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What changed in Heritage Global Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Heritage Global Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+132 added−107 removedSource: 10-K (2025-03-13) vs 10-K (2024-03-14)

Top changes in Heritage Global Inc.'s 2024 10-K

132 paragraphs added · 107 removed · 86 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeAdditionally, we believe an active market for mergers and acquisitions in manufacturing industries drives demand for industrial asset liquidations and our services. The market in which we operate is highly fragmented, presenting a continued opportunity for the Company to increase market share and drive consolidation. High Return on Invested Capital.
Biggest changeThe market in which we operate is highly fragmented, presenting a continued opportunity for the Company to increase market share and drive consolidation. High Return on Invested Capital. We believe we have an opportunity to drive improved auction economics by serving more frequently in the role of principal rather than the lower margin role of broker. Strong Management Team.
The organization chart below outlines our basic domestic corporate structure as of December 31, 2023. 3 Heritage Global Inc. (Florida) (1) 100% 100% 100% 100% Heritage Global Partners, Inc. (California) (2) Heritage Global LLC (Delaware) (3) National Loan Exchange, Inc. (Illinois) (5) Heritage Global Capital LLC (Delaware) (6) 100% Heritage ALT LLC (Delaware) (4) (1) Registrant. (2) Auction and Liquidation.
The organization chart below outlines our basic domestic corporate structure as of December 31, 2024. 3 Heritage Global Inc. (Florida) (1) 100% 100% 100% 100% Heritage Global Partners, Inc. (California) (2) Heritage Global LLC (Delaware) (3) National Loan Exchange, Inc. (Illinois) (5) Heritage Global Capital LLC (Delaware) (6) 100% Heritage ALT LLC (Delaware) (4) (1) Registrant. (2) Auction and Liquidation.
On September 17, 2020, we entered into an Employment Agreement with Kirk Dove, the former President and Chief Operating Officer of the Company. Upon his resignation, Kirk Dove continued his employment with us in an advisory capacity, and is expected to do so until December 31, 2024.
On September 17, 2020, we entered into an Employment Agreement with Kirk Dove, the former President and Chief Operating Officer of the Company. Upon his resignation, Kirk Dove continued his employment with us in an advisory capacity, and is expected to do so until December 31, 2027.
In addition to its banking relationships, NLEX has continued to be opportunistic as new lending facilities, such as FinTech, peer-to-peer and more recently Buy Now Pay Later lenders have expanded the availability of consumer credit.
In addition to its creditor relationships, NLEX has continued to be opportunistic as new lending facilities, such as FinTech, peer-to-peer and more recently Buy Now Pay Later lenders have expanded the availability of consumer credit.
Of the balance due from one borrower of $23.8 million, there are 11 distinct loan agreements, the underlying portfolio of accounts are diversified throughout FinTech loans, installment loans and credit card accounts, and further diversified amongst six separate sellers of these charged off portfolios.
Of the balance due from one borrower of $22.2 million, there are 11 distinct loan agreements, the underlying portfolio of accounts are diversified throughout FinTech loans, installment loans and credit card accounts, and further diversified amongst six separate sellers of these charged off portfolios.
Together with growing volume in this industry, due to large increases in delinquency and charge-off rates, we anticipate significant growth opportunities in our brokerage segment as these sectors evolve. Given many of our clients' limited resources in this space, we have also implemented post-sale support, further entrenching NLEX with our dedicated clients as well as differentiating us from competitors.
Because of growing volume in this industry, and due to continued elevated delinquency and charge-off rates, we anticipate growth opportunities in our brokerage segment as these sectors evolve. Given many of our clients' limited resources in this space, we have also implemented post-sale support, further entrenching NLEX with our dedicated clients as well as differentiating us from competitors.
Specialty Lending Segment Through HGC, we provide specialty financing solutions to investors in charged-off and nonperforming asset portfolios. Since the inception of HGC in 2019, we have issued $148.9 million in total loans to investors through both self-funded loans and in partnership with senior lenders. Our portion of the total loans funded since inception is $62.9 million.
Specialty Lending Segment Through HGC, we provide specialty financing solutions to investors in charged-off and nonperforming asset portfolios. Since the inception of HGC in 2019, we have issued $154.5 million in total loans to investors through both self-funded loans and in partnership with senior lenders. Our portion of the total loans funded since inception is $68.1 million.
