10-K 1 form10k.htm FORM 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 ended December 31, 2014

Commission File No. 0-17973

HERITAGE GLOBAL INC.
(Exact Name of Registrant as Specified in Its Charter)

Florida | 59-2291344
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.)
700 – 1 Toronto St., Toronto, Ontario, Canada | M5C 2V6
(Address of Principal Executive Offices) | (Zip Code)

(416) 866-3000
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: N one.

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 defined in Rule 12b-2 of the Exchange Act).

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

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

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

As of March 12, 2015, there were 28,167,408 shares of Common Stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

|  | PAGE
PART I
Item 1. | Business. | 3
Item 1A. | Risk Factors. | 6
Item 1B. | Unresolved Staff Comments. | 9
Item 2. | Properties. | 9
Item 3. | Legal Proceedings. | 9
Item 4. | Mine Safety Disclosures. | 9
PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | 10
Item 6. | Selected Financial Data. | 11
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 11
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. | 20
Item 8. | Financial Statements and Supplementary Data. | 20
Item 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. | 20
Item 9A. | Controls and Procedures. | 20
Item 9B. | Other Information. | 21
PART III
Item 10. | Directors, Executive Officers and Corporate Governance. | 22
Item 11. | Executive Compensation. | 26
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | 32
Item 13. | Certain Relationships and Related Transactions, and Director Independence. | 33
Item 14. | Principal Accountant Fees and Services. | 34
PART IV
Item 15. | Exhibits and Financial Statement Schedules. | 36

2

Forward-Looking Information
This Annual Report on Form 10-K (the “Report”) contains certain “forward-looking statements” that are based on management’s exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words “may”, "will”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, 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, as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

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”, “we” or the “Company”) was incorporated in the State of Florida in 1983 under the name “MedCross, Inc.” The Company’s name was changed to “I-Link Incorporated” in 1997, to “Acceris Communications Inc.” in 2003, to “C2 Global Technologies Inc.” in 2005, to “Counsel RB Capital Inc.” in 2011, and to Heritage Global Inc. effective August 22, 2013. The most recent name change more closely identifies the Company with its core auction business, Heritage Global Partners, Inc. (“HGP”).

On March 20, 2014, the Company’s former majority shareholder, 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 Company acquired all of the outstanding equity of National Loan Exchange, Inc. (“NLEX”), a broker of charged-off receivables in the United States and Canada. As a result of this acquisition, NLEX now operates as a wholly owned division of the Company. The purchase price consisted of $2,000 cash and up 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 of the audited consolidated financial statements.

During the third quarter of 2014, 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.

The organization chart on the following page outlines the basic corporate structure of the Company as of December 31, 2014.

3

(1) | Registrant.
(2) | Full service, global auction, appraisal and asset advisory company.
(3) | Asset liquidation company which acquires and monetizes distressed and surplus assets.
(4) | Investment banking firm specializing in financially distressed companies and properties.
(5) | Broker of charged-off receivables.
(6) | Owns and licenses telecommunications patents.

Asset liquidation

The Company’s asset liquidation 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.

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

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

As described above, effective May 31, 2014, the Company again expanded its asset liquidation operations with the acquisition 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 include NLEX acting as a principal. Its acquisition is consistent with HGI’s strategy to expand and diversify the services provided by its asset liquidation business.

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

4

Intellectual property licensing

The Company holds several patents, including two that relate to Voice over Internet Protocol (“VoIP”). U.S. Patent No. 6,438,124 was developed by the Company, and encompasses the technology that allows two parties to converse phone-to-phone, regardless of 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, HGI had forty-four employees. Twenty-six are employed by HGP, thirteen by NLEX, and five 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
The asset liquidation business is involved primarily in the auction, appraisal and asset advisory services provided by HGP, and, beginning in the second quarter of 2014, the accounts receivable brokerage services provided by NLEX. It also includes the purchase and sale, including at auction, of industrial machinery and equipment, real estate, inventories, accounts receivable and distressed debt. The market for these services and assets is highly fragmented. To acquire auction or appraisal contracts, or assets for resale, HGI competes with other liquidators, auction companies, dealers and brokers. It also competes with them for potential purchasers, as well as with equipment manufacturers, distributors, dealers and equipment rental companies. Some competitors have significantly greater financial and marketing resources and name recognition.

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

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

Legislation in the United States, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010, has increased public companies’ regulatory and compliance costs as well as the scope and cost of work provided by independent registered public accountants and legal advisors. The mandatory adoption of XBRL reporting in 2011 has also increased the Company’s costs paid to third party service providers. As regulatory and compliance guidelines continue to evolve, we expect to continue to incur costs, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.

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

5

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 auctioneer, we assume the general and physical inventory and credit risks associated with purchasing assets for subsequent resale. Although we do enter into transactions for which a subsequent purchaser has already been identified, in most cases we purchase assets and assume the risk that they may sell for less than our forecasted price. As well, we may miscalculate demand or resale value, and subsequently sell the assets for less than their original purchase price. Either situation could have a material adverse effect upon our use of working capital and our results of operations.

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

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

A portion of our asset liquidation business is conducted through Joint Ventures.
Conducting business through Joint Ventures, as described above under “Industry and Competition”, allows us to participate in significantly larger deals than those we could fund independently. If we ceased entering into Joint Ventures, the pool of potential transactions would be reduced. 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”), and Europe. Our UK and European operations are conducted in pounds sterling (£) and European euros (€), respectively, rather than in $US. Although we expect the European operations to ultimately generate sufficient revenue to cover all local operating expenses, to date we have been required to use funds generated by our US operations to meet a portion of European obligations as they come due. We thereby incur exchange rate risk. Although this risk has not had a material impact on our business and operations, failure to anticipate and continue to manage this risk could have a material adverse effect.

6

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, cause us to prohibit the listing of certain items, or otherwise adversely affect our financial condition or operating results.

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

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

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

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

We are dependent upon key personnel.
Our operations are substantially dependent on the knowledge, skills and performance of several of our executive officers, particularly the 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 our operations, particularly our asset liquidation business, to make additional investments, or to acquire complementary businesses or assets. We may be unable to generate these funds from our operations. If funds are not available, or not available on acceptable terms, we could experience a material adverse effect upon our business.

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

7

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

We may conduct future offerings of our common stock and preferred stock and pay debt obligations with our common and preferred stock that may diminish our investors’ pro rata ownership and depress our stock price.
We reserve the right to make future offers and sales, either public or private, of our securities including shares of our preferred stock, common stock or securities convertible into common stock at prices differing from the price of the common stock previously issued. In the event that any such future sales of securities are effected 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 and has a limited public trading market. Without an active trading market, there can be no assurance regarding the liquidity or resale value of the common stock. In addition, the market price of our common stock has been, and may continue to be, volatile. Such price fluctuations may be affected by general market price movements or by reasons unrelated to our operating performance or prospects such as, among other things, announcements concerning us or our competitors, technological innovations, government regulations, and litigation concerning proprietary rights or other matters.

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

We have not declared any dividends on our common stock to date and have no expectation of doing so in the foreseeable future.
The payment of cash dividends on our common stock rests within the discretion of our Board of Directors and will depend, among other things, upon our earnings, unencumbered cash, capital requirements and our financial condition, as well as other relevant factors. To date, we have not paid dividends on our common stock nor do we anticipate that we will pay dividends in the foreseeable future. As of December 31, 2014, 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.

8

Item 1B. Unresolved Staff Comments
Not applicable.

Item 2. Properties.
The Company, in connection with its asset liquidation business, leases or rents office space in several locations in the US. The principal locations are Foster City, CA and San Diego, CA, which are related to HGP’s operations, and Edwardsville, IL, which is related to NLEX’s operations. The Company also maintains offices in Scottsdale, AZ, Farmington Hills, MI and Easton, MD. The Foster City and Edwardsville offices are leased from related parties, as discussed in Note 12 of the audited consolidated financial statements.

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

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

Item 3. Legal Proceedings.

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

The Company is involved in various other legal matters arising out of its operations in the normal course of business, none of which are expected, individually or in the aggregate, to have a material adverse effect on the Company.

Item 4. Mine Safety Disclosures.
Not applicable.

9

PART II

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

Market Information

Shares of our common stock, $0.01 par value per share, are quoted in the OTC market (“OTCQB”) under the symbol “HGBL”, and 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, 2013 through December 31, 2014, based on inter-dealer quotations, without retail mark-up, mark-down or commissions. These prices may not represent actual transactions:

Quarter Ended |  |  | High |  |  | Low |
March 31, 2013 |  | $ | 1.10 |  | $ | 0.51 |
June 30, 2013 |  |  | 1.05 |  |  | 0.51 |
September 30, 2013 |  |  | 0.80 |  |  | 0.52 |
December 31, 2013 |  |  | 0.75 |  |  | 0.01 |
March 31, 2014 |  | $ | 0.74 |  | $ | 0.31 |
June 30, 2014 |  |  | 0.80 |  |  | 0.27 |
September 30, 2014 |  |  | 0.50 |  |  | 0.26 |
December 31, 2014 |  |  | 0.44 |  |  | 0.15 |

On March 12, 2015, the closing price for a share of the Company’s common stock was $0.44.

Holders

As of March 12, 2015, the Company had approximately 419 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, 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.

10

|  |  |  |  |  |  |  | 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 security holders: |  |  |  |  |  |  |  |  |
2003 Stock Option and Appreciation Rights Plan |  | 1,210,000 |  | $ | 1.62 |  |  | — |
Equity compensation plans not approved by security 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 Registered Securities.

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 Results of Operations.

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

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

Business Overview, Recent Developments and Outlook

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

11

Liquidity and Capital Resources

Liquidity

At December 31, 2014 the Company had a working capital deficit of $3,883, as compared to a working capital deficit of $3,174 at December 31, 2013, an increase of $709. The Company’s current assets increased slightly to $7,575 compared to $7,324 at December 31, 2013. Within current assets, the most significant changes were an increase of $1,373 in accounts receivable, offset by a decrease of $1,366 in deferred income taxes. Within current liabilities, an increase of $621 in accounts payable and accrued liabilities was largely offset by a decrease of $464 in the Company’s current debt. The most significant change in current liabilities was the inclusion, 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.

The Company’s current debt payable consists of borrowings under HG LLC’s revolving credit facility (the “Credit Facility”), and a related party loan, (the “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 an 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, 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 matures on January 15, 2016.

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

During 2014, the Company’s primary sources of cash were the operations of its asset liquidation business and borrowings under the associated Credit Facility. The Company also received $444 of cash distributions from its equity method investments. Cash disbursements, other than those related to debt repayment of $4,371 ($1,866 to third parties and $2,505 to a related party), were primarily related to operating expenses and the acquisition 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 value of $156. Of this amount, $136 represented an expected distribution, and the Company received $140 in March 2015.

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

Ownership Structure and Capital Resources

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

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

12

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

Cash Position and Cash Flows

Cash and cash equivalents at December 31, 2014 were $3,633 compared to $3,213 at December 31, 2013.

Cash provided by or used in operating activities. Cash used in operating activities during 2014 was $357, as compared to $2,261 cash provided 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, as 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 due to the adjustment of 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 present value of the contingent consideration associated with the NLEX acquisition, as recorded for the seven month period ending December 31, 2014. The contingent consideration is discussed in more detail in Note 3 of the audited consolidated financial statements.

The significant changes in operating assets and liabilities during 2014 as compared to 2013, aside from those relating to tax, are primarily due to the nature of the Company’s operations. The Company earns revenue from discreet asset liquidation deals that vary considerably with respect to their magnitude and timing, and that can consist of fees, commissions, asset sale proceeds, or a combination of these. The operating assets and liabilities associated with these deals are therefore subject to the same variability and can be quite different at the end of any given period.

Cash provided by or used in investing activities. Cash used in investing activities during 2014 was $1,055, as compared to $773 cash provided during 2013. The most significant item in 2014 was 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, purchases of property, plant and equipment were $127, compared to $10 in 2013.

Cash provided by or used in financing activities. Cash provided by financing activities during 2014 was $1,832, as compared to $4,135 cash used during 2013. In 2014 the Company received net cash of $1,587 from third party lenders, as compared to repaying $9,456 net cash in 2013. With respect to related party debt, in 2014 the Company received net cash 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.

13

Management’s Discussion of Results of Operations

The following table sets out the Company’s condensed consolidated quarterly results of operations for the eight quarters ended December 31, 2014, as well as for the years ended December 31, 2013 and 2014.

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Year ended |
|  | Q1/13 |  |  | Q2/13 |  |  | Q3/13 |  |  | Q4/13 |  |  | Q1/14 |  |  | Q2/14 |  |  | Q3/14 |  |  | Q4/14 |  |  | Dec 31/13 |  |  | Dec 31/14 |
Revenue |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Asset liquidation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commissions and other |  | 946 |  |  | 1,780 |  |  | 1,064 |  |  | 2,232 |  |  | 1,010 |  |  | 2,312 |  |  | 1,365 |  |  | 3,239 |  |  | 6,022 |  |  | 7,926 |
Asset sales |  | 446 |  |  | 152 |  |  | 1,201 |  |  | 247 |  |  | 975 |  |  | 499 |  |  | 4,738 |  |  | 48 |  |  | 2,046 |  |  | 6,260 |
Total asset liquidation revenue |  | 1,392 |  |  | 1,932 |  |  | 2,265 |  |  | 2,479 |  |  | 1,985 |  |  | 2,811 |  |  | 6,103 |  |  | 3,287 |  |  | 8,068 |  |  | 14,186 |
Intellectual property licensing |  | 200 |  |  | - |  |  | 624 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 824 |  |  | - |
Total revenue |  | 1,592 |  |  | 1,932 |  |  | 2,889 |  |  | 2,479 |  |  | 1,985 |  |  | 2,811 |  |  | 6,103 |  |  | 3,287 |  |  | 8,892 |  |  | 14,186 |
Operating costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Asset liquidation |  | 430 |  |  | 341 |  |  | 905 |  |  | 1,030 |  |  | 465 |  |  | 569 |  |  | 3,385 |  |  | 212 |  |  | 2,706 |  |  | 4,631 |
Patent licensing and maintenance |  | 150 |  |  | 6 |  |  | 10 |  |  | 25 |  |  | 11 |  |  | 5 |  |  | 16 |  |  | 11 |  |  | 191 |  |  | 43 |
Selling, general and administrative |  | 2,598 |  |  | 2,580 |  |  | 2,078 |  |  | 2,404 |  |  | 2,138 |  |  | 2,604 |  |  | 2,682 |  |  | 3,565 |  |  | 9,660 |  |  | 10,989 |
Depreciation and amortization |  | 121 |  |  | 119 |  |  | 118 |  |  | 114 |  |  | 118 |  |  | 120 |  |  | 119 |  |  | 209 |  |  | 472 |  |  | 566 |
Interest expense |  | 95 |  |  | 174 |  |  | 130 |  |  | 157 |  |  | 138 |  |  | 139 |  |  | 122 |  |  | 305 |  |  | 556 |  |  | 704 |
Total operating costs and expenses |  | 3,394 |  |  | 3,220 |  |  | 3,241 |  |  | 3,730 |  |  | 2,870 |  |  | 3,437 |  |  | 6,324 |  |  | 4,302 |  |  | 13,585 |  |  | 16,933 |
|  | (1,802 | ) |  | (1,288 | ) |  | (352 | ) |  | (1,251 | ) |  | (885 | ) |  | (626 | ) |  | (221 | ) |  | (1,015 | ) |  | (4,693 | ) |  | (2,747 | )
Earnings (loss) of asset liquidation investments |  | 802 |  |  | 7 |  |  | 456 |  |  | (65 | ) |  | (30 | ) |  | 18 |  |  | (41 | ) |  | 196 |  |  | 1,200 |  |  | 143 |
Earnings of other equity method investments |  | - |  |  | 38 |  |  | 23 |  |  | 65 |  |  | 11 |  |  | 24 |  |  | 129 |  |  | 97 |  |  | 126 |  |  | 261 |
Other income |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 551 |  |  | - |  |  | 551 |
Income (loss) before tax |  | (1,000 | ) |  | (1,243 | ) |  | 127 |  |  | (1,251 | ) |  | (904 | ) |  | (584 | ) |  | (133 | ) |  | (171 | ) |  | (3,367 | ) |  | (1,792 | )
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  |
Income tax expense (recovery) |  | (353 | ) |  | (500 | ) |  | 387 |  |  | 3,495 |  |  | 24,667 |  |  | - |  |  | 55 |  |  | - |  |  | 3,029 |  |  | 24,722 |
Net loss |  | (647 | ) |  | (743 | ) |  | (260 | ) |  | (4,746 | ) |  | (25,571 | ) |  | (584 | ) |  | (188 | ) |  | (171 | ) |  | (6,396 | ) |  | (26,514 | )

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

2014 Compared to 2013

Asset liquidation revenues were $14,186 in 2014 compared to $8,068 in 2013, asset liquidation expense was $4,631 in 2014 compared to $2,706 in 2013, and earnings of equity accounted asset liquidation investments were $143 in 2014 compared to $1,200 in 2013. The net earnings of these three items were therefore $9,698 in 2014 compared to $6,562 in 2013, an increase of $3,136 or 47.8%. Because the Company conducts its asset liquidation operations both independently and through partnerships, and the ratio of the two is unlikely to remain constant in each period, the operations must be considered as a whole rather than on a line-byline basis. The increased net earnings in 2014 reflect the vagaries of the timing of asset liquidation transactions. They also reflect the acquisition of NLEX, which was responsible for $1,925 of net asset liquidation earnings.

