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  [   ]☐    No  [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]☒    No  [   ]☐

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]☒    No  [   ]☐

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.  [   ]☐

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 definedor an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act).Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

The aggregate market value of Common Stock held by non-affiliates based upon the closing price of $0.38$0.35 per share on June 30, 2014,2017, as reported by the OTCQB, was approximately $8.164$6.6 million.

As of March 12, 2015,2, 2018, there were 28,167,40828,480,148 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” as defined by the Private Securities Litigation Reform Act of 1995 that are based on management’s exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words “may”,"will”, “anticipate”, “believe”, “estimate”, “expect”, “intend”,“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”, and together with its consolidated subsidiaries, “we”, “us”, “our” or the “Company”) was incorporated in the State of Florida in 1983 under the name “MedCross, Inc.” The Company’sOur 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,in 2013. The most recent name change more closely identifies the CompanyHGI with its core auction business, Heritage Global Partners, Inc. (“HGP”).

     On March 20,In 2014, the Company’s former majority shareholder, Counsel Corporation (together with its subsidiaries, “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 June 2, 2014, effective as of May 31, 2014, the CompanyHGI 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 aone of our wholly owned divisiondivisions.

In July 2016, we completed the sale of our real estate inventory to International Investments and Infrastructure, LLC (“III”) for $4.1 million.  Concurrently, and in accordance with the Company. The purchase price consistedand sale agreement, the previously existing lease agreement between us and an affiliate of $2,000 cash and upIII was terminated.  Refer to $5,000 of contingent consideration based on NLEX earnings during the four years following the acquisition. At December 31, 2014 the present value of the contingent consideration has been estimated as $4,198. The transaction is also discussed in Note 3 ofto the audited consolidated financial statements.statements for further information.  

     DuringIn July 2016, we repaid $2.5 million of outstanding principal, plus accrued interest, on our loan with an unrelated party (the “Third Party Debt”) and terminated our loan agreement with the third quarter of 2014,party.  Refer to Note 9 to the Company’s Audit Committee completed a review of the Company’s independent registered public accounting firm. As a result, effective September 27, 2014, the Company engaged Squar, Milner, Peterson, Miranda & Williamson, LLP as the Company’s independent registered public accounting firm. This change is discussed in more detail in the Company’s Current Report on Form 8-K, filed with the SEC on September 27, 2014.consolidated financial statements for further information.    

The organization chart on the following pagebelow outlines theour basic domestic corporate structure of the Company as of December 31, 2014.2017.

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Owns and licenses telecommunications patents.

Asset liquidation

     The Company’sWe are a value-driven, innovative leader in corporate and financial asset liquidation transactions, valuations and advisory services.  We specialize both in acting as an adviser, as well as acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, real estate, accounts receivable portfolios, 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.

     TheOur 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 Equity Partners HG LLC f/k/a EP USA, LLC (d/b/a Equity Partners) (“Equity Partners”), thereby expanding the Company’sour operations. Equity Partners is a boutique investment bankingM&A advisory firm and provider of financial solutions for distressed businesses and properties.properties in transition.  

In February 2012, the Companywe increased itsour in-house asset liquidation expertise via itswith our acquisition of 100% of the outstanding equity of Heritage Global Partners, Inc. (“HGP”),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 itsour wholly-owned subsidiary Heritage Global Partners UK Limited, the Companywe 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, effective May 31,In 2014, the Companywe again expanded itsour asset liquidation operations with the acquisition of 100% of the outstanding equity of 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’sour 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’sour expanded global platform will allow the Companyus to achieve itsour long term industry leadership goals.

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Intellectual property licensingEmployees

     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 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.

Other

     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, HGI2017, we had forty-four employees. Twenty-six48 employees: 27 are employed by HGP, thirteen14 by NLEX, and fiveseven by Equity Partners.  In addition, five employees of Counsel provide management and administrative services to HGI under the terms of a management services agreement (the “Agreement”) that is described in Item 13 of this Report and Note 12 of the audited consolidated financial statements.

Industry and Competition

Asset liquidation 
     TheOur 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. ItOur asset liquidation business also includes the purchase and sale, including at auction, of industrial machinery and equipment, real estate, inventories, accounts receivable and distressed debt. The market for these services and assets is highly fragmented. To acquire auction or appraisal contracts, or assets for resale, HGI competeswe compete with other liquidators, auction companies, dealers and brokers. ItWe also competescompete 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’sOur 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 Companyus access to more opportunities, helping to mitigate some of the competition from the market’s larger participants and contribute to the Company’sour 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"“auctions” and "auctioneers"“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

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accountants and legal advisors. The mandatory adoption of XBRL reporting in 2011 has also increased the Company’sour 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

We file certain reports with the Securities and Exchange Act of 1934, as amendedCommission (the “Exchange Act”“SEC”), which requires that HGIincluding annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The public may read and copy any materials we 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,N.E., Washington, D.C.DC 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 webWe are an electronic filer, and the SEC maintains an Internet site at 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-Kwww.sec.gov that contains the reports and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Actinformation statements and other information we file electronically. Our website address is www. heritageglobalinc.com. Please note that our website address is provided as soon as reasonably practicable after such material has been electronically filed with, or furnished to, the SEC.an inactive textual reference only. The information provided on the Company’s corporateour website is not a part of this Annual Report on Form 10-K.report, and is therefore not incorporated by reference unless such information is specifically referenced elsewhere in this report.

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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,Further, 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 2012.2014. This growth requires an increased investment in personnel, systems and facilities. In the absence of continued revenue growth, the Company’sour 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.stockholders. Failure to anticipate and manage these risks could have a material adverse effect upon our business and results of operations.

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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 USU.S. 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 toadequately manage this risk could have a material adverse effect.effect on our financial condition and our results of operations.