14

Intellectual property licensing revenue was $0 in 2014, compared to $824 in 2013. The 2013 revenue consisted of $200 revenue from a settlement and licensing agreement entered into with the defendant in a patent infringement lawsuit, and $624 revenue from the sale of an intellectual property licensing agreement to the Company’s former Co-CEOs.

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

Selling, general and administrative expense, including expenses paid to related parties, was $10,989 in 2014 as compared to $9,660 in 2013, an increase of $1,329 or 13.8%. Expenses increased overall primarily due to the inclusion of NLEX expenses of $1,396 for the seven month period June to December 2014. This increase was partially offset by reduced expenses of HG LLC operations in 2014, following the departure of the former Co-CEOs and other HG LLC employees effective June 30, 2013.

Significant components of selling, general and administrative expense were as shown below:

|  | Year ended |  |  |  |
|  | December 31, |  |  |  |
|  | 2014 |  |  | 2013 |  |  | % change |
Compensation: |  |  |  |  |  |  |  |  |
HGP salaries and benefits | $ | 3,935 |  | $ | 3,546 |  |  | 11.0 |
HG LLC salaries and benefits |  | 1,064 |  |  | 1,792 |  |  | (40.6 | )
HG LLC bonuses |  | 638 |  |  | 194 |  |  | 228.9 |
NLEX salaries and benefits |  | 1,031 |  |  | — |  |  | N/A |
NLEX bonuses |  | 26 |  |  | — |  |  | N/A |
President’s salary |  | 138 |  |  | 138 |  |  | — |
Stock-based compensation |  | 484 |  |  | 532 |  |  | (9.0 | )
Legal |  | 268 |  |  | 307 |  |  | (12.7 | )
Consulting |  | 507 |  |  | 650 |  |  | (22.0 | )
Counsel management fees |  | 360 |  |  | 360 |  |  | — |
Accounting and tax consulting |  | 323 |  |  | 223 |  |  | 44.8 |
Insurance, including Directors and Officers liability |  | 162 |  |  | 127 |  |  | 27.6 |
Occupancy |  | 370 |  |  | 375 |  |  | (1.3 | )
Travel and entertainment |  | 717 |  |  | 558 |  |  | 28.5 |
Advertising and promotion |  | 360 |  |  | 256 |  |  | 40.6 |

Depreciation and amortization expense was $566 during 2014, compared to $472 in 2013, an increase of $94 or 19.9%. 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.

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

| • | In 2014, the Company recorded $551 as its gain on the sale of its investment in Polaroid. There were no similar transactions in 2013.
| • | In 2014, the Company recorded $261 as its share of income from its equity accounted investments, as compared to income of $126 in 2013. In 2014, the amount consisted of $122 income from Polaroid, and $139 income from Knight’s Bridge GP; in 2013, these amounts were $94 and $32, respectively.

15

Non-GAAP Financial Measure - Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”)
We prepared our audited consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).

We use the non-GAAP financial measure “EBITDA” in assessing the Company’s results. We define EBITDA as net income less interest expense, provision for income taxes, depreciation and amortization. We believe that EBITDA is relevant and useful supplemental information for our investors. Management believes that the presentation of this non-GAAP financial measure, when considered together with our GAAP financial measures and the reconciliation to the most directly comparable GAAP financial measure, provides a more complete understanding of the factors and trends affecting the Company than could be obtained absent these disclosures. Management uses EBITDA to make operating and strategic decisions and evaluate the Company’s performance. We have disclosed this non-GAAP financial measure so that our investors have the same financial data that management uses, with the intention of assisting investors to make comparisons to our historical operating results and analyze our underlying performance. Management believes that EBITDA is a useful supplemental tool to evaluate the underlying operating performance of the Company on an ongoing basis. Our use of EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the quarterly and annual financial information, below, which reconciles EBITDA to our GAAP reported net loss for the periods presented.

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Year ended |
|  | Q1/13 |  |  | Q2/13 |  |  | Q3/13 |  |  | Q4/13 |  |  | Q1/14 |  |  | Q2/14 |  |  | Q3/14 |  |  | Q4/14 |  |  | Dec 31/13 |  |  | Dec 31/14 |
EBITDA |  | (784 | ) |  | (950 | ) |  | 375 |  |  | (980 | ) |  | (648 | ) |  | (325 | ) |  | 108 |  |  | 343 |  |  | (2,339 | ) |  | (522 | )
Deduct: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization |  | 121 |  |  | 119 |  |  | 118 |  |  | 114 |  |  | 118 |  |  | 120 |  |  | 119 |  |  | 209 |  |  | 472 |  |  | 566 |
Interest expense |  | 95 |  |  | 174 |  |  | 130 |  |  | 157 |  |  | 138 |  |  | 139 |  |  | 122 |  |  | 305 |  |  | 556 |  |  | 704 |
Income tax expense (recovery) |  | (353 | ) |  | (500 | ) |  | 387 |  |  | 3,495 |  |  | 24,667 |  |  | - |  |  | 55 |  |  | - |  |  | 3,029 |  |  | 24,722 |
Net loss |  | (647 | ) |  | (743 | ) |  | (260 | ) |  | (4,746 | ) |  | (25,571 | ) |  | (584 | ) |  | (188 | ) |  | (171 | ) |  | (6,396 | ) |  | (26,514 | )

Future Accounting Pronouncements

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

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

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

16

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

In November 2014, the FASB issued Accounting Standards update 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (“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 should 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 interim and annual periods beginning after December 15, 2015, with early adoption permitted. The Company has not yet adopted ASU 2014-16, but based on a preliminary analysis of its outstanding convertible preferred shares, it does not expect the adoption of ASU 2014-16 to have a material impact on its consolidated financial statements.

Critical Accounting Policies

Use of estimates
Our audited consolidated financial statements have been prepared in accordance 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. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of 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, intangible assets, deferred income tax assets, liabilities, contingent consideration, and stock-based compensation. These estimates are considered significant either because of the significance of the financial statement items to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Asset liquidation revenue
Asset liquidation transactions are classified into two broad categories: 1) the sale of distressed or surplus assets, and 2) commission or fee-based services. Revenue is recognized when persuasive evidence of an arrangement exists, the amount of the proceeds is fixed, delivery terms are arranged and collectability is reasonably assured. With respect to asset sales, revenue is recognized at the time the assets are sold. As proceeds are generally due when the buyer takes delivery, there are minimal issues associated with determining collectability. With respect to commission or fee-based services, revenue is recognized 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.

17

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

Accounts receivable
The Company’s accounts receivable primarily relate to the operations of its asset liquidation business. They 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 all 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 respect to the collectability of its receivables.

Inventory
The Company’s inventory consists of assets acquired for resale. Machinery and equipment inventory is classified as current, and historically is sold within a one-year operating cycle. Real estate inventory is classified as non-current due to uncertainties relating to the timing of resale. Although the Company’s experience is that smaller properties are generally sold within a one-year operating cycle, one property with a carrying value of approximately $6,500 has been held in inventory since being acquired in the fourth quarter of 2012. All inventory is recorded at the lower of cost and 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, the assets’ selling prices have in general been in excess of their cost. The Company has recorded inventory write downs totaling $8 in 2014 and $59 in 2013.

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

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

Identifiable intangible assets and goodwill
Identifiable intangible assets are recorded at fair value upon acquisition. Those with an estimated useful life are amortized, and those with an indefinite useful life are unamortized. Subsequent to acquisition, the Company monitors events and changes in circumstances that require an assessment of intangible asset recoverability. Indefinite-lived intangible assets are assessed annually to determine both whether they remain indefinite and whether they are impaired, whether or not there have been any events or changes in circumstances that suggest the value of the asset may not be recoverable. Amortized intangible assets are not tested annually, but are assessed when events and changes in circumstances suggest the assets may be impaired. If an assessment determines that the carrying amount of any intangible asset is not recoverable, an impairment loss is recognized in the statement of operations, determined by comparing the carrying amount of the asset to its fair value. All of the Company’s identifiable intangible assets 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 of the audited consolidated financial statements. Based on the Company’s assessments at December 31, 2014 and 2013, no impairment of these assets was identified.

18

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 31 for impairment. In testing goodwill, the Company initially uses a qualitative approach and analyzes relevant factors to determine if events and circumstances have affected the value of the goodwill. If the result of this qualitative analysis indicates that the value has been impaired, the Company then applies a quantitative approach to calculate the difference between the goodwill’s recorded value and its fair value. An impairment loss is recognized to the extent that the recorded value exceeds its fair value. In addition to being tested for impairment annually, goodwill is tested for impairment between annual tests if an event occurs or circumstances change such that it is more likely than not that the carrying amount of goodwill may be impaired. All of the Company’s goodwill relates to its acquisitions of Equity Partners in 2011, HGP in 2012 and NLEX in 2014, and is discussed in more detail in Note 3 and Note 6 of the audited consolidated financial statements. Based on the Company’s assessments at December 31, 2014 and 2013, no impairment of goodwill was identified.

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

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

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

Liabilities and contingencies
The Company is involved from time to time in various legal matters arising out of its operations in the normal course of business. On a case by case basis, the Company evaluates the likelihood of possible outcomes for this litigation. Based on this evaluation, the Company determines whether a liability accrual is appropriate. If the likelihood of a negative outcome is probable, and the amount can be estimated, the Company accounts for the liability in the current period. At this time, the Company is not involved in any material litigation and therefore no such liabilities have been recorded.

Stock-based compensation
The Company’s stock-based compensation is primarily in the form of options to purchase common shares. The fair value is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the option awards as equity. See Note 15 of the audited consolidated financial statements for further discussion of the Company’s stock-based compensation.

19

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

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

Item 8. Financial Statements and Supplementary Data.

See Consolidated Financial Statements beginning on page F-1.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

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

During Fiscal 2013 and Fiscal 2014 the Company had no disagreements with its auditors and no reportable events.

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 President and Chief Financial Officer (the “Certifying Officers”), the Company conducted an evaluation of its disclosure controls and procedures. As defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2014.

Management’s Annual Report on Internal Control Over Financial Reporting

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

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

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

20

Based on its assessment using these criteria, the Company’s management concluded that the Company‘s 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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fourth fiscal quarter of 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.
None.

21

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 six members: one Class I director (Mr. Shimer), three Class II directors (Messrs. Toh, Heaton, and Silber) and two Class III directors (Messrs. Turock and Ryan). The following table sets forth the names, ages and positions with HGI of our current directors and executive officers. With the exception of Ross Dove and Kirk Dove, who are brothers, there are no family relationships between any present executive officers and directors.

Name |  | Age (1) |  | Title
Allan C. Silber |  | 66 |  | Chairman of the Board and President
Hal B. Heaton |  | 64 |  | Director (2), (3), (4)
Henry Y.L. Toh |  | 57 |  | Director (2), (3), (4)
Samuel L. Shimer |  | 51 |  | Director (2)
David L. Turock |  | 57 |  | Director (2)
J. Brendan Ryan |  | 72 |  | Director (2)
Kenneth Mann |  | 47 |  | Senior Managing Director, Distressed M&A, Equity Partners HG LLC
Ross Dove |  | 62 |  | Managing Partner, Heritage Global Partners Inc.
Kirk Dove |  | 59 |  | Managing Partner, Heritage Global Partners Inc.
David Ludwig |  | 57 |  | President, National Loan Exchange, Inc.
Stephen A. Weintraub |  | 67 |  | Executive Vice President, Corporate Secretary and Chief Financial Officer

| (1) | As of December 31, 2014
| (2) | Independent Director
| (3) | Member of the Audit Committee
| (4) | Member of the Compensation Committee

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

Allan C. Silber, Chairman of the Board and President. 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. On 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. Mr. Silber is the Chairman and CEO of Counsel Corporation, which he founded in 1979, and the Chairman of Knight’s Bridge Capital Partners Inc., a wholly-owned subsidiary of Counsel that is a financial services provider. Mr. Silber attended McMaster University and received a Bachelor of Science degree from the University of Toronto.

Hal B. Heaton, Director. Dr. Heaton was appointed by the Board as a Class II director on June 14, 2000 to fill a Board vacancy. Dr. Heaton has expertise in capital markets, corporate finance, emerging markets and entrepreneurial finance, all of which have relevance to the Company as it pursues varied investment and business opportunities in both North America and foreign markets. From 1983 to the present he has been a professor of Finance at Brigham Young University and between 1988 and 1990 was a visiting professor of Finance at Harvard University. From 2001 to 2007, Dr. Heaton served on the board of Mity Enterprises Inc., and was a member of its Compensation Committee. Dr. Heaton holds a Bachelor’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. Mr. Toh was appointed as Chairman of the Audit Committee in March 2005. Mr. Toh currently serves as Vice Chairman/Executive Vice President and Director of NuGen Holdings Inc. (formerly InovaChem, Inc.), a research, development and production company specializing in Axio flux electric motor systems, since January 2008, and President and CEO of Amerique Investments International Corporation since 1992. He previously served as Executive Vice President and a director of NuGen Holdings Inc., from February 2008 to December 2009. Mr. Toh has served as a director of iDNA, Inc., a specialized finance and entertainment company, since 1999; a director of Teletouch Communications, Inc., a retail provider of internet, cellular and paging services, since 2002; a director of Isolagen, Inc., a 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.

22

Samuel L. Shimer, Director. Mr. Shimer was appointed by the Board as a Class I director on April 15, 2001 to fill a Board vacancy. Mr. Shimer has extensive expertise in mergers and acquisitions, including those transactions that occurred while he was an officer of the Company and Counsel, 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, a private equity fund that he co-founded in April 2010. From 1991 to 1997, Mr. Shimer worked at two merchant banking funds affiliated with Lazard Frères & Co., Center Partners and Corporate Partners, ultimately serving as a Principal. Mr. Shimer earned a Bachelor of Science in Economics degree from The Wharton School of the University of Pennsylvania, and a Master of Business Administration degree from Harvard Business School.

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

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

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

Ross Dove, Managing Partner, Heritage Global Partners Inc. Together with his brother, Kirk Dove, Mr. Dove joined the Company when HGI acquired HGP in February 2012. Mr. Dove began his career in the auction business over thirty years ago, beginning with a small family-owned auction house and helping to expand it into a global firm, DoveBid, which was sold to a third party in 2008. The Messrs. Dove remained as global presidents of the business until September 2009, and then formed HGP in October 2009. During his career, Mr. Dove has been actively involved in auction industry advances such as theatre-style auctions, which was a first step in migrating auction events onto the Internet. Mr. Dove has been a member of the National Auctioneers Associations since 1985, and a founding member of the International 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, Managing Partner, Heritage Global Partners Inc. Together with his brother, Ross Dove, Mr. Dove joined the Company when HGI acquired HGP in February 2012. Mr. Dove began his career in the auction business over twenty-five years ago, including, along with his brother, the position of global president of DoveBid, which was sold to a third party in 2008. The Messrs. Dove remained as global presidents of the business until September 2009, and then formed HGP in October 2009. In addition to his experience with the auction business, Mr. Dove was employed at Merrill Lynch for several years as a Senior Account Executive. Mr. Dove holds a Bachelor of Sciences degree in Business from 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.

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

23

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

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

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

Section 16(a) Beneficial Ownership Reporting Compliance

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

Based solely upon a review of Forms 3 and Forms 4 furnished to us pursuant to Rule 16a-3 under the Exchange Act during our most recent fiscal year, and Forms 5 with respect to our most recent fiscal year, we believe that all such forms required to be filed pursuant to Section 16(a) were timely filed by the executive officers, directors and security holders required to file same during the fiscal year ended December 31, 2014.

Code of Ethics

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

Corporate Governance

Board Leadership and Risk Oversight
HGI is a small organization, with a market capitalization at December 31, 2014 of approximately $9.0 million. From 2001 until the first quarter of 2014, Counsel was the Company’s majority shareholder. In the first quarter of 2014 Counsel declared a dividend in kind, consisting of its 73.3% interest in HGI, which was distributed to Counsel shareholders in April 2014. The Company’s association with Counsel has continued, and Counsel remains a related party, due to a management services agreement (the “Services Agreement”) between HGI and Counsel. The Services Agreement is described in more detail in Item 13 of this Report and in Note 12 of the audited consolidated financial statements.

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 CFO 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.

24

HGI’s operations, even following the acquisitions of HGP in the first quarter of 2012 and NLEX in the second quarter of 2014, and HGP’s expansion into Europe in the fourth quarter of 2012, remain relatively modest. It has few employees, as detailed in Item 11 of this report, and requires limited oversight by the Board. Given the current size and scale of the Company’s operations, the Company believes that the Board does not require a lead independent director in order to effectively oversee the strategic priorities of the Company. The Board meets quarterly to review and approve the Company’s operating results. It meets annually to review and approve the Company’s strategy and budget. Material matters such as acquisitions and dispositions, investments and business initiatives are approved by the full Board.

Board Meetings and Committees
The Board held five meetings during the fiscal year ended December 31, 2014. The Board has designated two standing committees: the Audit Committee and the Compensation Committee. HGI does not have a nominating or a corporate governance committee. However, corporate governance functions are included in the Audit Committee Charter, and Board nominations are considered by the full Board. There are no specific criteria for Director nominees, and the Company does not specifically consider diversity with respect to the selection of its Board nominees. Given the Company’s limited operations, the Company believes that it would have difficulty identifying and attracting a diverse selection of candidates. To date, it has been deemed most effective to nominate and appoint individuals who are either former employees with detailed knowledge of the business, such as Mr. Toh and Mr. Shimer, individuals with expertise that is unique to the Company’s operations, such as Mr. Turock, or individuals with expertise that will be of value as the Company expands its market presence, such as Mr. Ryan. There has been no material change in the procedures by which our shareholders may recommend nominees to our Board since such procedures were adopted and implemented.

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

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

25

Item 11. Executive Compensation.

Compensation Discussion and Analysis

Summary

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

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

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

General Executive Compensation Philosophy

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

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

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

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

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

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

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

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

26

Our Named Executive Officers

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

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

During 2014, our named executive officers were:

Allan C. Silber - our President and Chairman of the Board. Mr. Silber is the Chairman and CEO of Counsel Corporation, our former majority shareholder, which he founded in 1979.

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’s acquisition of Equity Partners in June 2011.

Ross Dove and Kirk Dove – Managing Partners, HGP. The Messrs. Dove, who are brothers, are the founders of HGP, which was acquired by the Company in February 2012.

Elements of Compensation

Base Salaries

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

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

During 2014 and 2013, all of the Company’s 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 and is eligible for a performance bonus as described below.

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

Bonuses

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

27

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

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

Mr. Mann is eligible for a performance bonus calculated as follows: after Equity Partners achieves net income of $175,000, the Equity Partners team receives 75% of the next $250,000, with the allocation among the Equity Partners team to be determined by Mr. Mann and the Company’s President, 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. In 2014 Mr. Mann earned a bonus of $317,607 and in 2013 he earned a bonus of $151,925.

The Messrs. Dove are eligible to receive an annual bonus of up to 50% of their annual salaries. They did not receive a bonus in either 2014 or 2013.

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

Equity Incentive Grants

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

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

We believe that stock options will continue to be used as the predominant form of stock-based compensation. No options were granted to any of our named executive officers during 2014. During 2013, Mr. Mann was granted 150,000 options to purchase common stock.

Other Benefits

The only additional benefits provided to the named executive officers during 2014 and 2013 were the payment of an automobile allowance to the Messrs. Dove. There were no pension or change in control benefits in either 2014 or 2013.

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

Tax Considerations

Section 162(m) of the Internal Revenue Code places limits on the deductibility of compensation in excess of $1 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.

28

Executive Compensation Process

Compensation Committee

Our Compensation Committee oversees and approves all compensation and awards made to the President. The Compensation Committee reviews the performance and compensation of the President, without his participation, and establishes his 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, 2014 and 2013 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.

Name and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal |  |  |  |  |  |  |  |  |  |  | Option |  |  | All Other |  |  |  |
Position 1 |  | Year |  |  | Salary |  |  | Bonus |  |  | Awards 3 |  |  | Compensation |  |  | Total |
Allan Silber |  | 2014 |  | $ | 137,500 |  | $ | — |  | $ | — |  | $ | — |  | $ | 137,500 |
Chairman of the |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Board and |  | 2013 |  |  | 137,500 |  |  | — |  |  | — |  |  | — |  |  | 137,500 |
President |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ross Dove |  | 2014 |  |  | 300,000 |  |  | — |  |  | — |  |  | 14,029 2 |  |  | 314,029 |
Managing Partner, |  | 2013 |  |  | 300,000 |  |  | — |  |  | — |  |  | 14,008 2 |  |  | 314,008 |
Heritage Global |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Partners |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Kirk Dove |  | 2014 |  |  | 300,000 |  |  | — |  |  | — |  |  | 41,971 2 |  |  | 341,971 |
Managing Partner, |  | 2013 |  |  | 300,000 |  |  | — |  |  | — |  |  | — |  |  | 300,000 |
Heritage Global |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Partners |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Kenneth Mann |  | 2014 |  |  | 425,000 |  |  | 317,607 |  |  | — |  |  | — |  |  | 742,607 |
Senior Managing |  | 2013 |  |  | 375,000 |  |  | 151,925 |  |  | 111,097 3 |  |  | — |  |  | 638,022 |
Director, Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Partners |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

1 No disclosure is provided with respect to the Company’s CFO, Mr. Weintraub, as his services are covered under the terms of the Management Services Agreement referenced above, and no compensation is paid directly by the Company.
2 This amount represents an automobile allowance. The $41,971 paid to Mr. Kirk Dove in 2014 represents an automobile allowance for 2012, 2013 and 2014.
3 See “Grants of Plan-Based Awards”, below, for details regarding the assumptions made in the valuation of these option awards.

29

Grants of Plan-Based Awards

On March 11, 2013, 150,000 options, having an exercise price of $1.00 and a fair value of $0.74, were granted to Mr. Mann. These options are part of the 2003 Stock Options and Appreciation Rights Plan. The inputs to the Black-Scholes Option Pricing Model were an expected volatility of 125%, a risk-free interest rate of 0.40%, an expected term of 4.75 years, and an expected dividend yield of zero.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth the detail of outstanding equity awards, as regards exercisable and unexercisable options, at December 31, 2014.

|  | Number of |  | Number of |  |  |  |
|  | Securities |  | Securities |  |  |  |
|  | Underlying |  | Underlying |  |  |  |
|  | Unexercised |  | Unexercised |  | Option |  |
|  | Options: |  | Options: |  | Exercise |  | Option Expiration
Name |  | Exercisable |  | Unexercisable |  | Price($/Sh) |  | Date
Allan Silber |  | 187,500(1) |  | 62,500(1) |  | 1.974 |  | June 29, 2018
Kenneth Mann |  | 200,000(2) |  | — |  | 1.83 |  | June 23, 2018
Kenneth Mann |  | 37,500(3) |  | 112,500(3) |  | 1.00 |  | March 11, 2020
Ross Dove |  | 156,250(4) |  | 156,250(4) |  | 2.00 |  | February 28, 2019
Kirk Dove |  | 156,250(4) |  | 156,250(4) |  | 2.00 |  | February 28, 2019

1 The options vest 25% annually beginning on the first anniversary of the grant date, which was June 29, 2011.
2 These options were part of the consideration paid to acquire Equity Partners on June 23, 2011, and vested immediately.
3 The options vest 25% annually beginning on the first anniversary of the grant date, which was March 11, 2013.
4 The options vest 25% annually beginning on the first anniversary of the grant date, which was February 29, 2012.

There were no adjustments or changes in the terms of any of the Company’s equity awards in 2014.

Compensation of Directors

The following table sets forth the aggregate compensation for services rendered during the fiscal year ended December 31, 2014 by each person serving as a director.

Name |  | Fees Earned or Paid in Cash |  | Option Awards 1 |  | Total
Henry Y.L. Toh |  | $ 46,000 |  | $ 5,039 |  | $ 51,039
Hal B. Heaton |  | 38,000 |  | 5,039 |  | 43,039
Samuel L. Shimer |  | 24,000 |  | 5,039 |  | 29,039
David L. Turock |  | 24,000 |  | 5,039 |  | 29,039
J. Brendan Ryan |  | 25,000 |  | 5,039 |  | 30,039

1 The value included in this column represents the grant date fair value of the option award computed in accordance with FASB ASC Topic 718. The aggregate number of shares underlying stock options outstanding at fiscal year-end for each of the directors listed in the table was as follows: Mr. Toh — 70,000; Dr. Heaton — 70,000; Mr. Shimer — 70,000; Mr. Turock — 70,000; Mr. Ryan — 30,000.

30

Each director who is not employed by HGI receives a $20,000 per year cash retainer, $1,000 per meeting attended in person or by telephone, and an annual grant of stock options to purchase 10,000 shares of common stock, which is awarded on March 31 or the next business day. In addition, the Chairman of the Audit Committee receives a cash retainer of $10,000 per year, Audit Committee members who are not the chair receive a cash retainer of $5,000 per year, and other committee chairpersons receive an annual cash retainer of $2,000 per year. The directors are also eligible to receive options under our stock option plans at the discretion of the Board. No discretionary stock options were awarded during 2014 or 2013.

Stock Option Plans

At December 31, 2014, the Company had three stock-based employee compensation plans, which are described in Note 15 of the audited consolidated financial statements included in Item 15 of this Report.

31

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth information regarding the ownership of our common stock as of March 12, 2015 by: (i) each director; (ii) each of the Named Executive Officers in the Summary Compensation Table; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by us to be beneficial owners of more than five percent of our common stock. As of March 12, 2015, there are 28,167,408 shares of common stock and 575 shares of Series N Preferred stock issued and outstanding. Each share of Series N Preferred Stock is entitled to 40 votes.

|  | Number of Shares |  | Percentage
Name and Address of |  | Beneficially Owned |  | of Common Stock
Beneficial Owner (1) |  | (2) |  | Beneficially Owned
Allan C. Silber |  | 1,517,683 (3) |  | 5.2%
Ross Dove |  | 1,001,875 (4) |  | 3.4%
Kirk Dove |  | 1,001,875 (4) |  | 3.4%
David Ludwig |  | 181,000 (5) |  | *%
Kenneth Mann |  | 406,967 (6) |  | 1.4%
Stephen Weintraub |  | 100,335 (7) |  | *%
Hal B. Heaton |  | 86,750 (8) |  | *%
Henry Y.L. Toh |  | 85,000 (8) |  | *%
Samuel L. Shimer |  | 68,803 (8) |  | *%
David L. Turock |  | 55,000 (8) |  | *%
J. Brendan Ryan |  | 15,000 (9) |  | *%
All Executive Officers and Directors as a |  |  |  |
Group (11 people) |  | 4,520,288 |  | 15.4%

| * | Indicates less than one percent.
| (1) | Unless otherwise noted, all listed shares of common stock are owned of record by each person or entity named as beneficial owner and that person or entity has sole voting and dispositive power with respect to the shares of common stock owned by each of them. All addresses are c/o Heritage Global Inc. unless otherwise indicated.
| (2) | As to each person or entity named as beneficial owners, that person’s or entity’s percentage of ownership is determined based on the assumption that any options or convertible securities held by such person or entity which are exercisable or convertible within 60 days have been exercised or converted, as the case may be.
| (3) | Includes 187,500 shares of common stock issuable pursuant to options. Mr. Silber is Chairman, Chief Executive Officer and President of Counsel, the Company’s former majority shareholder.
| (4) | Includes 234,375 shares of common stock issuable pursuant to options, and 267,500 shares of common stock held of record by a trust that is jointly controlled by the Messrs. Dove. Mr. Dove’s address is c/o Heritage Global Partners, Inc.
| (5) | Mr. Ludwig’s address is c/o National Loan Exchange, Inc.
| (6) | Includes 275,000 shares of common stock issuable pursuant to options. Mr. Mann’s address is c/o Equity Partners HG LLC.
| (7) | Mr. Weintraub is Chief Financial Officer of Counsel, the Company’s former majority shareholder.
| (8) | Includes 45,000 shares of common stock issuable pursuant to options.
| (9) | Represents shares of common stock issuable pursuant to options.

There are no arrangements, known to the Company, including any pledge by any person of securities of the registrant or any of its parents, the operation of which may at a subsequent date result in a change of control of the registrant.

32

Item 13. Certain Relationships and Related Transactions, and Director Independence.

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

Transactions with Management and Others

See Item 7 hereof for discussion of the Company’s changes in the ownership and control by Counsel, its former majority owner and parent. See Item 11 hereof for descriptions of the terms of employment, consulting and other agreements between the Company and certain officers and directors.

Transactions with Counsel

Collateralized Loan Agreement
Until the second quarter of 2014, in the normal course of operations, the Company received advances from Counsel under a loan facility (the “Counsel Loan”) that was originally entered into during the fourth quarter of 2003. The Counsel Loan accrued interest at 10% per annum compounded quarterly from the date funds were advanced, was due on demand, and was secured by the assets of the Company. At December 31, 2013 the Company had a balance of $2,550 owing to Counsel under the Counsel Loan, including $168 of accrued interest.

In the second quarter of 2014, following Counsel’s distribution of its ownership interest in HGI to Counsel shareholders as a dividend in kind, this facility was replaced and the outstanding balance of $3,057 was transferred to a new facility (also the “Counsel Loan”). Under the new facility, payment is due within thirty days following the end of each quarter. Unpaid balances accrue interest at a rate per annum equal to the lesser of the WSJ prime rate + 2.0%, or the maximum rate allowable by law. For 2014 the rate was 5.25%. At December 31, 2014 the Company had a balance of $2,985 owing to Counsel under the Counsel Loan, including interest accrued to December 31, 2014, which has been capitalized to the loan. Please see Note 12 of the audited consolidated financial statements for further discussion of transactions with Counsel.