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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 Companyus 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.

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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, 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.Board of Directors (the “Board”). The Board is divided into three staggered classes, and each director serves a term of three years. At eachThis means that only one class of directors can be replaced at a single annual stockholders’ meeting only those directors comprising one of the three classes will have completed their term and stand for re-election or replacement.meeting. These provisions may be beneficialtend 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.the Company.

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.

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Changes in tax laws or their interpretations, or becoming subject to additional foreign, U.S. federal, state or local taxes, could negatively affect our business, financial condition and results of operations.

We are subject to extensive tax liabilities, including U.S. federal and state taxes. Changes in tax laws or their interpretations could decrease the amount of revenues we receive, the value of any tax loss carry forwards and tax credits recorded on our balance sheet and the amount of our cash flow, and have a material adverse impact on our business, financial condition and results of operations. Some of our tax liabilities are subject to periodic audits by the respective taxing authority which could increase our tax liabilities. If we are required to pay additional taxes, our costs would increase and our net income would be reduced, which could have a material adverse effect on our business, financial condition and results of operations.

On December 22, 2017, President Trump signed into law H.R. 1, originally known as the “Tax Cuts and Jobs Act,” which includes significant changes to the taxation of business entities. These changes include, among others, a reduction in the corporate income tax rate. We continue to examine the impact this tax reform legislation may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of this tax reform is uncertain, and our business and financial condition could be adversely affected.

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

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. Thus, any net operating loss arising in a taxable year ending before January 1, 2018 may only be carried forward for 20 taxable years following the taxable year of such loss. Any net operating loss arising in a taxable year ending on or after January 1, 2018 can be carried forward indefinitely. In addition, any net operating loss deduction with respect to a net operating loss arising in a taxable year beginning after December 31, 2017 is limited to 80% of our taxable income in the year in which deduction is taken.

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, 2014,2017, 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 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 six years. There is no guarantee that they will be fully exploited or commercialized before expiry.

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Item 1B. Unresolved Staff Comments
     Not applicable.

None.

Item 2. Properties.
     The Company, in connection with its asset liquidation business, leases

We lease or rentsrent office space in several locations in the US.United States. The principal locations are Foster City,San Diego, CA and San Diego,Burlingame, CA, which are related to HGP’s operations, and Edwardsville, IL, which is related to NLEX’s operations. The CompanyWe also maintainsmaintain offices in Los Angeles, CA; Scottsdale, AZ,AZ; Farmington Hills, MI and Easton, MD. The Foster City and Edwardsville offices areoffice is leased from a related parties,party, as discussed in Note 12 of13 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 isWe are involved in various other legal matters arising out of itsour 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.us.

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Item 4. Mine Safety Disclosures.

Not applicable.Applicable.

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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, 20132016 through December 31, 2014,2017, 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, 2015,2, 2018, the closing price for a share of the Company’sour common stock as quoted on the OTCQB was $0.44.$0.43.

HoldersThe 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, 2016 through December 31, 2017, 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 2, 2018, the closing price for a share of our common stock as quoted on the CSE was Canadian $0.51.

Holders

As of March 12, 2015, the Company2, 2018, we had approximately 419394 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, 2014,2017, 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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								Number of
								securities
								remaining available
								for future issuance
								under equity
		Number of Securities						compensation plans
		to be issued upon			Weighted-average			(excluding
		exercise of			exercise price of			securities reflected
Plan Category (1)		outstanding options			outstanding options			in column (a))
		(a)			(b)			(c)
Equity compensation plans approved by securityholders:
2003 Stock Option and Appreciation Rights Plan		1,210,000		$	1.62			—
Equity compensation plans not approved bysecurity holders:
2010 Non-Qualified Stock Option Plan		100,000			0.70			1,150,000
Equity Partners Plan		230,000			1.83			—
Options issued upon acquisition of HGP		625,000			2.00			—
Total		2,165,000		$	1.71			1,150,000

(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 March 28, 2017, one of our directors exercised a previously granted option to purchase 10,000 shares of our common stock at an exercise price of $0.08 per share.  No commissions were paid on this purchase.  This purchase was exempt from registration pursuant to Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.  

 None.

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

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Liquidity and Capital Resources

Liquidity

At December 31, 2014 the Company2017, we had a working capital deficit of $3,883,$5.6 million, as compared to a working capital deficit of $3,174$4.1 million at December 31, 2013,2016, an increase in the deficit of $709. The Company’s$1.5 million.

Our current assets increased slightlydecreased to $7,575$3.0 million compared to $7,324$4.4 million at December 31, 2013.2016. Within current assets, the most significant changes were an increasechange was a decrease of $1,373$0.9 million in accounts receivable, offset by a decreaseprimarily the result of $1,366payments owed to us for activities related to our asset liquidation transactions in deferred income taxes. Withinthe fourth quarter.

Our current liabilities an increase of $621remained relatively constant at $8.7 million as compared to $8.6 at December 31, 2016.  The most significant change was the $1.7 million decrease in the accounts payable and accrued liabilities, was largelyprimarily the result of timing of certain auction settlement liabilities, offset by a decrease of $464an increase in the Company’s current debt.portion of contingent consideration due to timing of the final contingent consideration payment owed to the former owner (and current president) of NLEX in 2018.

We believe we can fund our operations, our working capital deficit, and our debt service obligations during 2018 and beyond through a combination of cash flows from our on-going asset liquidation operations and accessing financing from our existing line of credit.  