Counsel Services Provided to Company
Beginning in December 2004, HGI and Counsel entered into successive annual management services agreements (collectively, the “Agreement”). Under the terms of the Agreement, HGI agreed to pay Counsel for ongoing services provided to HGI by Counsel personnel. These services included preparation of the Company’s financial statements and regulatory filings, taxation matters, stock-based compensation administration, Board administration, patent portfolio administration and litigation matters. The Counsel employees providing the services were: 1) its Executive Vice President, Secretary and Chief Financial Officer, 2) its Tax Manager, 3) an Accounting Manager, and 4) its Accounts Payable Clerk. These employees have the same or similar positions with HGI, but none of them received compensation from HGI. Rather, Counsel allocated to HGI a percentage, based on time incurred, of the employees’ base compensation paid by Counsel. Beginning in the first quarter of 2011, additional amounts were charged to HGI for Counsel services specifically relating to the ongoing operations of HGI’s asset liquidation business. The amounts due under the Agreement were payable within 30 days following the respective year end, subject to applicable restrictions. Any unpaid amounts bore interest at 10% per annum commencing on the day after such year end.

In the first quarter of 2013, Counsel announced its plan to dispose of its interest in HGI, and on March 20, 2014, Counsel declared a dividend in kind, consisting of Counsel’s distribution of its majority interest in HGI to Counsel shareholders. The payment was made on April 30, 2014 to shareholders of record at April 1, 2014.

Following this disposition, the Company and Counsel entered into a replacement management services agreement (the “Services Agreement”). Under the terms of the Services Agreement, Counsel remains as external manager and continues to provide the same services, at similar rates. The Services Agreement has an initial term of one year, which renews automatically for successive one-year terms unless notice by either party is given within ninety days before the expiration. The Services Agreement may be terminated at any time upon mutual agreement of the Company and Counsel. The Company intends to internalize its management in the future, but expects that it will continue to avail itself of the services provided under the Services Agreement until such time. Please see Note 12 of the audited consolidated financial statements for details of the amounts expensed during 2014 and 2013 relating to services provided by Counsel under the agreements.

Transactions with Other Related Parties

As part of the operations of HGP, the Company leases office space in Foster City, CA that is owned by an entity that is jointly controlled by the former owners of HGP. The total amount paid in both 2014 and 2013 was $228. As part of the operations of NLEX, the Company leases office space in Edwardsville, IL that is owned by senior officers of NLEX. The total amount paid in 2014 was $57. The Company formerly leased office space in White Plains, NY and Los Angeles, CA as part of the operations of HG LLC. Both premises are owned by entities that are controlled by a former Co-CEO of HG LLC and the Company. In connection with the departure of the Co-CEOs, these lease agreements were terminated, without penalty, effective June 30, 2013. The total lease amounts paid in 2013 were $78.

33

On July 26, 2013, the Company and its then Co-CEOs entered into an agreement by which the Co-CEOs terminated their employment with the Company and HG LLC. Under the agreement, as disclosed in the Company’s Current Report on Form 8-K filed on July 31, 2013, effective June 30, 2013 the Co-CEOs departed the Company along with the personnel in the New York and Los Angeles offices of HG LLC. In August 2012, each Co-CEO had acquired 400,000 common shares of the Company, with a total value of $1,054, in return for intellectual property licensing agreements. The $1,054 was recorded as stock-based compensation in 2012. On July 26, 2013, the Co-CEOs returned these common shares, which had a fair value of $624, in order to re-acquire the licensing agreements. The Company therefore recorded intellectual property licensing revenue of $624. The shares have been cancelled.

Director Independence

Our securities are quoted on the OTC market and the Canadian Securities Exchange.. Our Board applies “independence” requirements and standards under the Nasdaq Marketplace Rules. Pursuant to the requirements, the Board periodically undertakes a review of director independence. During this review, the Board considers transactions and relationships between each director or any member of his or her immediate family and HGI and its subsidiaries and affiliates. The purpose of this review is to determine whether any such relationships or transactions exist that are inconsistent with a determination that the director is independent. As a result of this review in 2014, the Board affirmatively determined that during 2014 Messrs. Toh, Heaton, Ryan, Shimer and Turock were deemed “independent” as defined under the Nasdaq Marketplace Rules. The Board further determined that each of the foregoing directors met the independence and other requirements, including the Audit Committee membership independence requirements, needed to serve on the Board committees for which they serve.

Item 14. Principal Accountant Fees and Services.

In September 2014 the Company’s Audit Committee engaged Squar, Milner, Peterson, Miranda & Williamson, LLP (“Squar Milner”) as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2014. Previously, the Company’s independent registered public accounting firm was Deloitte LLP (“Deloitte”). All fees paid to independent registered public accounting firms were pre-approved by the Audit Committee.

Fees paid to Deloitte, our independent registered public accounting firm for all of 2013 and for the period January 1 – September 23, 2014, are set forth below.

|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |
Audit fees | $ | 38 |  | $ | 129 |
Audit-related fees |  | 74 |  |  | — |
Tax fees |  | — |  |  | — |
All other fees |  | — |  |  | — |
Total | $ | 112 |  | $ | 129 |

Fees paid or expected to be paid to Squar Milner, our independent registered public accounting firm for the period September 27 – December 31, 2014 are set forth below.

|  | Year Ended |
|  | December 31, |
|  | 2014 |
Audit fees | $ | 94 |
Audit-related fees |  | — |
Tax fees |  | — |
All other fees |  | — |
Total | $ | 94 |

34

Audit Fees
Audit fees are for professional services for the audit of our annual financial statements, the reviews of the financial statements included in our Quarterly Reports on Form 10-Q, and services in connection with our statutory and regulatory filings.

Audit-Related Fees
Audit related fees are for assurance and related services that are reasonably related to the audit and reviews of our financial statements, exclusive of the fees disclosed as Audit Fees above. These fees include benefit plan audits and accounting consultations. In 2014, the audit-related fees paid to Deloitte related to HGI’s requirement to file statutory reports in Canada, prior to Counsel’s distribution of its ownership in HGI as a dividend in kind.

Tax Fees
Tax fees are for services related to tax compliance, consulting and planning services and include preparation of tax returns, review of restrictions on net operating loss carryforwards and other general tax services. For 2013 and 2014, these services were provided by an independent registered public accountant other than Deloitte or Squar Milner.

All Other Fees
We did not incur fees for any services, other than the fees disclosed above relating to audit, audit-related and tax services, rendered during the years ended December 31, 2013 and 2014.

Audit and Non-Audit Service Pre-Approval Policy

In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder, the Audit Committee has adopted an informal approval policy to pre-approve services performed by the independent registered public accounting firm. All proposals for services to be provided by the independent registered public accounting firm, which must include a detailed description of the services to be rendered and the amount of corresponding fees, are submitted to the Chairman of the Audit Committee and the Chief Financial Officer. The Chief Financial Officer authorizes services that have been pre-approved by the Audit Committee. If there is any question as to whether a proposed service fits within a pre-approved service, the Audit Committee chair is consulted for a determination. The Chief Financial Officer submits requests or applications to provide services that have not been pre-approved by the Audit Committee, which must include an affirmation by the Chief Financial Officer and the independent registered public accounting firm that the request or application is consistent with the SEC’s rules on auditor independence, to the Audit Committee (or its Chairman or any of its other members pursuant to delegated authority) for approval.

Audit Services. Audit services include the annual financial statement audit (including quarterly reviews) and other procedures required to be performed by the independent registered public accounting firm to be able to form an opinion on our financial statements. The Audit Committee pre-approves specified annual audit services engagement terms and fees and other specified audit fees. All other audit services must be specifically pre-approved by the Audit Committee. The Audit Committee monitors the audit services engagement and may approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope or other items.

Audit-Related Services. Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of our financial statements which historically have been provided to us by the independent registered public accounting firm and are consistent with the SEC’s rules on auditor independence. The Audit Committee pre-approves specified audit-related services within pre-approved fee levels. All other audit-related services must be pre-approved by the Audit Committee.

Tax Services. The Audit Committee pre-approves specified tax services that the Audit Committee believes would not impair the independence of the independent registered public accounting firm and that are consistent with SEC rules and guidance. All other tax services must be specifically approved by the Audit Committee.

All Other Services. Other services are services provided by the independent registered public accounting firm that do not fall within the established audit, audit-related and tax services categories. The Audit Committee pre-approves specified other services that do not fall within any of the specified prohibited categories of services.

35

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) | The following financial statements and those financial statement schedules required by Item 8 hereof are filed as part of this Report:
| 1. | Financial Statements:
|  | Reports of Independent Registered Public Accounting Firms
|  | Consolidated Balance Sheets as of December 31, 2014 and 2013
|  | Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014 and 2013
|  | Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2014 and 2013
|  | Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013
|  | Notes to Consolidated Financial Statements
| 2. | Financial Statement Schedules:
|  | These schedules are omitted because they are not required, or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
(b) | The following exhibits are filed as part of this Report:

Exhibit Number |  | Title of Exhibit
3.1(i) |  | Amended and Restated Articles of Incorporation. (1)
3.2(ii) |  | Bylaws as amended (2)
3.2(iii) |  | Articles of Amendment to the Amended and Restated Articles of Incorporation (8)
10.1* |  | 2003 Stock Option and Appreciation Rights Plan. (3)
10.2* |  | 2010 Non-Qualified Stock Option Plan (9)
10.3* |  | Counsel Management Agreement. (5)
10.4 |  | Stipulation of Dismissal with Prejudice dated as of March 12, 2009. (6)
10.5 |  | Loan and Security Agreement between Israel Discount Bank of New York (as Agent) and Counsel RB Capital LLC, dated as of June 2, 2009. (7)
10.6 |  | Sixth Amendment to Loan Agreement between C2 Global Technologies Inc. and Counsel Corporation dated January 26, 2004, dated as of May 5, 2009. (7)
10.7* |  | Form of Option Grant for Options Granted Under 2010 Non-Qualified Stock Option Plan. (10)
10.8 |  | Asset Purchase Agreement among EP USA, LLC (as Company), Equity Partners, Inc. of Maryland, The Rexford Company, LLC and Cross Concepts, LLC (as Sellers) and Equity Partners CRB LLC (as Buyer), dated June 23, 2011. (11)
10.9 |  | Share Purchase Agreement by and among Heritage Global Partners, Inc. as the Company; Kirk Dove and Ross Dove as Sellers; and Counsel RB Capital Inc. as Buyer Dated as of February 29, 2012 (12)

36

Exhibit Number |  | Title of Exhibit
10.10 |  | Mutual Separation and Transition Agreement with Adam Reich, effective as of June 30, 2013 (13)
10.11 |  | Mutual Separation and Transition Agreement with Jonathan Reich, effective as of June 30, 2013 (13)
10.12* |  | Management Services Agreement between Heritage Global Inc. and Counsel Corporation, effective as of May 1, 2014 (14)
10.13 |  | Stock Purchase Agreement between Heritage Global Inc., National Loan Exchange, Inc., and David Ludwig, signed on June 2, 2014 and effective as of May 31, 2014 (15)
14 |  | C2 Global Technologies Inc. Code of Conduct. (4)
21 |  | List of subsidiaries. (filed herewith)
31.1 |  | Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith)
31.2 |  | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith)
32.1 |  | Certification pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed herewith)
32.2 |  | Certification pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed herewith)
101.INS |  | XBRL Instance Document
101.SCH |  | XBRL Taxonomy Extension Schema
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase
101.LAB |  | XBRL Taxonomy Extension Label Linkbase
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase

* Indicates a management contract or compensatory plan required to be filed as an exhibit.

| (1) | Incorporated by reference to our Quarterly Report on Form 10-QSB for the quarter ended June 30, 1996, file number 0- 17973.
| (2) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended September 30, 1998, file number 0-17973.
| (3) | Incorporated by reference to our Definitive Proxy Statement for the November 26, 2003 annual stockholder meeting.
| (4) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2003.
| (5) | Incorporated by reference to our Current Report on Form 8-K filed on January 6, 2005.

| (6) | Incorporated by reference to our Annual Report on Form 10-K for the period ended December 31, 2008.
| (7) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended June 30, 2009.
| (8) | Incorporated by reference to our Definitive Schedule 14C Information Statement filed on December 23, 2010.
| (9) | Incorporated by reference to our Current Report on Form 8-K filed on January 24, 2011.
| (10) | Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2010.
| (11) | Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended June 30, 2011.
| (12) | Incorporated by reference to our Current Report on Form 8-K filed on March 6, 2012.
| (13) | Incorporated by reference to our Current Report on Form 8-K filed on July 31, 2013.
| (14) | Incorporated by reference to our Current Report on Form 8-K filed on May 1, 2014.
| (15) | Incorporated by reference to our Current Report on Form 8-K filed on June 6, 2014.

(c) Financial Statement Schedules

The following Schedules are included in our Financial Statements:

None.

38

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

|  | HERITAGE GLOBAL INC.
|  | (Registrant)
Dated: March 31, 2015 | By: | /s/ Allan C. Silber
|  | Allan C. Silber, Chairman of the Board and President
|  | (Principal Executive Officer)
| By: | /s/ Stephen A. Weintraub
|  | Stephen A. Weintraub, Executive Vice President, Chief Financial
|  | Officer and Corporate Secretary
|  | (Principal Financial Officer and Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature |  | Title |  | Date
/s/ Allan C. Silber |  | Chairman of the Board of Directors and President |  | March 31, 2015
Allan C. Silber |  | Principal Executive Officer |  |
/s/ Hal B. Heaton |  | Director |  | March 31, 2015
Hal B. Heaton |  |  |  |
/s/ J. Brendan Ryan |  | Director |  | March 31, 2015
J. Brendan Ryan |  |  |  |
/s/ Samuel L. Shimer |  | Director |  | March 31, 2015
Samuel L. Shimer |  |  |  |
/s/ Henry Y. L. Toh |  | Director |  | March 31, 2015
Henry Y.L. Toh |  |  |  |
/s/ David L. Turock |  | Director |  | March 31, 2015
David L. Turock |  |  |  |

39

INDEX OF FINANCIAL STATEMENTS

Title of Document

| Page
Reports of Independent Registered Public Accounting Firms | F-2
Consolidated Balance Sheets as of December 31, 2014 and 2013 | F-4
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2014 and 2013 | F-5
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2014 and 2013 | F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013 | F-7
Notes to Consolidated Financial Statements | F-8

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Heritage Global Inc.

We have audited the accompanying consolidated balance sheet Heritage Global Inc. as of December 31, 2014 and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we do not express an opinion thereon. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Heritage Global Inc. as of December 31, 2014 and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP

San Diego, California
March 31, 2015

F-2

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Heritage Global Inc.

We have audited, before the effects of the adjustments to retrospectively apply the change in segments discussed in Note 2 to the consolidated financial statements, the accompanying consolidated balance sheet of Heritage Global Inc. and subsidiaries (the “Company”) as of December 31, 2013, and the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity, and cash flows for the year ended December 31, 2013 (the 2013 consolidated financial statements before the effects of the adjustments to retrospectively apply the change in segments discussed in Note 2 to the consolidated financial statements are not presented herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, before the effects of the adjustments to retrospectively apply the change in segments discussed in Note 2 to the consolidated financial statements, in all material respects, the financial position of Heritage Global Inc. and subsidiaries as of December 31, 2013, and the results of their operations and their cash flows for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in segments discussed in Note 2 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.