Our current Related Party debt consists of the Street Capital Loan (as defined below). During the third quarter of 2016, we repaid the outstanding balance of the Third Party Debt and terminated an agreement with the unrelated party.  The most significant changeStreet Capital Loan is with our former majority stockholder, Street Capital, and the amount of principal outstanding has varied over time.  In the third quarter of 2016, we amended the Street Capital Loan to structure payment terms of the outstanding balance, beginning in the third

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quarter of 2016, and ending in the third quarter of 2018.  At December 31, 2017 the Street Capital Loan had a current liabilities was the inclusion,outstanding balance of $0.4 million as compared to $1.0 million at December 31, 2014, of $803 of the contingent consideration relating to the Company’s 2014 acquisition of NLEX. This acquisition is discussed in more detail in Note 3 of the audited consolidated financial statements.2016.

     The Company’s currentOur Third Party debt payable consists of borrowings under HG LLC’s revolving credit facilitya Promissory Note dated January 30, 2018 (the “Credit Facility”“Note”), issued in the amount of $1,260,000. We are required to pay off the Note in 36 equal installments of $35,000, and a related party loan, (the “Counsel 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 it had anremaining outstanding balance of $539, as compared to $1,438 at December 31, 2013. The Counsel Loan is with the Company’s former majority shareholder, Counsel,hereunder shall be due and has also fluctuated over time. At December 31, 2014 it had an outstanding balance of $2,985 as compared to $2,550 at December 31, 2013.

     The Company has an additional loan payable to an unrelated third party, which had a balance of $2,580 at December 31, 2014 and maturesin full on January 15, 2016.30, 2021.

     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, the Company’s2017, our primary sources of cash were the operations of itsour asset liquidation business and borrowings under the associated Credit Facility. The Company also received $444 of cash distributions from its equity method investments.business.  Cash disbursements other than those related toduring 2017 consisted of debt repayment of $4,371 ($1,866$0.6 million (all of which was paid to third parties and $2,505Street Capital), payment of the contingent consideration owed to a related party), were primarily related to operating expenses and the acquisitionformer owner (and current president) of NLEX for net cash of $1,361.

     It should be noted that the Company has historically classified both real estate inventory and asset liquidation investments as non-current, although they are expected to be converted to cash within a year. At December 31, 2014 and 2013, these assets totaled $7,486 and $7,458, 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 valueamount of $156. Of this amount, $136 represented an expected distribution,$0.9 million, and the Company received $140 in March 2015.payment of operating expenses.  

     The Company is continuing to pursue licensing and royalty agreements with respect to its patents. However, the Company expectsWe expect that itsour 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.

Ownership Structure and Capital Resources

• At December 31, 2014 the Company2017 and December 31, 2016, we had stockholders’ equity of $13,477, as compared to $39,497 at December 31, 2013.$3.5 million.

• At December 31, 2012,We determine our future capital and until July 25, 2013, the Company was 71.3% owned,operating requirements based upon our current 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%,projected operating performance and the remaining public stockholders owned 7.7%. Uponextent of our contractual commitments.  We expect to be able to finance our future operations through a combination of our asset liquidation business and securing additional debt financing. Our contractual requirements are limited to the departureoutstanding debt, contingent consideration liability, and lease commitments with related and unrelated parties.  Capital requirements are generally limited to our purchases of surplus and distressed assets.  We believe that our current capital resources, including available borrowing capacity from our existing line of credit, are sufficient for these requirements.  In 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 approvedevent additional capital is needed, we believe we can obtain additional debt financing through either related party loans or through 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, 20142017 were $3,633$2.1 million compared to $3,213$2.5 million at December 31, 2013.2016.

Cash provided by or used in operating activities.Cash used inprovided by operating activities was $1.2 million during 2017 as compared to $3.9 million cash provided by operating activities during 20142016. The approximate $2.7 million decrease was $357, asprimarily attributable to a net unfavorable change of $4.6 million in the operating assets and liabilities in 2017 compared to $2,261 cash provided2016, the result of completing the sale of our real estate inventory in the third quarter of 2016 and additional net unfavorable changes in other operating assets and liabilities of $0.8 million. The change in operating assets and liabilities was offset by a favorable change in the net (loss) income adjusted for noncash items, which was $1.8 million better during 2013, a decrease of $2,618. In both 2014 and 2013, the operations of the Company’s asset liquidation business were the primary source of cash receipts and disbursements. In 2014 the Company had a pre-tax loss of $1,792, as2017 compared to a pre-tax loss of $3,367 in 2013, a decrease of $1,575. The operations of NLEX, which was acquired during 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 increase in 2014 was primarily due2016, mainly attributable to the adjustment oflegal settlement and the $24,667 total deferred tax assets outstanding at December 31, 2013 to $0. In 2013, the Company recorded net income tax expense of $3,029, of which $4,740 was a valuation allowance against its 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 presentfair value adjustment 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.2017.  

The significant changes in operating assets and liabilities during 20142017 as compared to 2013, aside from those relating to tax,2016 are primarily due to the nature of the Company’sour operations. The Company earnsWe earn 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.all. 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 in investing activities during 20142017 was $1,055,$44,000, as compared to $773$79,000 cash provided during 2013. The most significant item in 20142016. In both 2016 and 2017, the cash used was for the net $1,361 cash paid to acquire NLEX; there were no similar transactions during 2013. The other significant difference between the two periods was the receipt of $444 in cash distributions during 2014, primarily from the Company’s investment in Polaroid, compared to the receipt of $839 in cash distributions during 2013, also primarily from Polaroid. In 2014, purchasespurchase of property plant and equipment were $127, compared to $10 in 2013.equipment.

Cash provided by or used in financing activities.Cash provided byused in financing activities was $1.6 million during 2014 was $1,832,2017, as compared to $4,135 cash used$4.1 million during 2013. In 20142016. The 2017 activity consisted of a draw and full repayment within our related party line of credit, $0.6 million of repayments to Street Capital, and $0.9 million of contingent consideration paid to the Company received net cashformer owner (and current president) of $1,587 fromNLEX. The 2016 activity consisted of repayments to Street Capital ($0.8 million) and an unrelated third party lenders, as compared($2.5 million), and $0.8 million of contingent consideration paid to repaying $9,456 net cash in 2013. With respect tothe former owner (and current president) of NLEX.  We also received proceeds of $1.1 million from related party debt,loans during 2016, and repaid the amount in 2014 the Company received net cashfull as 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.December 31, 2016.  