/s/ Deloitte LLP
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
March 31, 2014

F-3

HERITAGE GLOBAL INC.
CONSOLIDATED BALANCE SHEETS
as of December 31, 2014 and 2013
(In thousands of US dollars, except share and per share amounts)

|  | 2014 |  |  | 2013 |
ASSETS |
Current assets: |  |  |  |  |  |
Cash and cash equivalents | $ | 3,633 |  | $ | 3,213 |
Accounts receivable (net of allowance for doubtful accounts of $31; 2013 - $0) |  | 3,043 |  |  | 1,670 |
Deposits |  | 173 |  |  | 17 |
Inventory – equipment |  | 139 |  |  | 578 |
Other current assets |  | 587 |  |  | 480 |
Deferred income tax assets |  | — |  |  | 1,366 |
Total current assets |  | 7,575 |  |  | 7,324 |
Non-current assets: |  |  |  |  |  |
Inventory – real estate |  | 6,508 |  |  | 6,078 |
Asset liquidation investments |  | 978 |  |  | 1,380 |
Other equity-method investments |  | 156 |  |  | 1,769 |
Property, plant and equipment, net |  | 150 |  |  | 32 |
Identifiable intangible assets, net |  | 7,657 |  |  | 4,810 |
Goodwill |  | 8,846 |  |  | 5,301 |
Deferred income tax assets |  | — |  |  | 23,301 |
Total assets | $ | 31,870 |  | $ | 49,995 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: |  |  |  |  |  |
Accounts payable and accrued liabilities | $ | 7,131 |  | $ | 6,510 |
Debt payable to third parties |  | 539 |  |  | 1,438 |
Debt payable to a related party |  | 2,985 |  |  | 2,550 |
Contingent consideration |  | 803 |  |  | — |
Total current liabilities |  | 11,458 |  |  | 10,498 |
Non-current liabilities: |  |  |  |  |  |
Debt payable to third parties |  | 2,580 |  |  | — |
Contingent consideration |  | 3,395 |  |  | — |
Deferred tax liabilities |  | 960 |  |  | — |
Total liabilities |  | 18,393 |  |  | 10,498 |
Commitments and contingencies |  |  |  |  |  |
Stockholders’ equity: |  |  |  |  |  |
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 575 Class N shares at December 31, 2014 and 579 Class N shares at December 31, 2013, liquidation preference of $575 at December 31, 2014 and $579 at December 31, 2013 |  | 6 |  |  | 6 |
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 28,167,408 shares at December 31, 2014 and 28,167,248 shares at December 31, 2013 |  | 282 |  |  | 282 |
Additional paid-in capital |  | 283,691 |  |  | 283,207 |
Accumulated deficit |  | (270,468 | ) |  | (243,954 | )
Accumulated other comprehensive loss |  | (34 | ) |  | (44 | )
Total stockholders’ equity |  | 13,477 |  |  | 39,497 |
Total liabilities and stockholders’ equity | $ | 31,870 |  | $ | 49,995 |

The accompanying notes are an integral part of these consolidated financial statements.

F-4

HERITAGE GLOBAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
for the years ended December 31, 2014 and 2013
(In thousands of US dollars, except per share amounts)

|  | 2014 |  |  | 2013 |
Revenue: |  |  |  |  |  |
Asset liquidation |  |  |  |  |  |
Commissions and other | $ | 7,926 |  | $ | 6,022 |
Asset sales |  | 6,260 |  |  | 2,046 |
Total asset liquidation revenue |  | 14,186 |  |  | 8,068 |
Intellectual property licensing |  | — |  |  | 824 |
Total revenue |  | 14,186 |  |  | 8,892 |
Operating costs and expenses: |  |  |  |  |  |
Asset liquidation |  | 4,631 |  |  | 2,706 |
Patent licensing and maintenance |  | 43 |  |  | 191 |
Selling, general and administrative, including expenses paid to related parties |  | 10,989 |  |  | 9,660 |
Depreciation and amortization |  | 566 |  |  | 472 |
Total operating costs and expenses |  | 16,229 |  |  | 13,029 |
|  | (2,043 | ) |  | (4,137 | )
Earnings of asset liquidation investments |  | 143 |  |  | 1,200 |
Operating loss |  | (1,900 | ) |  | (2,937 | )
Other income (expenses): |  |  |  |  |  |
Gain on sale of equity-method investment |  | 551 |  |  | — |
Earnings of other equity method investments |  | 261 |  |  | 126 |
Interest expense – third party |  | (514 | ) |  | (388 | )
Interest expense – related party |  | (190 | ) |  | (168 | )
Total other income (expenses) |  | 108 |  |  | (430 | )
Loss before income tax expense |  | (1,792 | ) |  | (3,367 | )
Income tax expense |  | 24,722 |  |  | 3,029 |
Net loss |  | (26,514 | ) |  | (6,396 | )
Other comprehensive income (loss): |  |  |  |  |  |
Currency translation adjustment (net of tax of $0) |  | 10 |  |  | (37 | )
Comprehensive loss | $ | (26,504 | ) | $ | (6,433 | )
Weighted average common shares outstanding – basic and diluted (in thousands) |  | 28,167 |  |  | 28,610 |
Net loss per share – basic and diluted | $ | (0.94 | ) | $ | (0.22 | )

The accompanying notes are an integral part of these consolidated financial statements

F-5

HERITAGE GLOBAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
for the years ended December 31, 2013 and 2014
(In thousands of US dollars, except share amounts)

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |
|  |  |  |  |  |  |  |  |  |  |  |  |  | Additional |  |  | Accumulated |  |  | other |  |  |  |
|  | Preferred stock |  |  | Common stock |  |  | paid-in |  |  | equity |  |  | comprehensive |  |  |  |
|  | Shares |  |  | Amount |  |  | Shares |  |  | Amount |  |  | capital |  |  | (deficit) |  |  | income (loss) |  |  | Total |
Balance at December 31, 2012 |  | 592 |  | $ | 6 |  |  | 28,945,228 |  | $ | 290 |  | $ | 283,281 |  | $ | (237,558 | ) | $ | (7 | ) | $ | 46,012 |
Cancellation of shares |  | — |  |  | — |  |  | (800,000 | ) |  | (8 | ) |  | (616 | ) |  | — |  |  | — |  |  | (624 | )
Exercise of options |  | — |  |  | — |  |  | 21,500 |  |  | — |  |  | 10 |  |  | — |  |  | — |  |  | 10 |
Conversion of Series N preferred shares |  | (13 | ) |  | — |  |  | 520 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Compensation cost related to stock options |  | — |  |  | — |  |  | — |  |  | — |  |  | 532 |  |  | — |  |  | — |  |  | 532 |
Net loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (6,396 | ) |  | — |  |  | (6,396 | )
Foreign currency translation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (37 | ) |  | (37 | )
Balance at December 31, 2013 |  | 579 |  | $ | 6 |  |  | 28,167,248 |  | $ | 282 |  | $ | 283,207 |  | $ | (243,954 | ) | $ | (44 | ) | $ | 39,497 |
Conversion of Series N preferred shares |  | (4 | ) |  | — |  |  | 160 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Compensation cost related to stock options |  | — |  |  | — |  |  | — |  |  | — |  |  | 484 |  |  | — |  |  | — |  |  | 484 |
Net loss |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (26,514 | ) |  | — |  |  | (26,514 | )
Foreign currency translation |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 10 |  |  | 10 |
Balance at December 31, 2014 |  | 575 |  | $ | 6 |  |  | 28,167,408 |  | $ | 282 |  | $ | 283,691 |  | $ | (270,468 | ) | $ | (34 | ) | $ | 13,477 |

The accompanying notes are an integral part of these consolidated financial statements.

F-6

HERITAGE GLOBAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2014 and 2013
(In thousands of US dollars)

|  | 2014 |  |  | 2013 |
Cash flows from operating activities: |  |  |  |  |  |
Net loss | $ | (26,514 | ) | $ | (6,396 | )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities, net of effects from business acquisition: |  |  |  |  |  |
Accrued interest added to principal of third party debt |  | 94 |  |  | 11 |
Accrued interest added to principal of related party debt |  | 190 |  |  | 168 |
Accretion of contingent consideration discount |  | 210 |  |  | — |
Stock-based compensation expense |  | 484 |  |  | 532 |
Earnings of other equity method investments |  | (261 | ) |  | (126 | )
Gain on sale of investment |  | (551 | ) |  | — |
Depreciation and amortization |  | 566 |  |  | 472 |
Revenue from sale of intellectual property license |  | — |  |  | (624 | )
Changes in operating assets and liabilities: |  |  |  |  |  |
Increase (decrease) in accounts receivable |  | 619 |  |  | (602 | )
Decrease (increase) in deposits |  | (156 | ) |  | 1,464 |
Decrease in equipment and real estate inventory |  | 9 |  |  | 242 |
Decrease in asset liquidation investments |  | 402 |  |  | 2,238 |
Increase in other current assets |  | (90 | ) |  | (156 | )
Decrease in deferred income tax assets |  | 24,667 |  |  | 2,911 |
Increase (decrease) in accounts payable and accrued liabilities |  | (26 | ) |  | 2,058 |
Increase in income taxes payable |  | — |  |  | 69 |
Net cash (used in) provided by operating activities |  | (357 | ) |  | 2,261 |
Cash flows from investing activities: |  |  |  |  |  |
Cash paid for business acquisition, net of cash acquired of $639 |  | (1,361 | ) |  | — |
Investment in other equity method investments |  | (11 | ) |  | (56 | )
Cash distributions from other equity method investments |  | 444 |  |  | 839 |
Purchase of property, plant and equipment |  | (127 | ) |  | (10 | )
Net cash (used in) provided by investing activities |  | (1,055 | ) |  | 773 |
Cash flows from financing activities: |  |  |  |  |  |
Proceeds of debt payable to third parties |  | 3,453 |  |  | 2,090 |
Repayment of debt payable to third parties |  | (1,866 | ) |  | (11,546 | )
Advances from related parties |  | 2,750 |  |  | 9,003 |
Advances to related parties |  | (2,505 | ) |  | (3,692 | )
Proceeds from exercise of options to purchase common shares |  | — |  |  | 10 |
Net cash provided by (used in) financing activities |  | 1,832 |  |  | (4,135 | )
Net increase (decrease) in cash and cash equivalents |  | 420 |  |  | (1,101 | )
Cash and cash equivalents at beginning of year |  | 3,213 |  |  | 4,314 |
Cash and cash equivalents at end of year | $ | 3,633 |  | $ | 3,213 |

|  | 2014 |  |  | 2013 |
Supplemental cash flow information: |  |  |  |  |  |
Income taxes paid | $ | 55 |  | $ | 41 |
Interest paid |  | 168 |  |  | 490 |

The accompanying notes are an integral part of these consolidated financial statements.

F-7

HERITAGE GLOBAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of $US, except share and per share amounts and where specifically indicated)

Note 1 – Description of Business and Principles of Consolidation

These consolidated financial statements include the accounts of Heritage Global Inc. together with its subsidiaries, including Heritage Global Partners, Inc. (“HGP”), Equity Partners HG LLC (“Equity Partners”), National Loan Exchange Inc. (“NLEX”), Heritage Global LLC (“HG LLC”), C2 Communications Technologies Inc., and C2 Investments Inc. These entities, collectively, are referred to as “HGI”, the “Company”, “we” or “our” in these consolidated financial statements. These consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), as outlined in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and include the assets, liabilities, revenues, and expenses of all subsidiaries over which HGI exercises control. All significant intercompany accounts and transactions have been eliminated upon consolidation.

The Company’s sole operating segment is its asset liquidation business, which began operations in 2009 with the establishment of Heritage Global LLC (“HG LLC”). The business was subsequently expanded by the acquisitions of Equity Partners, HGP and NLEX in 2011, 2012 and 2014, respectively. As a result, HGI is positioned to provide an array of value-added capital asset solutions: auction and appraisal services, traditional asset disposition sales, and financial solutions for distressed businesses and properties.

In addition to its asset liquidation operations, HGI owns certain patents, including two foundational patents in voice over internet protocol (“VoIP”) technology – U.S. Patent Nos. 6,243,373 (the “VoIP Patent”) and 6,438,124 (the “C2 Patent”) (together the “VoIP Patent Portfolio”), which it licenses. HGI’s target market consists of carriers, equipment manufacturers, service providers and end users in the internet protocol telephony market who are using HGI’s patented VoIP technologies by deploying VoIP networks for phone-to-phone communications.

Note 2 – Summary of Significant Accounting Policies

Use of estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP 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 include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, investments, goodwill, intangible assets, deferred income tax assets, liabilities, contingent consideration and stock-based compensation. These estimates have the potential to significantly impact our consolidated 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.

Asset liquidation accounting
The Company earns asset liquidation revenue both from commission or fee-based services, and from the sale of distressed or surplus assets. With respect to the former, revenue is recognized as the services are provided. With respect to the latter, the majority of the asset sale transactions are conducted directly by the Company. Revenue is reported as Asset Liquidation revenue, and the associated direct costs are reported as Asset Liquidation costs. At the balance sheet date, any unsold assets are reported as Inventory, any outstanding accounts receivable are included in the Company’s Accounts Receivable, and any associated liabilities are included in the Company’s Accrued Liabilities. Most inventory is expected to be sold within a year and is therefore classified as a current asset; however, real estate inventory is classified as non-current.

F-8

The remaining asset sale transactions involve the Company acting jointly with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company (“LLC”) agreement (collectively, “Joint Ventures”). These transactions are accounted for as equity-method investments, and, accordingly, the Company’s proportionate share of the net income (loss) is reported as Earnings (Loss) of Asset Liquidation Investments. At each balance sheet date, the Company’s investments in these Joint Ventures are reported in the consolidated balance sheet as Asset Liquidation Investments. Although the Company generally expects to exit each of its investments in Joint Ventures in less than one year, they are classified on the balance sheet as non-current assets. The Company monitors the value of the Joint Ventures’ underlying assets and liabilities, and records a write down of its investments if the Company concludes that there has been a decline in the value of the net assets. As the activity of the Joint Ventures involves asset purchase/resale transactions, which is similar in nature to the Company’s other Asset Liquidation activities, the earnings (losses) of the Joint Ventures are recorded as operating activity in the accompanying consolidated financial statements.

Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash and cash equivalents with financial institutions in Toronto, Canada; San Diego, CA; Staunton, IL; and New York, NY. These accounts may from time to time exceed federally insured limits. The Company has not experienced any losses on such accounts.

Accounts receivable
The Company’s accounts receivable primarily relate to the operations of its asset liquidation business. They 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 all 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. See Note 7 for more detail regarding the Company’s accounts receivable.

Inventory
The Company’s inventory consists of assets acquired for resale, which are normally expected to be sold within a one-year operating cycle. They are recorded at the lower of cost and net realizable value.

Other equity-method investments
At December 31, 2014, the Company held an investment in one private company, which was accounted for under the equity method. Under this method, the investments are carried at cost, plus or minus the Company’s share of increases and decreases, respectively, in the investee’s net assets and certain other adjustments. Impairments, equity pick-ups, and realized gains and losses on equity securities are reported separately in the consolidated statement of operations and comprehensive loss. The Company monitors its investments for impairment by considering factors such as the economic environment and market conditions, as well as the operational performance of, and other specific factors relating to, the businesses underlying the investments. See Note 5 for further discussion of the Company’s other equity-method investments.

Fair value of financial instruments
The fair value of financial instruments is the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. At December 31, 2014 and 2013, the carrying values of the Company’s cash, accounts receivable, deposits, accounts payable and accrued liabilities, and debt payable approximate fair value. There are three levels within the fair value hierarchy: Level 1 – quoted prices in active markets for identical assets or liabilities; Level 2 – significant other observable inputs; and Level 3 – significant unobservable inputs. The Company does not employ fair value accounting for any of its assets or liabilities, with the exception of the contingent consideration. The fair value of the Company’s contingent consideration was determined using a discounted cash flow analysis, which is based on significant inputs that are not observable in the market and therefore fall within Level 3. Please see Note 3 for more discussion of this contingent consideration.

Business combinations
Acquisitions are accounted for under FASB Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), which requires that assets acquired that are deemed to be a business are recorded based on their respective acquisition date fair values. ASC 805 further requires that separately identifiable intangible assets be recorded at their acquisition date fair values and that the excess of consideration paid over the fair value of assets acquired (including identifiable intangible assets) should be recorded as goodwill. See Note 3 for discussion of the acquisition of NLEX in the second quarter of 2014.

F-9

Identifiable intangible assets
Identifiable intangible assets are recorded at fair value upon acquisition. Those with an estimated useful life are amortized, and those with an indefinite useful life are unamortized. Subsequent to acquisition, the Company monitors events and changes in circumstances that require an assessment of intangible asset recoverability. Indefinite-lived intangible assets are assessed annually to determine both whether they remain indefinite and whether they are impaired, 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.

At December 31, 2014 the Company’s identifiable intangible assets relate to its acquisitions of HGP in 2012 and NLEX in 2014. See Note 3 and Note 6 for more detail regarding the Company’s identifiable intangible assets.

Goodwill
Goodwill, which results from the difference between the purchase price and the fair value of net identifiable tangible and intangible assets acquired, is not amortized but, in accordance with GAAP, is tested annually at December 31 for impairment. Testing is a two-step process, in which the carrying amount of the reporting unit associated with the goodwill is first compared to the reporting unit’s estimated fair value. If the carrying amount of the reporting unit exceeds its estimated fair value, the fair values of the reporting unit’s assets and liabilities are analyzed to determine whether the goodwill of the reporting unit has been impaired. An impairment loss is recognized to the extent that the Company’s recorded goodwill exceeds its implied fair value as determined by this two-step process. FASB 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 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.

At December 31, 2014 the Company’s goodwill relates to its acquisitions of Equity Partners in 2011, HGP in 2012 and NLEX in 2014. See Note 3 and Note 6 for more detail regarding the Company’s goodwill.

Deferred income tax assets
The Company recognizes deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. The Company establishes a valuation allowance when necessary to reduce deferred tax assets to the amount expected to be realized. At December 31, 2014, as a result of incurring losses in 2012, 2013 and 2014, the Company has recorded a valuation allowance against all of its net deferred tax assets.

Contingent consideration
At December 31, 2014 the Company’s contingent consideration consists of the estimated fair value of an earnout provision that was part of the consideration for the acquisition of NLEX in the second quarter of 2014. The amount assigned to the contingent consideration at the acquisition date was determined using a discounted cash flow analysis. Its present value is assessed quarterly, and any adjustments, together with the amortization of the fair value discount, are reported as Interest Expense on the Company’s consolidated statement of operations. See Note 3 for more discussion of the Company’s contingent consideration.

Liabilities and contingencies
The Company is involved from time to time in various legal matters arising out of its operations in the normal course of business. On a case by case basis, the Company evaluates the likelihood of possible outcomes for this litigation. Based on this evaluation, the Company determines whether a liability accrual is appropriate. If the likelihood of a negative outcome is probable, and the amount can be estimated, the Company accounts for the estimated liability in the current period.

Asset liquidation revenue
Asset liquidation revenue generally consists of commissions and fees from acting as the agent for asset sales by third parties, and gross proceeds from auctions and negotiated sales of asset inventory. Revenue is recognized when persuasive evidence of an arrangement exists, the amount of the proceeds is fixed, delivery terms are arranged and collectability is reasonably assured.

Stock-based compensation
The Company’s stock-based compensation is primarily in the form of options to purchase common shares. The fair value is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the option awards as equity. See Note 15 for further discussion of the Company’s stock-based compensation.

F-10

Segment reporting
From the second quarter of 2009 through 2013, the Company operated in two business segments, Asset Liquidation and Intellectual Property Licensing. The asset liquidation segment included the operations of HGP, HG LLC and Equity Partners. The intellectual property licensing segment included all operations relating to licensing of the Company’s intellectual property. During 2014, the Company determined that due to the limited intellectual property licensing activity, separate segment reporting of this activity was no longer appropriate. Accordingly, for 2014, the Company determined that reporting as only one operating segment, Asset Liquidation, was appropriate.

For the year ended December 31, 2013 only the Asset Liquidation segment had revenues and assets sufficiently significant to require separate reporting, as the operations of the Intellectual Property Licensing segment were considered to be quantitatively immaterial. As the 2013 activity of the Intellectual Property Licensing segment was not significant enough to warrant separate reporting, the Company has retroactively applied its determination of having only one operating segment to include the year ended December 31, 2013.

To date the Company’s business has been conducted principally in North America. During 2012 the Company established a European subsidiary, Heritage Global Partners Europe (“HGP Europe”), which began generating revenues in the third quarter of 2013. For the years ended December 31, 2014 and 2013, revenues generated through HGP Europe were approximately $2,985 and $236, respectively.

Recent accounting pronouncements
In March 2013, the FASB issued Accounting Standards Update 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment Upon Derecognition of Certain Subsidiaries or Groups of Assets Within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”). ASU 2013-05 specifies that a cumulative translation adjustment (CTA) is attached to a parent company’s investment in a foreign entity and should be released in a manner consistent with derecognition guidance on investments in entities. Therefore, the entire amount of the CTA associated with a foreign entity would be released upon 1) sale of a subsidiary or group of net assets within a foreign entity, which represents the substantially complete liquidation of the investment in the entity, 2) loss of a controlling financial interest in an investment in a foreign entity, or 3) step acquisition of a foreign entity. ASU 2013-05 does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. ASU 2013-05 is effective for interim periods and fiscal years beginning on or after December 15, 2013, with early adoption permitted. The Company therefore adopted ASU 2013-05 in the first quarter of 2014. The adoption had no impact on its consolidated financial statements.

In July 2013, the FASB issued Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists (“ASU 2013-11”). ASU 2013-11 requires that an unrecognized tax benefit must be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. An exception to this presentation can be made when the carryforward or tax loss is not available at the reporting date under applicable tax law to settle taxes that would result from the disallowance of the tax position, or when the reporting entity does not intend to use the deferred tax asset for this purpose. In those circumstances, the unrecognized tax benefit would be presented as a liability. ASU 2013-11 does not require any additional disclosures. The ASU is effective for annual periods beginning after December 15, 2013, and interim periods within those years, with early adoption permitted. The Company therefore adopted ASU 2013-11 in the first quarter of 2014. The adoption had no impact on its consolidated financial statements.

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

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

F-11

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. It applies to all contracts with customers except those that are specifically within the scope of other FASB topics, and certain of its provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities. The core principal of the model is that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the transferring entity expects to be entitled in exchange. To apply the revenue model, an entity will: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) 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. 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 has not yet assessed the potential impact of ASU 2014-09 on its consolidated financial statements.

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

In November 2014, the FASB issued Accounting Standards update 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (“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 should 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 interim and annual periods beginning after December 15, 2015, with early adoption permitted. The Company has not yet adopted ASU 2014-16, but based on a preliminary analysis of its outstanding convertible preferred shares, it does not expect the adoption of ASU 2014-16 to have a material impact on its consolidated financial statements.

Note 3 – Acquisition of National Loan Exchange, Inc.

On June 2, 2014, and effective May 31, 2014, the Company acquired all of the issued and outstanding capital stock in National Loan Exchange, Inc. (“NLEX”), a broker of charged-off receivables in the United States and Canada. NLEX operates as a wholly owned division of the Company. The acquisition of NLEX is consistent with HGI’s strategy to expand the services provided by its asset liquidation business. In connection with the acquisition, HGI entered into employment agreements with the previous owner and employees of NLEX.

The consideration for the acquisition consisted of $2,000 cash and an earnout provision (“contingent consideration”). Under the terms of the NLEX purchase agreement, the Company will pay, to the former owner of NLEX, 50% of gross revenues of NLEX and its affiliates, minus 50% of certain expenses, for each of the four years following the closing. The payments are due on or about July 30 of each year, beginning in 2015. The contingent consideration is capped at an aggregate of $5,000, and at December 31, 2014, subject to the application of a 9% discount rate, is estimated to have a present value of $4,198. Key assumptions in determining this present value include projected earnings to the end of 2013 and a weighted average cost of capital of 31.6%. At December 31, 2014, the Company has estimated that the current portion of the contingent consideration is $803, and that the non-current portion is $3,395.

During the period June 1, 2014 through December 31, 2014, the Company recognized a total of $210 of interest expense which represents the accretion of the present value discount during the period.

F-12

The following table summarizes the consideration paid for NLEX and the amounts of the assets acquired and liabilities assumed, with the excess purchase price recognized as goodwill.

Consideration |  |  |
Cash paid on closing | $ | 2,000 |
Contingent consideration |  | 3,989 |
Total purchase price | $ | 5,989 |
Acquisition related costs (included in selling, general, and administrative expenses in HGI’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2014) | $ | 198 |
Recognized amounts of identifiable assets acquired and liabilities assumed |  |  |
Cash | $ | 639 |
Other current assets |  | 17 |
Fixed assets |  | 14 |
Identifiable intangible assets |  | 3,390 |
Accounts payable and accrued liabilities |  | (656 | )
Deferred tax liability |  | (960 | )
Total identifiable net assets assumed |  | 2,444 |
Goodwill |  | 3,545 |
| $ | 5,989 |

The intangible assets and goodwill are discussed in more detail in Note 6.

The goodwill of $3,545 arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and NLEX. None of the goodwill recognized is expected to be deductible for income tax purposes.

The amounts of NLEX revenue and earnings for the period June 1, 2014 through December 31, 2014, included in HGI’s condensed consolidated statement of operations for the year ended December 31, 2014, are shown below. Also shown are HGI’s consolidated revenue and net loss as if the acquisition of NLEX had occurred on January 1, 2014 and January 1, 2013.

|  |  |  |  | Net |
|  | Revenue |  |  | income |
|  |  |  |  | (loss) |
NLEX revenue and net income included through December 31, 2014 | $ | 2,076 |  | $ | 526 |
Supplemental pro-forma consolidated revenue and net loss (unaudited): January 1, 2014 – December 31, 2014 |  | $ 15,609 |  |  | $(26,506 | )
Supplemental pro-forma consolidated revenue and net loss (unaudited): January 1, 2013 – December 31, 2013 |  | $ 13,889 |  |  | $(4,864 | )

Note 4 – Earnings (Loss) per Share

The Company is required, in periods in which it has net income, to calculate basic earnings per share (“basic EPS”) using the two-class method. The two-class method is required because the Company’s Class N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock. Under the two-class method, earnings for the period are allocated on a pro-rata basis to the common and preferred stockholders. The weighted-average number of common and preferred shares outstanding during the period is then used to calculate basic EPS for each class of shares.

F-13

In periods in which the Company has a net loss, basic loss per share is calculated by dividing the loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. The two-class method is not used, because the preferred stock does not participate in losses.

Options are included in the calculation of diluted earnings per share, since they are assumed to be exercised, except when their effect would be anti-dilutive. For the years ended December 31, 2014 and 2013, a total of 2,165,000 and 2,130,000 options, respectively, were excluded, as their inclusion would be anti-dilutive due to the Company’s net losses during these periods.

Note 5 – Equity Method Investments

Asset Liquidation Investments
The table below details the summarized results of operations, for the years ended December 31, 2014 and 2013, attributable to HGI from the Joint Ventures in which it was invested during those years.

|  | 2014 |  |  | 2013 |
Gross revenues | $ | 2,177 |  | $ | 7,589 |
Gross profit | $ | 143 |  | $ | 1,200 |
Net income | $ | 143 |  | $ | 1,200 |

The table below details the summarized components of assets and liabilities, as at December 31, 2014 and 2013, attributable to HGI from the Joint Ventures in which it was invested at those dates.

|  | 2014 |  |  | 2013 |
Current assets | $ | 1,095 |  | $ | 1,415 |
Noncurrent assets | $ | — |  | $ | 87 |
Current liabilities | $ | 117 |  | $ | 122 |
Noncurrent liabilities | $ | — |  | $ | — |

Other Equity Method investments
The Company’s other equity method investments as at December 31, 2014 and 2013 consisted of the following:

|  | 2014 |  |  | 2013 |
Knight’s Bridge GP | $ | 156 |  | $ | 19 |
Polaroid |  | — |  |  | 1,750 |
Total investments | $ | 156 |  | $ | 1,769 |

F-14

Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC
In December 2007 the Company acquired a one-third interest in Knight’s Bridge Capital Partners Internet Fund No. 1 GP LLC (“Knight’s Bridge GP”), a private company, for a purchase price of $20. Knight’s Bridge GP is the general partner of Knight’s Bridge Capital Partners Internet Fund No. 1 LP (the “Fund”). The Fund holds investments in several public and non-public Internet-based e-commerce businesses. At December 31, 2014 the Company’s net investment included approximately $136 representing the Company’s proportionate share of profits related to the Fund’s fair value increase and projected exit from one its investments. The Company received a distribution of $140 in March 2015, representing the final determination of the Company’s share of the profits . Based on the Company’s analysis of Knight’s Bridge GP’s financial statements and projections as at December 31, 2014, the Company concluded that there has been no impairment in the carrying value of its investment.

Polaroid
In the second quarter of 2009, the Company invested approximately $2,620 to indirectly acquire an approximate 5% interest in Polaroid Corporation, pursuant to a Chapter 11 reorganization in a U.S. bankruptcy court, and invested a further $275 in the second quarter of 2010. The investment was made as part of a joint venture investor group that included both related and non-related parties. In the fourth quarter of 2014, the Company’s interest in Polaroid was acquired by an unrelated third party. The Company accounted for its investment in Polaroid using the equity method. Upon exiting the investment in December 2014, the Company recognized a gain on sale of $551. As of December 31, 2014 a total of $1,992 is included in accounts receivable in connection with the sale of this investment.

Note 6 – Intangible Assets and Goodwill

Identifiable intangible assets
As discussed in Note 3, the Company recorded identifiable intangible assets totalling $3,390 in connection with its acquisition of NLEX in May 2014. Of this amount, $834 was assigned to Customer Relationships, $71 was assigned to a Non-Compete Agreement, $48 was assigned to NLEX’s Website and $2,437 was assigned to Trade Name. The Customer Relationships, Non-Compete Agreement and Website intangible assets are being amortized over 7.6, 2 and 5 years, respectively. The Trade Name intangible asset has an indefinite life, and therefore it is not being amortized.

Similarly, in February 2012 the Company acquired HGP for a total purchase price of $7,080, of which $5,640 was assigned to identifiable intangible assets: $4,180 was assigned to Customer/Broker Network and $1,460 was assigned to Trade Name. These intangible assets are being amortized over 12 and 14 years; respectively. Based on the Company’s assessment at December 31, 2014, these assets were not impaired.

F-15

The details of all identifiable intangible assets are shown below:

|  | December 31, |  |  | December 31, |
Amortized Intangible Assets |  | 2014 |  |  | 2013 |
Customer/Broker Network (HGP) | $ | 4,180 |  | $ | 4,180 |
Accumulated amortization |  | (987 | ) |  | (639 | )
|  | 3,193 |  |  | 3,541 |
Trade Name (HGP) |  | 1,460 |  |  | 1,460 |
Accumulated amortization |  | (295 | ) |  | (191 | )
|  | 1,165 |  |  | 1,269 |
Customer Relationships (NLEX) |  | 834 |  |  | — |
Accumulated amortization |  | (64 | ) |  | — |
|  | 770 |  |  | — |
Non-Compete Agreement (NLEX) |  | 71 |  |  | — |
Accumulated amortization |  | (21 | ) |  | — |
|  | 50 |  |  | — |
Website (NLEX) |  | 48 |  |  | — |
Accumulated amortization |  | (6 | ) |  | — |
|  | 42 |  |  | — |
Total net amortized intangible assets |  | 5,220 |  |  | 4,810 |
Unamortized Intangible Assets |  |  |  |  |  |
Trade Name (NLEX) |  | 2,437 |  |  | — |
Total net intangible assets | $ | 7,657 |  | $ | 4,810 |

Amortization expense during 2014 and 2013 was $543 and $453, respectively. No significant residual value is estimated for these intangible assets.