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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, 2014, as well as for the years ended December 31, 20132017 and 2014.2016 (in thousands).

 The Company’s

Our 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 CompanyWe also earnsearn income from itsour asset liquidation business through itsour 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.

20142017 Compared to 20132016

Asset liquidationRevenues and cost of revenues - Revenues were $14,186$20.1 million in 20142017 compared to $8,068$23.8 million in 2013,2016 and costs of services revenue and asset liquidation expense was $4,631sales were $4.7 million in 20142017 compared to $2,706$11.3 million in 2013, andearnings of equity accounted asset liquidation investments2016. The gross profits were $143therefore $15.4 million in 20142017 compared to $1,200$12.5 million in 2013. The net earnings of these three items were therefore $9,698 in 2014 compared to $6,562 in 2013,2016, an increase of $3,136approximately $2.9 million or 47.8%approximately 23%. The significant decrease in revenue in 2017 was primarily the result of our sale of the real estate inventory in 2016.  In addition, cost of services revenue decreased during 2017 as compared to 2016, and services revenue increased during 2017 as compared to 2016, based on a higher volume of deals for the Equity Partners and NLEX divisions, which have lower direct costs as compared to deals for HGP. Because the Company conducts itswe conduct our 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 earnings in 2014 reflectgross profit is a function of the vagaries of thevolume, size and timing of asset liquidation transactions. They also reflect the acquisition of NLEX, which was responsible for $1,925 of net asset liquidation earnings.

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

Selling, general and administrative expense, including expenses paid to related parties, – Selling, general and administrative expense was $10,989$13.6 million in 20142017 as compared to $9,660$12.0 million in 2013,2016, an increase of $1,329$1.6 million or 13.8%13%. Expenses increased overall primarily due to the inclusion of NLEX expenses of $1,396following: an increase in the annual performance bonus for the seven month period JuneEquity Partners division based on improved financial performance; an increase in external finders fees for the Equity Partners division; an increase in salaries and commissions for the NLEX division as compared to December 2014. Thisthe prior year; and an increase was partially offset by reduced expensesin our non-cash stock-based compensation expense, attributable to the Company-wide option grant in the fourth quarter of HG LLC operations in 2014, following the departure of the former Co-CEOs and other HG LLC employees effective June 30, 2013.2016.

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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 2014, compared$0.3 million in 2017 and 2016, and consisted almost entirely of amortization expense related to $472 in 2013, an increase of $94 or 19.9%.intangible assets.  In both years $453 is amortization of the intangible assets recognized in connection with the acquisition of HGP. In 2014, an additional $91 is amortization of the intangible assets recognized in connection with the acquisition of NLEX for the seven month period June to December. The remaining expense in both years is depreciation of property plant and equipment.equipment was not material.

Off-Balance Sheet Arrangements – We had no off-balance sheet arrangements during the years ended December 31, 2017 and 2016.

 Other income (expense) and earnings of other equity accounted investments – the significant items included:

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Non-GAAP Financial Measure -– Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)

We prepared our audited consolidated financial statements in accordance with generally accepted accounting principles generally accepted in the United States (“GAAP”).

We use the non-GAAP financial measure “EBITDA”“Adjusted EBITDA” in assessing our results. Adjusted EBITDA reflects the Company’s results. We definestandard definition of EBITDA as net(net income less(loss) plus depreciation and amortization, interest and other expense, and provision for income taxes, depreciationtaxes), adjusted further to reflect the effects of settlement accrual charges, plus or minus fair value adjustments of contingent consideration and amortization.plus stock-based compensation.  We believe that Adjusted 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 to the most directly comparable GAAP financial measure, provides a more complete understanding of the factors and trends affecting the Companyus than could be obtained absent these disclosures. Management uses Adjusted EBITDA to make operating and strategic decisions and to evaluate the Company’sour 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 Adjusted EBITDA is a useful supplemental tool to evaluate theour underlying operating performance of the Company on an ongoing basis. Our use of Adjusted EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the quarterly and annual financial information, below, which reconciles EBITDA to our GAAP reported net loss(loss) income to Adjusted EBITDA for the periods presented.presented (in thousands).

Future Accounting PronouncementsRecently adopted accounting pronouncements

In June 20142016, the FASB issued Accounting Standards Update 2014-12,Accounting for Share-Based Payments Whenupdate (“ASU”) 2016-07, Investments – Equity Method and Joint Ventures (“ASU 2016-07”), which simplifies the Termstransition to the equity method of accounting by, among other things, eliminating retroactive adjustments to the investments as a result of an Award Provide Thatincrease in the level of ownership interest or degree of influence.  ASU 2016-07 became effective January 1, 2017 and did not have a Performance Target Could Be Achieved aftermaterial impact on our consolidated financial statements.  

In 2016, the Requisite Service PeriodFASB issued ASU 2016-09, Compensation – Stock Compensation (“ASU 2014-12”2016-09”). ASU 2014-12 requires entities, which provides improvements 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,accounting.  ASU 2016-09 simplifies the accounting and presentation of various elements of share-based compensation including, but will be requirednot limited to, adoptincome taxes, excess tax benefits, statutory tax withholding requirements, payment of employee taxes, and award assumptions.  ASU 2014-12 should it issue any such awards when ASU 2014-12 becomes effective.2016-09 became effective January 1, 2017 and did not have a material impact on our consolidated financial statements.