The estimated amortization expense during the next five fiscal years is shown below:

Year |  | Amount |
2015 | $ | 607 |
2016 | $ | 587 |
2017 | $ | 572 |
2018 | $ | 572 |
2019 | $ | 566 |

Goodwill
As part of its acquisition of Equity Partners in 2011, the Company recognized goodwill of $573, and as part of its acquisition of HGP in 2012, the Company recognized goodwill of $4,728.

Additionally, as part of its acquisition of NLEX in the second quarter of 2014, the Company recognized goodwill of $3,545, as discussed in more detail in Note 3.

F-16

A summary of the good will is shown below:

|  | December 31, |  |  | December 31, |
|  | 2014 |  |  | 2013 |
Equity Partners | $ | 573 |  | $ | 573 |
HGP |  | 4,728 |  |  | 4,728 |
NLEX |  | 3,545 |  |  | — |
Total goodwill | $ | 8,846 |  | $ | 5,301 |

No impairment resulted from the completion of the goodwill impairment tests at December 31, 2014, and there have been no events or changes in circumstances in 2014 that make it more likely than not that the carrying amount of this goodwill may be impaired.

Note 7 – Accounts Receivable and Accounts Payable

Accounts receivable
As described in Note 2, the Company’s accounts receivable are primarily related to the operations of its asset liquidation business. With respect to auction proceeds and asset dispositions, including NLEX’s accounts receivable brokerage transactions, the assets are not released to the buyer until payment has been received. The Company, therefore, is not exposed to significant collectability risk relating to these receivables. Given this experience, together with the ongoing business relationships between the Company and its joint venture partners, the Company has not historically required a formal credit quality assessment in connection with these activities. The Company has not experienced any significant collectability issues with receivables relating to fee and commission revenue. As the Company’s asset liquidation business expands, more comprehensive credit assessments may be required. During the year ended December 31, 2014, there were no changes in the Company’s accounting policies for financing receivables. During the same period, there were no purchases, sales or reclassifications of financing receivables. There were no troubled debt restructurings during the years ended December 31, 2014 and 2013.

Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consisted of the following at December 31:

|  | 2014 |  |  | 2013 |
Due to auction clients | $ | 2,353 |  | $ | 3,586 |
Due to Joint Venture partners |  | 1,020 |  |  | 639 |
Sales and other taxes |  | 1,156 |  |  | 966 |
Customer deposits |  | 503 |  |  | 50 |
Remuneration and benefits |  | 957 |  |  | 579 |
Asset liquidation expenses |  | 233 |  |  | 76 |
Auction expenses |  | 307 |  |  | 135 |
Regulatory and legal fees |  | 89 |  |  | 45 |
Accounting, auditing and tax consulting |  | 140 |  |  | 153 |
Patent licensing and maintenance |  | 12 |  |  | 25 |
Other |  | 361 |  |  | 256 |
| $ | 7,131 |  | $ | 6,510 |

F-17

Note 8 – Debt

|  | December 31, |  |  | December 31, |
|  | 2014 |  |  | 2013 |
Current: |  |  |  |  |  |
Credit Facility | $ | 539 |  | $ | 1,438 |
Counsel Loan |  | 2,985 |  |  | 2,550 |
|  | 3,524 |  |  | 3,988 |
Non-current: |  |  |  |  |  |
Other third party debt |  | 2,580 |  |  | — |
Total debt | $ | 6,104 |  | $ | 3,988 |

At December 31, 2014 the Company’s current debt of $3,524 consisted of a third party Credit Facility with a balance of $539 and related party debt (the Counsel Loan) with a balance of $2,985. The Company’s non-current debt of $2,580 consisted of a loan payable to an unrelated third party. At December 31, 2013, all of the Company’s outstanding debt was current.

The Credit Facility is provided to HG LLC by a U.S. bank under the terms and provisions of a certain Loan and Security Agreement (the “Loan Agreement”) dated as of June 2, 2009 and most recently amended as of December 1, 2014 (the “Amendment Date”). It is utilized to finance the acquisition of eligible property and equipment for purposes of resale. The Credit Facility bears interest at the greater of the WSJ prime rate + 1.0%, or 4.5%, and the maximum borrowing available under the Credit Facility is US $15,000, subject to HG LLC maintaining a 1:2 ratio of capital funds, i.e. the sum of HG LLC’s tangible net worth plus subordinated indebtedness, as defined in the Loan Agreement, to the outstanding balance. The amount of any advance is determined based upon the value of the eligible assets being acquired, which serve as collateral. At December 31, 2014, $590 of such assets served as collateral for the loan (December 31, 2013 - $606). A monthly fee is payable with respect to unused borrowing (“Unused Line Fee”). Until July 31, 2014, the Unused Line Fee was equal to the product of 0.50% per annum multiplied by the difference between $15,000 and the average loan amount outstanding during the month. Effective August 1, 2014, the Unused Line Fee has been reduced to $3 per month. Payments of a $50 Facility Fee and a $25 Agency Fee are due annually on September 27. The Credit Facility also contains other terms and provisions customary for agreements of this nature, and has been guaranteed by both the Company and Counsel Corporation, the Company's former majority shareholder (together with its subsidiaries, “Counsel”). At December 31, 2014 the Company was in compliance with all covenants of the Credit Facility. The Credit Facility was repaid in full in March 2015.

The Counsel Loan outstanding at December 31, 2013 consisted of net advances received by the Company from Counsel, and included $168 of accrued interest. The advances were made under an existing loan facility that was originally entered into during the fourth quarter of 2003, accrued interest at 10% per annum compounded quarterly from the date funds were advanced, and was due on demand. Any outstanding balance under the Counsel Loan was secured by the assets of the Company.

In the second quarter of 2014, following Counsel’s distribution of its ownership interest in HGI to Counsel shareholders as a dividend in kind, this facility was replaced and the outstanding balance was transferred to a new facility (also the “Counsel Loan”). Under the new facility, payment is due within thirty days following the end of each quarter. Unpaid balances accrue interest at a rate per annum equal to the lesser of the WSJ prime rate + 2.0%, or the maximum rate allowable by law. For 2014 the rate was 5.25%. Please see Note 12 for further discussion of transactions with Counsel.

During the second quarter of 2014, the Company entered into a loan agreement with an unrelated third party, with a principal amount of $2,500. The loan bears interest at 6% and had an original maturity date of January 15, 2015. In December 2014, the maturity date was extended to January 15, 2016 at the same interest rate. At December 31, 2014 the principal and accrued interest totalled $2,580. The loan is not subject to any covenants or conditions.

F-18

Note 9 – Commitments and Contingencies

At December 31, 2014, HGI’s commitments consist of the Unused Line Fee on its Credit Facility (as described in Note 8), leases related to its offices in California, Illinois and Arizona, and an automobile lease. The California leases expire in July 2016 and December 2019; the Illinois lease expires in June 2018, and the Arizona lease expires in August 2016. The automobile lease expires in June 2017. The annual lease obligations are as shown below:

2015 | $ | 475 |
2016 |  | 378 |
2017 |  | 225 |
2018 |  | 166 |
Five years and beyond |  | 127 |
| $ | 1,371 |

In the normal course of its business, HGI may be subject to contingent liability with respect to assets sold either directly or through Joint Ventures. At December 31, 2014 HGI does not expect any of these contingent liabilities, individually or in the aggregate, to have a material adverse effect on its assets or results of operations.

Note 10 – Patent Participation Fee

In 2003, HGI acquired a VoIP patent from a third party. Consideration provided was $100 plus a 35% residual payable to the third party relating to the net proceeds from future licensing and/or enforcement actions from the HGI VoIP Patent Portfolio. Net proceeds are defined as amounts collected from third parties net of the direct costs associated with putting the licensing or enforcement in place and related collection costs. The vendor of the VoIP Patent was also granted a first priority security interest in the patent in order to secure HGI’s obligations under the associated purchase agreement.

As described further in Note 13, in March 2013, the Company concluded a patent infringement lawsuit, which had initially been filed in August 2009, by entering into a settlement and license agreement in return for a payment of $200. No amounts were payable with respect to the residual discussed above, as the direct costs incurred since the Company last entered into settlement and licensing agreements were in excess of $200.

Note 11 – Income Taxes

In 2014 the Company recognized a net income tax expense of $24,722, primarily due to a valuation allowance of $24,102 (2013 - $4,740). The valuation allowance was recorded in the first quarter of 2014, as a result of incurring losses in 2012, 2013 and 2014. At December 31, 2014 the Company has aggregate tax net operating loss carry forwards of approximately $86,578 ($57,778 of unrestricted net operating tax losses and approximately $28,800 of restricted net operating tax losses) and unused minimum tax credit carry forwards of $547. Substantially all of the net operating loss carryforwards and unused minimum tax credit carry forwards expire between 2024 and 2034

The reported tax expense varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the loss from continuing operations before taxes for the following reasons:

|  | 2014 |  |  | 2013 |
Expected federal statutory tax benefit | $ | (694 | ) | $ | (1,284 | )
Increase (reduction) in taxes resulting from: |  |  |  |  |  |
State income taxes recoverable |  | 56 |  |  | 117 |
Non-deductible expenses (permanent differences) |  | 537 |  |  | 29 |
Change in valuation allowance |  | 24,102 |  |  | 4,740 |
Rate changes |  | 55 |  |  | 112 |
Other |  | 666 |  |  | (685 | )
Income tax expense | $ | 24,722 |  | $ | 3,029 |

F-19

The Company’s utilization of restricted net operating tax loss carry forwards against future income for tax purposes is restricted pursuant to the “change in ownership” rules in Section 382 of the Internal Revenue Code. These rules, in general, provide that an ownership change occurs when the percentage shareholdings of 5% direct or indirect stockholders of a loss corporation have, in aggregate, increased by more than 50 percentage points during the immediately preceding three years.

Restrictions in net operating loss carry forwards occurred in 2001 as a result of the acquisition of the Company by Counsel. Further restrictions may have occurred as a result of subsequent changes in the share ownership and capital structure of the Company and Counsel and disposition of business interests by the Company. Pursuant to Section 382 of the Internal Revenue Code, the annual usage of the Company’s net operating loss carry forwards was limited to approximately $2,500 per annum until 2008 and $1,700 per annum thereafter. There is no certainty that the application of these “change in ownership” rules may not recur, resulting in further restrictions on the Company’s income tax loss carry forwards existing at a particular time. In addition, further restrictions, reductions in, or expiry of net operating loss and net capital loss carry forwards may occur through future merger, acquisition and/or disposition transactions or failure to continue a significant level of business activities. Any such additional limitations could require the Company to pay income taxes on its future earnings and record an income tax expense to the extent of such liability, despite the existence of such tax loss carry forwards.

All loss taxation years remain open for audit pending the application of the respective tax losses against income in a subsequent taxation year. In general, the statute of limitations expires three years from the date that a company files a tax return applying prior year tax loss carry forwards against income for tax purposes in the later year. The Company applied historic tax loss carry forwards to offset income for tax purposes in 2008, 2010 and 2011, respectively. The 2011 through 2013 taxation years remain open for audit.

The Company is subject to state income tax in multiple jurisdictions. In most states, the Company does not have tax loss carry forwards available to shield income attributable to a particular state from being subject to tax in that particular state.

The components of the deferred tax assets and liabilities as of December 31, 2014 and December 31, 2013 are as follows:

|  | 2014 |  |  | 2013 |
Net operating loss carry-forwards | $ | 29,437 |  | $ | 29,816 |
Minimum tax credit carry forwards |  | 186 |  |  | 186 |
Intangible assets |  | (95 | ) |  | (24 | )
Stock based compensation |  | 870 |  |  | 679 |
Start-up costs |  | (17 | ) |  | (14 | )
Depreciation and amortization |  | 8 |  |  | (3 | )
Other |  | 52 |  |  | 210 |
Writedown of inventory |  | 456 |  |  | 452 |
Trade name |  | (1,418 | ) |  | (1,395 | )
Customer relationships/business network |  | (1,597 | ) |  | (500 | )
Gross deferred tax assets |  | 27,882 |  |  | 29,407 |
Less: valuation allowance |  | (28,842 | ) |  | (4,740 | )
Deferred tax assets (liabilities), net of valuation allowance | $ | (960 | ) | $ | 24,667 |

As a result of the acquisition of NLEX in the second quarter of 2014, and the recognition of an indefinite-lived intangible asset in the amount of $2,437 related to the NLEX trade name, the Company is required to record a non-current deferred tax liability in the amount of $960.

Uncertain Tax Positions

The accounting for uncertainty in income taxes requires a more-likely-than-not threshold for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. Upon adoption of this principle, effective January 1, 2007, the Company derecognized certain tax positions that, upon examination, more likely than not would not have been sustained as a recognized tax benefit. As a result of derecognizing uncertain tax positions, the Company has recorded a cumulative reduction in its deferred tax assets of approximately $12,000 associated with prior years’ tax benefits, which are not expected to be available primarily due to change of control usage restrictions, and a reduction in the rate of the tax benefit associated with all of its tax attributes.

Due to the Company’s historic policy of applying a valuation allowance against its deferred tax assets, the effect of the above was an offsetting reduction in the Company’s valuation allowance. Accordingly, the above reduction had no net impact on the Company’s financial position, operations or cash flow. As of December 31, 2014, the unrecognized tax benefit has been determined to be $12,059, which is unchanged from the balance as of December 31, 2013.

F-20

In the unlikely event that these tax benefits are recognized in the future, the amount recognized at that time should result in a reduction in the Company’s effective tax rate.

The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. Because the Company has tax loss carry forwards in excess of the unrecognized tax benefits, the Company did not accrue for interest and penalties related to unrecognized tax benefits either upon the initial derecognition of uncertain tax positions or in the current period.

It is possible that the total amount of the Company’s unrecognized tax benefits will significantly increase or decrease within the next 12 months. These changes may be the result of future audits, the application of “change in ownership” rules leading to further restrictions in tax losses arising from changes in the capital structure of the Company, reductions in available tax loss carry forwards through future merger, acquisition and/or disposition transactions, failure to continue a significant level of business activities, or other circumstances not known to management at this time. At this time, an estimate of the range of reasonably possible outcomes cannot be made.

Note 12 – Related Party Transactions

Debt with Counsel

Until the second quarter of 2014, as discussed below and in Note 8, Counsel was the Company’s majority shareholder. Counsel remains a related party, following the distribution of its investment in HGI to Counsel shareholders, as a result of the Services Agreement discussed below. Therefore, at December 31, 2014 the Company reported the $2,985 owing to Counsel as related party debt. At December 31, 2013 the Company had a balance owing to Counsel of $2,550. Interest on the debt has been accrued to December 31 and has been capitalized.

Counsel Services Provided to Company

Beginning in December 2004, HGI and Counsel entered into successive annual management services agreements (collectively, the “Agreement”). Under the terms of the Agreement, HGI agreed to pay Counsel for ongoing services provided to HGI by Counsel personnel. These services included preparation of the Company’s financial statements and regulatory filings, taxation matters, stock-based compensation administration, Board administration, patent portfolio administration and litigation matters. The Counsel employees providing the services were: 1) its Executive Vice President, Secretary and Chief Financial Officer, 2) its Tax Manager, 3) an Accounting Manager, and 4) its Accounts Payable Clerk. These employees have the same or similar positions with HGI, but none of them received compensation from HGI. Rather, Counsel allocated to HGI a percentage, based on time incurred, of the employees’ base compensation paid by Counsel. Beginning in the first quarter of 2011, additional amounts were charged to HGI for Counsel services specifically relating to the ongoing operations of HGI’s asset liquidation business. The amounts due under the Agreement were payable within 30 days following the respective year end, subject to applicable restrictions. Any unpaid amounts bore interest at 10% per annum commencing on the day after such year end.

In the first quarter of 2013, Counsel announced its plan to dispose of its interest in HGI, and on March 20, 2014, Counsel declared a dividend in kind, consisting of Counsel’s distribution of its majority interest in HGI to Counsel shareholders. The payment was made on April 30, 2014 to shareholders of record at April 1, 2014.