In April 2014,2015, the FASB issued Accounting Standards Update 2014-08,Reporting Discontinued Operations and Disclosuresupdate 2015-17, Balance Sheet Classification of Disposals of Components of an EntityDeferred Taxes (“ASU 2014-08”2015-17”).  ASU 2014-082015-17 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 impactall deferred tax assets and liabilities to be classified as non-current 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 meetbalance sheet.  This amendment simplifies 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.deferred income taxes.  ASU 2014-08 is2015-17 will be effective for fiscal years, and interim and annual periods within those fiscal years, beginning on or after December 15, 2014, with early adoption permitted. At the date of these consolidated financial statements the Company does2016.  ASU 2015-17 became effective January 1, 2017 and did 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 willa material impact itson our consolidated financial statements.

Future accounting pronouncements

In May 2014, the 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. The FASB subsequently issued amendments to ASU No. 2014-09 that have the same effective date and transition date. 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

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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) 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. Early adoption is not permitted.2017. 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, ASU 2014-09 requires significantly more disclosures about revenue recognition. The Company hasThese new standards became effective for us on January 1, 2018, and will be adopted using the modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of that date, as applicable. Based on our assessment of the impact that these new standards will have on our consolidated results of operations, financial position and disclosures completed to date, we have not yet assessedidentified any accounting changes that would materially impact the potential impactamount of ASU 2014-09 on its consolidatedreported revenues with respect to our service revenue and asset sales, or the timing of such revenues; however, certain changes are required for financial statements.statement disclosure purposes.

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In August 2014,2016, the FASB issued Accounting Standards update 2014-15,Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern2016-02, Leases (“ASU 2014-15”2016-02”).  ASU 2014-152016-02 requires managementa lessee to determine whether substantial doubt exists regardingrecognize a lease asset representing its right to use the entity’s going concern presumption, which generally refersunderlying asset for the lease term, and a lease liability for the payments to an entity’s abilitybe made to meetlessor, on 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. Thebalance sheet for all operating leases greater than 12 months.  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 is2016-02 will be effective for annualfiscal years, and interim periods endingwithin those fiscal years, beginning after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company has2018.  We have not yet adopted ASU 2014-152016-02 nor assessed its potential impact on its disclosures.the financial statements.      

In November 2014,2016, the FASB issued Accounting Standards update 2014-16,Determining Whether2016-15, Statement of Cash Flows (“ASU 2016-15”), which clarifies the Host Contractclassification of certain cash receipts and payments.  The specific cash flow issues addressed by ASU 2016-15, with the objective of reducing the existing diversity in practice, are as follows: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with insignificant coupon interest rates; (3) contingent consideration payments made after a Hybrid Financial Instrument Issuedbusiness combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interest in securitization transactions; and (8) separately identifiable cash flows and application of the Form of a Share Is More Akin to Debt or to Equity (“predominance in principle.  ASU 2014-16”). ASU 2014-16 requires an entity to apply the “whole instrument” approach to determine whether 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 should2016-15 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 expect2017.  We are still assessing the adoptionimpact of ASU 2014-16 to have a material impact2016-15 on itsour consolidated financial statements.

In 2017, the FASB issued Accounting Standards update 2017-01, Business Combinations (“ASU 2017-01”), which clarifies the definition of a business under topic 805 of the Accounting Standards Codification.  The main provisions of ASU 2017-01 provide a screen to determine when an integrated set of assets and activities is not a business.  The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business.  ASU 2017-01 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  We are still assessing the impact of ASU 2017-01 on our consolidated financial statements.    

In 2017, the FASB issued Accounting Standards update 2017-04, Intangibles – Goodwill and Other (“ASU 2017-04”), which simplifies the test for goodwill impairment.  The main provisions of ASU 2017-04 eliminate the second step of the goodwill impairment test which previously was performed to determine the goodwill impairment loss for an entity by calculating the difference between the implied fair value of the entity’s goodwill and its carrying value.  Under ASU 2017-04, if a reporting unit’s carrying value exceeds its fair value, an entity will record an impairment charge based on that difference.  The impairment charge will be limited to the amount of goodwill which is allocated to that reporting unit.  ASU 2017-04 will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.  We are still assessing the impact of ASU 2017-04 on our consolidated financial statements.      

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Critical Accounting Policies

Use of estimates
     Our audited

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

Cost of services revenue and asset sales

Cost of services revenue generally includes the Company.direct costs associated with generating commissions and fees from our auction and appraisal services, merger and acquisition advisory services, and brokering of charged-off receivable portfolios.  We generally recognize 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.  We recognize 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

Our accounts receivable primarily relate to the operations of itsour asset liquidation business. They generally consist of three major categories:  fees, commissions and retainers relating to appraisals and auctions, receivables from asset sales, and 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 8 to the collectability of its receivables.consolidated financial statements for more detail regarding our accounts receivable.  

Inventory

 Inventory 
     The Company’s

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Our 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 generally 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. The Company has recorded inventory write downs totaling $8 in 2014 and $59 in 2013.See Note 3 to the consolidated financial statements for further detail.      

Asset LiquidationEquity Method Investments

As noted above, the Company conductswe conduct a portion of itsour asset liquidation business through Joint Ventures. These are accounted for using the equity method of accounting whereby the Company’sour proportionate share of the Joint Venture’s net income (loss) is reported in the consolidated statement of operations as Earnings (Loss)earnings of Asset Liquidation Investments.equity method investments. At the balance sheet date, the Company’sour investments in these Joint Ventures are reported in the consolidated balance sheet as Asset Liquidation Investments. The Company monitorsequity method investments. We monitor the value of each Joint Ventures’ underlying assets and liabilities, and records a write down of itsour investments should the Companywe 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 undertakeswe undertake 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,  See Note 4 to 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 investeeconsolidated 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.for further detail.  