Following this disposition, the Company and Counsel entered into a replacement management services agreement (the “Services Agreement”). Under the terms of the Services Agreement, Counsel remains as external manager and continues to provide the same services, at similar rates. The Services Agreement has an initial term of one year, which renews automatically for successive one-year terms unless notice by either party is given within ninety days before the expiration. The Services Agreement may be terminated at any time upon mutual agreement of the Company and Counsel. The Company intends to internalize its management in the future, but expects that it will continue to avail itself of the services provided under the Services Agreement until such time.

F-21

The amounts charged by Counsel are detailed below:

|  | Year ended |
Item |  | December 31, |
|  | 2014 |  |  | 2013 |
Management fees | $ | 360 |  | $ | 360 |
Other charges |  | 75 |  |  | 74 |
Total | $ | 435 |  | $ | 434 |

Transactions with Other Related Parties

The Company leases office space in Foster City, CA as part of the operations of HGP. The premises are owned by an entity that is jointly controlled by senior officers of HGP. It also leases office space in Edwardsville, IL, as part of the operations of NLEX, that is owned by senior officers of NLEX. Beginning in 2009, the Company leased office space in White Plains, NY and Los Angeles, CA as part of the operations of HG LLC. Both premises are owned by entities that are controlled by a former Co-CEO of HG LLC and the Company. In connection with the departure of the Co-CEOs in the third quarter of 2013, these lease agreements were terminated, without penalty, effective June 30, 2013.

The lease amounts paid by the Company to the related parties, which are included in selling, general and administrative expenses, are detailed below:

|  | Year ended |
Leased premises location |  | December 31, |
|  | 2014 |  |  | 2013 |
Foster City, CA | $ | 228 |  | $ | 228 |
Edwardsville, IL |  | 57 |  |  | — |
White Plains, NY |  | — |  |  | 66 |
Los Angeles, CA |  | — |  |  | 12 |
Total | $ | 285 |  | $ | 306 |

On July 26, 2013, the Company and its Co-CEOs entered into an agreement by which the Co-CEOs terminated their employment with the Company and HG LLC. Under the agreement, as disclosed in the Company’s Current Report on Form 8-K filed on July 31, 2013, effective June 30, 2013 the Co-CEOs departed the Company along with the personnel in the New York and Los Angeles offices of HG LLC. In August 2012, each Co-CEO had acquired 400,000 common shares of the Company, with a total value of $1,054, in return for intellectual property licensing agreements. The $1,054 was recorded as stock-based compensation in 2012. On July 26, 2013, the Co-CEOs returned these common shares, which had a fair value of $624, in order to re-acquire the licensing agreements. The Company therefore recorded intellectual property licensing revenue of $624. The shares have been cancelled.

Note 13 – 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 a payment of $200.

The Company is involved in various other legal matters arising out of its operations in the normal course of business, none of which are expected, individually or in the aggregate, to have a material adverse effect on the Company.

F-22

Note 14 – Capital Stock

|  | Number of Shares |  |  | Capital Stock |
Issued and outstanding |  | 2014 |  |  | 2013 |  |  | 2014 |  |  | 2013 |
Common shares, $0.01 par value |  | 28,167,408 |  |  | 28,167,248 |  | $ | 282 |  | $ | 282 |
Class N preferred shares, $10.00 par value |  | 575 |  |  | 579 |  | $ | 6 |  | $ | 6 |

The Company’s authorized capital stock consists of 300,000,000 common shares, with a par value of $0.01 per share, and 10,000,000 preferred shares with a par value of $10.00 per share.

On February 29, 2012, the Company issued 1,000,000 shares in connection with its acquisition of HGP. On August 10, 2012, as discussed in Note 12, the Company issued 400,000 shares to each of its Co-CEOS, in exchange for intellectual property licensing agreements. On July 26, 2013, as also discussed in Note 12, the Co-CEOs returned the 800,000 shares in order to re-acquire the licensing agreements. The shares were cancelled.

During the second quarter of 2013, the Company issued 21,500 shares due to option exercises. There were no option exercises during 2014.

Each Class N preferred share has a voting entitlement equal to 40 common shares, votes with the common stock on an as-converted basis and is senior to all other preferred stock of the Company. Dividends, if any, will be paid on an as-converted basis equal to common stock dividends. The conversion value of each Class N preferred share is $1,000.00, and each share is convertible to 40 common shares at the rate of $25.00 per common share. During 2014, 4 shares of the Company’s Class N preferred stock were converted into 160 shares of the Company’s common stock; during 2013, 13 shares of the preferred stock were converted into 520 shares of the Company’s common stock. At December 31, 2014 and 2013, of the 10,000,000 shares of preferred stock authorized, 9,486,500 remain undesignated and unissued.

Note 15 – Stock-Based Compensation

Stock- Based Compensation Plans
At December 31, 2014, the Company had three stock-based compensation plans, which are described below. All share amounts disclosed below reflect the effect of the 1-for-20 reverse stock split which was approved by the stockholders on November 26, 2003.

2003 Stock Option and Appreciation Rights Plan
In November 2003, the stockholders of the Company approved the 2003 Stock Option and Appreciation Rights Plan (the “2003 Plan”) which provided for the issuance of incentive stock options, non-qualified stock options and SARs up to an aggregate of 2,000,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits, and other similar events). The plan had a ten-year term, and therefore after 2013 no options have been issued. The price at which shares of common stock covered by the option can be purchased was determined by the Company’s Board or a committee thereof; however, in the case of incentive stock options the exercise price was never less than the fair market value of the Company’s common stock on the date the option was granted.

|  | 2014 |  |  | 2013 |
Options outstanding, beginning of year |  | 1,275,000 |  |  | 1,565,000 |
Options granted |  | — |  |  | 200,000 |
Options exercised |  | — |  |  | (30,000 | )
Options forfeited |  | (17,500 | ) |  | (280,000 | )
Options expired |  | (47,500 | ) |  | (180,000 | )
Options outstanding, end of year |  | 1,210,000 |  |  | 1,275,000 |

The outstanding options vest over four years at exercise prices ranging from $0.08 to $2.00 per share. No SARs were issued under the 2003 Plan.

F-23

2010 Non-Qualified Stock Option Plan
In the fourth quarter of 2010, the Company’s Board approved the 2010 Non-Qualified Stock Option Plan (the “2010 Plan”) to induce certain key employees of the Company or any of its subsidiaries who are in a position to contribute materially to the Company’s prosperity to remain with the Company, to offer such persons incentives and rewards in recognition of their contributions to the Company’s progress, and to encourage such persons to continue to promote the best interests of the Company. The Company reserved 1,250,000 shares of common stock (subject to adjustment under certain circumstances) for issuance or transfer upon exercise of options granted under the 2010 Plan. Options may be issued under the 2010 Plan to any key employees or consultants selected by the Company’s Board (or a committee appointed by the Board). Options may not be granted with an exercise price less than the fair market value of the common stock of the Company as of the day of the grant. Options granted pursuant to the plan are subject to limitations on transfer and execution and may be issued subject to vesting conditions. Options may also be forfeited in certain circumstances. During 2014, 50,000 options were granted to the Company’s independent directors and 50,000 options were granted to an officer of the Company.

|  | 2014 |  |  | 2013 |
Options outstanding, beginning of year |  | — |  |  | 1,250,000 |
Options granted |  | 100,000 |  |  | — |
Options forfeited |  | — |  |  | (1,250,000 | )
Options outstanding, end of year |  | 100,000 |  |  | — |

Equity Partners Stock Option Plan
In the second quarter of 2011, the Company’s Board approved the Equity Partners Stock Option Plan (the “Equity Partners Plan”) to allow the Company to issue options to purchase common stock as a portion of the purchase price of Equity Partners. The Company reserved 230,000 shares of common stock for issuance upon exercise of options granted under the Equity Partners Plan. During 2011, 230,000 options with an exercise price of $1.83, vesting immediately, were granted under the Equity Partners Plan.

|  | 2014 |  |  | 2013 |
Options outstanding, beginning of year |  | 230,000 |  |  | 230,000 |
Options granted |  | — |  |  | — |
Options forfeited |  | — |  |  | — |
Options outstanding, end of year |  | 230,000 |  |  | 230,000 |

Other Options Issued
In the first quarter of 2012, the Company’s Board approved the issuance of options as part of the acquisition of HGP, and reserved 625,000 shares of common stock for issuance upon option exercise. The options have an exercise price of $2.00, and vest over four years, beginning on the first anniversary of the grant date. Unlike other options issued by the Company under its stock option plans, the options issued as part of the HGP acquisition survive termination of employment. None of the option holders have terminated their employment with the Company.

|  | 2014 |  |  | 2013 |
Options outstanding, beginning of year |  | 625,000 |  |  | 625,000 |
Options granted |  | — |  |  | — |
Options forfeited |  | — |  |  | — |
Options outstanding, end of year |  | 625,000 |  |  | 625,000 |

Stock-Based Compensation Expense
Total compensation cost related to stock options in 2014 and 2013 was $484 and $532, respectively. These amounts were recorded in selling, general and administrative expense in both years. During 2014, no options were exercised and therefore no tax benefit was recognized. During 2013, a tax benefit of $3 was recognized in connection with the exercise of 30,000 options. During 2013, the Company received $10 of cash in connection with the exercise of options. Option holders are not entitled to receive dividends or dividend equivalents.

F-24

During 2014, the Company granted a total of 100,000 options. Of these, 50,000 were issued to an officer of the Company, and 50,000 were issued to the Company’s independent directors in accordance with their standard compensation. During 2013, the Company granted a total of 200,000 options. Of these, 150,000 were issued to an officer of the Company, and 50,000 were issued to the Company’s independent directors. The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:

| 2014 | 2013
Risk-free interest rate | 0. 69% - 0.88% | 0.39% - 0.40%
Expected life (years) | 4.75 | 4.75
Expected volatility | 100% | 124% - 125%
Expected dividend yield | Zero | Zero
Expected forfeitures | Zero | Zero

The risk-free interest rates are those for U.S. Treasury constant maturities, for terms matching the expected term of the option. The expected life of the options is calculated according to the simplified method for estimating the expected term of the options, based on the vesting period and contractual term of each option grant. Expected volatility is based on the Company’s historical volatility. The Company has never paid a dividend on its common stock and therefore the expected dividend yield is zero.

The following summarizes the changes in common stock options for the years ended December 31, 2014 and 2013:

|  | 2014 |  |  | 2013 |
|  |  |  |  | Weighted |  |  |  |  |  | Weighted |
|  |  |  |  | Average |  |  |  |  |  | Average |
|  |  |  |  | Exercise |  |  |  |  |  | Exercise |
|  | Options |  |  | Price |  |  | Options |  |  | Price |
Outstanding at beginning of year |  | 2,130,000 |  | $ | 1.75 |  |  | 3,898,198 |  | $ | 1.75 |
Granted |  | 100,000 |  | $ | 0.70 |  |  | 200,000 |  | $ | 1.00 |
Exercised |  | — |  |  | N/A |  |  | (30,000 | ) | $ | 0.51 |
Expired |  | (47,500 | ) | $ | 1.18 |  |  | (408,198 | ) | $ | 0.85 |
Forfeited |  | (17,500 | ) | $ | 2.00 |  |  | (1,530,000 | ) | $ | 1.91 |
Outstanding at end of year |  | 2,165,000 |  | $ | 1.71 |  |  | 2,130,000 |  | $ | 1.75 |
Options exercisable at year end |  | 1,330,000 |  | $ | 1.75 |  |  | 930,000 |  | $ | 1.69 |
Weighted-average fair value of options granted during the year |  |  |  | $ | 0.36 |  |  |  |  | $ | 0.76 |

As of December 31, 2014, the total unrecognized stock-based compensation expense related to unvested stock options was $359, which is expected to be recognized over a weighted-average period of twenty months.

The following summarizes the changes in unvested common stock options for the years ending December 31, 2014 and 2013:

|  |  |  |  | Weighted |
|  |  |  |  | Average |
|  |  |  |  | Grant Date |
|  | Options |  |  | Fair Value |
Unvested at December 31, 2013 |  | 1,200,000 |  | $ | 1.67 |
Granted |  | 100,000 |  | $ | 0.36 |
Vested |  | (447,500 | ) | $ | 1.73 |
Forfeited |  | (17,500 | ) | $ | 1.73 |
Unvested at December 31, 2014 |  | 835,000 |  | $ | 1.48 |

F-25

|  |  |  |  | Weighted |
|  |  |  |  | Average |
|  |  |  |  | Grant Date |
|  | Options |  |  | Fair Value |
Unvested at December 31, 2012 |  | 2,600,000 |  | $ | 1.23 |
Granted |  | 200,000 |  | $ | 0.76 |
Vested |  | (790,000 | ) | $ | 1.16 |
Forfeited |  | (810,000 | ) | $ | 0.53 |
Unvested at December 31, 2013 |  | 1,200,000 |  | $ | 1.67 |

The total fair value of options vesting during the years ending December 31, 2014 and 2013 was $773 and $914, respectively. The unvested options have no associated performance conditions. In general, the Company’s employee turnover is low, and the Company expects that the majority of the unvested options will vest according to the standard four-year timetable.

The following table summarizes information about all stock options outstanding at December 31, 2014:

|  |  |  |  | Weighted |  |  | Weighted |  |  |  |  |  | Weighted |  |  | Weighted |
|  |  |  |  | Average |  |  | Average |  |  |  |  |  | Average |  |  | Average |
|  | Options |  |  | Remaining |  |  | Exercise |  |  | Number |  |  | Remaining |  |  | Exercise |
Exercise price |  | Outstanding |  |  | Life (years) |  |  | Price |  |  | Exercisable |  |  | Life (years) |  |  | Price |
$ 0.08 to $ 0.15 |  | 80,000 |  |  | 1.75 |  | $ | 0.12 |  |  | 80,000 |  |  | 1.75 |  | $ | 0.12 |
$ 0.69 to $ 1.00 |  | 380,000 |  |  | 4.77 |  | $ | 0.93 |  |  | 120,000 |  |  | 3.07 |  | $ | 0.95 |
$ 1.83 to $ 2.00 |  | 1,705,000 |  |  | 3.83 |  | $ | 1.97 |  |  | 1,130,000 |  |  | 3.74 |  | $ | 1.95 |
|  | 2,165,000 |  |  | 3.92 |  | $ | 1.71 |  |  | 1,330,000 |  |  | 3.56 |  | $ | 1.75 |

At December 31, 2014 and 2013, the aggregate intrinsic value of exercisable options was $16 and $42, respectively. The intrinsic value of options exercised during 2013 was $3. There were no options exercised during 2014.

Note 16 – Property, Plant and Equipment

Property and equipment are recorded at historical cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on a straight-line basis. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Estimated service lives are 5 years for furniture, fixtures and office equipment and 3 years for software and information systems. Expenditures for repairs and maintenance not considered to substantially lengthen the life of the asset or increase capacity or efficiency are charged to expense as incurred.

The following summarizes the components of the Company’s property and equipment:

|  | December 31, |  |  | December 31, |
|  | 2014 |  |  | 2013 |
Furniture, fixtures and office equipment | $ | 178 |  | $ | 30 |
Software and information systems |  | 199 |  |  | 22 |
Leasehold improvements |  | 24 |  |  | 81 |
|  | 401 |  |  | 133 |
Accumulated depreciation |  | (251 | ) |  | (101 | )
Property, plant and equipment, net | $ | 150 |  | $ | 32 |

Depreciation expense related to property, plant and equipment, and charged to operations, was $23 and $19 for 2014 and 2013, respectively.

F-26

Note 17 – Subsequent Events

The Company has evaluated events subsequent to December 31, 2014 for disclosure. There have been no material subsequent events requiring disclosure in this Report.

F-27