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 monitorswe monitor 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.  We assess 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’sour identifiable intangible assets at December 31, 2017 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 of7 to the audited consolidated financial statements. Based on the Company’s assessments at December 31, 2014 and 2013, noNo impairment of these assets was identified.charges were necessary during 2017.  

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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. We perform our 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 our 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 Companywe initially usesuse 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 Companywe then appliesapply 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’sour goodwill relates to itsour acquisitions of Equity Partners in 2011, HGP in 2012 and NLEX in 2014, and is discussed in more detail in Note 3 and Note 6 of7 to the audited consolidated financial statements. Based on the Company’s assessments at December 31, 2014 and 2013, noNo impairment of goodwill was identified.charges were necessary during 2017.

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

Deferred income tax assets
     The Company recognizestaxes

We recognize 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

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differences are expected to reverse. The CompanyWe periodically assessesassess the value of itsour 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 evaluatesWe evaluate 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 itsour use of itsour net operating and net capital loss carryforwards.  In the first quarter of 2014, asWe continued to carry a result of incurring losses in 2012, 2013 and 2014, the Company recorded afull valuation allowance that reduced its deferred tax assets to $0.in 2017.  For further discussion of the Company’sour income taxes, see Note 11 of12 to the audited consolidated financial statements.

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax (Toll Charge) on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, which will include determining the transition tax, re-measuring our U.S. deferred tax assets and liabilities, as well as reassessing the net realizability of our deferred tax assets and liabilities.

Contingent consideration

At December 31, 2014 the Company’s2017 our 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 presentfair value is assessed quarterly, and any adjustments, together with the amortizationaccretion of the fair value discount, are reported as Interest Expensefair value adjustments on the Company’sour consolidated statement of operations. AsSee Notes 2 and 10 to 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 of the audited consolidated financial statements for more discussion of the contingent consideration.

Liabilities and contingencies
     The Company is

We are involved from time to time in various legal matters arising out of itsour operations in the normal course of business. On a case by case basis, the Company evaluateswe evaluate the likelihood of possible outcomes for this litigation.these contingent matters. Based on this evaluation, the Company determineswe determine whether a liabilityloss accrual is appropriate. If the likelihood of a negative outcome is probable, and the amount can be estimated, we accrue the Company accounts for the liabilityestimated loss in the current period.  At this time,Refer to Note 14 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

Our 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 our stock options is based on a variety of factors including, but not limited to, the price of our 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.period, net of estimated forfeitures. The provisions of the Company’sour stock-based compensation plans do not require the Company tothat we settle any options by transferring cash or other assets, and therefore the Company classifieswe classify the option awards as equity. See Note 15 ofto the audited consolidated financial statements for further discussion of the Company’sour 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.

     SeeOur Consolidated Financial Statements beginningrequired by this Item are included herein, commencing on page F-1.

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

     As disclosed inDuring 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 firmyears ended December 31, 2017 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 2013 and Fiscal 2014 the CompanyDecember 31, 2016, respectively, we had no disagreements with itsour 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 Companywe conducted an evaluation of itsour 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’sour disclosure controls and procedures were effective as of December 31, 2014.2017.

Management’s Annual Report on Internal Control Over Financial Reporting

     The Company’sOur 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’sour management, including the Certifying Officers, we conducted an evaluation of the effectiveness of the Company’sour 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’sOur 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’sOur 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;our assets; (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 by us only in accordance with authorizations of our management and directors of the Company;directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’sour 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’sour management concluded that the Company‘sour internal control over financial reporting was effective as of December 31, 2014.

     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.2017.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth fiscal quarter of 20142017 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 sixseven members: onethree Class I director (Mr.directors (Messrs. Dove, Perlis and Shimer), threetwo Class II directors (Messrs. Toh, Heaton,Hexner and Silber) and two Class III directors (Messrs. TurockRyan and Ryan)DeMoss). The following table sets forth the names, ages and positions with HGIus 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 theour executive officers and directors of the Company:directors:

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. In May 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. HeatonMichael Hexner, Director.  Dr. HeatonMr. Hexner was appointed by the Board as a Class II director on June 14, 2000in August 2016 to fill a Board vacancy. Dr. HeatonMr. Hexner has expertise and extensive experience in capital markets, corporate finance, emerging marketsexecutive leadership with growing businesses.  Mr. Hexner co-founded Wheel Works in 1976, and entrepreneurial finance, allgrew the business, as its Chief Executive Officer, to become the largest independent tire chain in the United States.  Mr. Hexner was the co-founder of which have relevance to the Company as it pursues varied investmentPacific Leadership Group in 2001, 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’s degree in Computer Science/Mathematics and a Master’s in Business Administration from Brigham Young University, as well as a Master’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.the Chairman and Chief Executive Officer of both SmartPillars and DealerFusion.  Mr. Toh was appointed as Chairman of the Audit Committee in March 2005. Mr. TohHexner currently serves as Vice Chairman/Executive Vice Presidentan operating partner of Fundamental Capital, a private equity firm, and Directoras the Chairman of NuGen Holdings Inc. (formerly InovaChem, Inc.),Zoomvy.com.  Mr. Hexner received a research, developmentBachelor of Arts in political philosophy from Williams College, a master’s degree in negotiation and production company specializing in Axio flux electric motor systems, since January 2008,dispute resolution from Creighton University, and President and CEOhas completed an executive management program at the Haas School of Amerique Investments International Corporation since 1992. He previously served as Executive Vice President and a directorBusiness of NuGen Holdings Inc., from February 2008 to December 2009. Mr. Toh has served as a directorthe University 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 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.California.

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Samuel L. Shimer, Director.  Mr. Shimer was appointed by the Board as a Class I director onin April 15, 2001 to fill a Board vacancy.2001. Mr. Shimer has extensive expertise in mergers and acquisitions, including those transactions that occurred while he was an officer of the Companyour 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 degreeeconomics 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.

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J. Brendan Ryan, Director.  Mr. Ryan was appointed by the Board as a Class III director onin 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.us. Mr. Ryan received his Bachelor degreeof Arts in Historyhistory from Fordham College and his Master of Business Administration in Marketingmarketing 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 in May 2015.  Mr. Perlis previously served as President of Street Capital from 1992 until 2001, a period of tremendous success that included guiding our 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 Company in connectionlaunch of, the AMEX Bank of Canada, for which he served as CEO.  Among his other responsibilities with its acquisition of Equity Partners. Prior to the acquisition,American Express, Mr. MannPerlis served as Executive Vice President, and was a Partner at Equity Partners since 1995,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 its industry.  Mr. Perlis is currently the President and CEO of Morris Perlis and Associates, and is active on a Managing Partner since September 2002. Duringnumber of public, private and not for profit boards.

Emmett DeMoss, Director.  Mr. DeMoss was appointed by the Board as a Class III director in August 2017.  He worked in the business sector as a Corporate Finance Officer for Dean Witter and for Hambrecht & Quist, where he managed the initial public offerings (“IPO”) of several companies. He later served as Chief Operating Officer of Grubb & Ellis (“G&E”), a commercial real estate brokerage and advisory firm, where he helped grow the business to $350 million in annual revenues and led the reverse IPO of our company. Mr. DeMoss has extensive executive leadership experience with growing businesses and was the founder, director and senior officer of Rackwise and Real Bid, the first on-line Company to offer indicative bidding for commercial real estate, which eventually merged with CoStar (Nasdaq: CSGP). He also held positions as a director and senior officer of Docutel. Mr. DeMoss received 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 Mechanical Engineering from Princeton University and a Master of Business Administration in Finance from SalisburyStanford University. He began sponsoring events with

Ross Dove, Chief Executive Officer and Director.  Mr. Dove was appointed by the American Bankruptcy InstituteBoard as a Class I director in 1995, became a memberMay 2015. Mr. Ross Dove was appointed our Chief Executive Officer in March 2003,May 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. Ross Dove joined the Companyour 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 with advances in the 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 our Chief Operating Officer and President in May 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. Kirk Dove joined the Companyour company when HGI acquired HGP in February 2012. Mr. Dove began his career in the auction business over twenty-fivethirty 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 holdsreceived a Bachelor of Sciences degreeScience in Businessbusiness from 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 received a Bachelor of Science in accounting from Arizona State University.

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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 received a Bachelor of Science 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 us since March 2011, when he joined our company in connection with our 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 received a Bachelor of Science 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 Companyour company when HGI acquired NLEX in June 2014. Mr. Ludwig has worked in the financial industry for over twenty-five years, and he developed NLEX from its start as a post-RTCpost-Resolution Trust Corporation (RTC) sales outlet to the nation'snation’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 hasreceived a Bachelor of Science Degree in Economicseconomics 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 SecretaryEach 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 HGIour officers 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), (ii) been subject to any order, judgment, or (ii)decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities, or (iii) 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 or commodities laws and regulations, or finding any violations with respect to such laws.laws and regulations.

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, 2014.2017.

Code of Ethics

HGI has adopted a code of ethics that applies to itsour 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’sour website athttp://www.heritageglobalinc.com (follow Corporate Governance link to Governance Documents tab). The Company intendsWe intend 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 itsour 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. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is specifically referenced elsewhere in this report.

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Corporate Governance

Board Leadership and Risk Oversight
     HGI is

We are a small organization, with a market capitalization at December 31, 20142017 of approximately $9.0$10.5 million. From 2001 until the first quarter of 2014, CounselStreet Capital was the Company’sour majority shareholder.stockholder. In the first quarter of 2014 CounselStreet Capital declared a dividend in kind, consisting of its 73.3% interest in HGI,our company, which was distributedpaid to Counsel shareholdersStreet Capital stockholders in April 2014. The Company’sOur 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 HGIus and Counsel.Street Capital. The Services Agreement is described in more detail in Item 13 of this Report and in Note 1213 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 Street Capital Loan and our 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’sOur 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 48 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’sour operations, the Company believeswe believe that the Board does not require a lead independent director in order to effectively oversee theour strategic priorities of the Company.priorities. The Board meets quarterly to review and approve the Company’sour operating results. It meets annually to review and approve the Company’sour 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, 2014.2017. 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 doeswe do not specifically consider diversity with respect to the selection of itsour Board nominees. Given the Company’sour limited operations, the Company believeswe believe that itwe 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 itswe expand our market presence, such as Mr. Ryan.Hexner, Mr. DeMoss, Mr. Ryan and Mr. Perlis. There has been no material change in the procedures by which our shareholdersstockholders 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. TohShimer (Chairman), Mr. DeMoss, and Dr. Heaton, bothMr. Hexner, all three of whom are independent directors. The Audit Committee held sixfour meetings during the fiscal year ended December 31, 2014. On June 9,2017. 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’sour websitewww.heritageglobalinc.com.

Audit Committee Financial Expert

The Board has determined that Mr. Henry Y.L. TohSamuel L. Shimer 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 haswe have only forty-one48 salaried employees.

General Executive Compensation Philosophy

We compensate our executive management through a combination of base salaries, merit basedmerit-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.stockholders.

• An appropriately balanced mix of at-risk incentive cash and equity-based compensation aligns the interests of our executives with that of our shareholders.stockholders. 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.stockholders.

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 shareholderstockholder 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 shareholderstockholder 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 year; and

  our principal financial officer (“PFO”) at any time during the fiscal year

• the Company’s threetwo most highly compensated executive officers, other than the PEO, and PFO, serving in such positions at the end of the fiscal year.

During 2014,2017, our named executive officers were:

Allan C. Silber -Ross Dove – Chief Executive Officer. Mr. Dove (and his brother, Kirk Dove) co-founded HGP, which we acquired in 2012.  Effective May 5, 2015, Mr. Dove became our President and Chairman ofChief Executive Officer, as more fully described in our Form 8-K filed with the Board. Mr. Silber is the Chairman and CEO of Counsel Corporation, our former majority shareholder, which he founded in 1979.SEC on May 7, 2015.

Stephen A. Weintraub – our Executive Vice President, Corporate Secretary and Chief Financial Officer since December 2005. Mr. Weintraub is the Executive Vice President, Corporate Secretary and Chief Financial Officer of Counsel Corporation. The Company pays no compensation directly to Mr. Weintraub, as his services are included in the management services agreements between the Company and Counsel, as discussed in Item 13 of this Report.

Kenneth Mann – Senior Managing Director, Distressed M&A, Equity Partners. Mr. Mann has held this position prior to and since the Company’sour 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, are the founderssince our acquisition of HGP, which was acquired by the CompanyNational Loan Exchange in February 2012.2014.

Elements of Compensation

Base Salaries

Unless specified otherwise in their employment agreements, the base salaries of the Company’sour 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’sour 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 20142017 and 2013,2016 all of the Company’sour named executive officers with the exception of Mr. Weintraub, were paid employees. As noted above, the Company’s President, Mr. Allan Silber, is also the CEO of Counsel. 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.

Mr. Mann earns a base salary of $425,000$375,000 and is eligible for a performance bonus as described below.

     The Messrs.Mr. Dove each earnearns a base salariessalary of $300,000$350,000 and areis eligible for discretionary bonusesa performance bonus as described below.  Further, Mr. Dove will participate in a share of upour net profits and net losses earned on certain industrial auction principal and guarantee transactions.  For further information on the profit share refer to 50%Item 13 below and to Note 9 to the consolidated financial statements.

Mr. Ludwig earns a base salary of their base salaries.$400,000 and is subject to the earn-out consideration from the acquisitions of NLEX in 2014, as further described in Notes 2 and 10 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 Companyus or our 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.stockholders. 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

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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 is entitled to a bonus of up to 100% of his annual salary. No bonus was awarded for 2014 or 2013.

For 2017, Mr. Mann iswas eligible for a performance bonus calculated as follows:  afterThe Equity Partners achievesteam is entitled to receive 50% of the net operating income achieved by Equity Partners (“HEP NOI”) above $175,000. We will retain the first $175,000 of $175,000,HEP NOI and 50% of HEP NOI thereafter. In addition, we will make available annually a bonus in the amount of $25,000 to be allocated to a member or members of the Equity Partners team receives 75% of the next $250,000, with theteam. The allocation among the Equity Partners team to be determined by Mr. Mann and the Company’s President,our Chief Executive Officer, Mr. Silber. After this, 50% of net income earned by Equity Partners (i.e.: net income in excess of $425,000) is allocated to the Equity Partners team for allocation as described above.Ross Dove. In 20142017 Mr. Mann earned a bonus of $317,607$218,895, and in 20132016 he earned a bonus of $151,925.$50,000.  

     The Messrs.For 2017, Mr. Dove arewas eligible to receive an annuala performance bonus calculated as follows:  after we achieve consolidated net operating income of up to 50%$1,733,000, and the Heritage Global Partners auction division achieves net operating income of their annual salaries. They did not receive$352,000, Mr. Dove may share in a bonus in either 2014 or 2013.

     Aspool of $100,000 (to be shared also with other of our officers, collectively the bonuses described above, with“Management Group”), which will be allocated at management’s discretion.  After this, the exception of Mr. Mann's bonus, can only be awarded at the discretionManagement Group receives 10% of the Compensation Committee,first $500,000 of net operating income above $1,733,000 (net operating income from $1,733,000 – $2,233,000), and then 20% of the net operating income in excess of $2,233,000.  

As Mr. Dove’s and Mr. Mann’s bonuses are closely tied to our performance, they do not encourage inappropriate risk-taking on the part of the named executive officers, nor representtheir part.

For 2017, Mr. Ludwig was not eligible to receive a riskperformance bonus; however, he was subject to the Company. As Mr. Mann’s bonus is closely tiedearn-out consideration from the acquisitions of NLEX in 2014, as further described in Notes 2 and 10 to the Company’s performance, it also does not encourage inappropriate risk-taking on his part.consolidated financial statements.

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. In 2016, our named executives participated in a Company-wide stock option grant.  As part of the grant the named executives received options to purchase an aggregate 825,000 shares of our common stock at a strike price of $0.45 per share.  No options were granted to any of our named executive officers during 2014. During 2013, Mr. Mann was granted 150,000 options to purchase common stock.2017.

Other Benefits

The only additional benefits provided to the named executive officers during 20142017 and 20132016 were the payment of an automobile allowance of $14,029 to Mr. Ross Dove and the Messrs. Dove.payment of club membership dues for Mr. Ludwig ($8,000 in 2017 and $10,000 in 2016).  There were no pension or change in control benefits in either 20142017 or 2013.2016.

Upon termination of employment by the Companyus without cause, the Messrs.Mr. Dove and Mr. Mann are each entitled to twelve12 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.

Upon termination of employment by us without cause, Mr. Ludwig is entitled to receipt of his base salary, payable in equal monthly installments, that would have been received, through the earlier of (a) the last day of his original employment period, or (b) the date on which we satisfy in full our obligation to pay Mr. Ludwig any earn-out obligations.

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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.us.

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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, 20142017 and 20132016 by our named executive officers. As discussed below and in Item 13, certain employees of Counsel provide services to HGI, and compensation for those services is provided and paid for under the terms and provisions of management services agreements entered into between Counsel and HGI.