ALT focuses on refurbishing and reselling laboratory equipment. 6 Our management team has decades of domain expertise with the ability to leverage extensive industry relationships, real time access to databases of buyers and sales, as well as a deep understanding of the underlying asset value across the more than 25 industrial sectors in which we operate.
Our management team has decades of domain expertise with the ability to leverage extensive industry relationships, real time access to databases of buyers and sales, as well as a deep understanding of the underlying asset value across the more than 25 industrial sectors in which we operate.
Our buyers consist of both end-users and dealers. Refurbishment & Resale Segment Through ALT, we have specialized our offering in the biotech and pharma sectors, which have been key verticals over the past decade.
Our buyers consist of both end-users and dealers. Refurbishment & Resale Segment Through ALT, we have specialized our offering in the biotech and pharma sectors, which have been key verticals over the past decade. ALT focuses on refurbishing and reselling laboratory equipment.
(3) Holding Company. (4) Refurbishment & Resale. (5) Brokerage. (6) Specialty Lending. Employees As of December 31, 2023, we had 82 total and full-time employees, broken down by segment as follows: 33 are employed by HGP, 16 by NLEX, 22 by ALT, 5 by HGC and 6 by HG.
(3) Holding Company. (4) Refurbishment & Resale. (5) Brokerage. (6) Specialty Lending. Employees As of December 31, 2024, we had 86 total and full-time employees, broken down by segment as follows: 34 are employed by HGP, 19 by NLEX, 22 by ALT, 5 by HGC and 6 by HG.
NLEX sales are concentrated in online, automotive, credit card, secured and unsecured consumer and business loan and real estate charge-offs. The typical credit we broker sells at a deep discount to face value, and we typically receive a commission for these services from both buyers and sellers. We have existing relationships with high quality, top-tier and mid-tier debt buyers.
NLEX sales range from credit card, secured and unsecured consumer and business loans, and automobile defaults to real estate nonperforming loans. The typical credit we broker sells at a discount to face value, and we typically receive a commission for these services from both buyers and sellers. We have existing relationships with high quality, top-tier and mid-tier debt buyers.
Industrial Assets Division Our Industrial Assets division advises enterprise and financial customers on the sale of industrial assets mostly from surplus and sometimes distressed circumstances while acting as an agent, guarantor or principal in the sale.
In certain cases, our recovery options may be subject to concurrence of the originator or other prior holder of the assets. Industrial Assets Division Our Industrial Assets division advises enterprise and financial customers on the sale of industrial assets mostly from surplus and sometimes distressed circumstances while acting as an agent, guarantor or principal in the sale.
As regulatory and compliance guidelines continue to evolve, we may incur additional costs in the future, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.
As regulatory and compliance guidelines continue to evolve, we may incur additional costs in the future, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies. 6 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.
Historically, recessions drive an increased supply of surplus assets and increased demand for liquidation services, which we believe we are well-positioned to provide. Further, consumer lending and charge-off rates are expected to continue their upward trend (currently the highest in over a decade), which we believe will drive an increased supply of non-performing consumer loans.
Historically, recessions drive an increased supply of surplus assets and increased demand for liquidation services, which we believe we are well-positioned to provide.
Our portfolio includes one borrower’s notes receivable balance of approximately $23.8 million, representing 62% of our total notes receivable as of December 31, 2023, down from 70% as of December 31, 2022.
Our portfolio includes our largest borrower’s gross notes receivable balance of approximately $22.2 million, representing 74% of our total gross notes receivable balance as of December 31, 2024, as compared to 62% as of December 31, 2023. As discussed further in Item 7.
We believe we have the opportunity for growth through increased penetration of the underserved market of mid-tier buyers of charged-off receivables, providing more economic financing options and a greater variety of funding solutions to our customers. 5 Specialty Lending - Concentration and credit risk As of December 31, 2023, we held a gross balance of investments in notes receivable of $38.4 million, recorded in both notes receivable and equity method investments.
As of December 31, 2024, our net balance related to investments in loans to buyers of charged-off and nonperforming receivable portfolios was $29.0 million, of which $9.6 million is classified as notes receivable and $19.4 million is classified as equity method investments. 5 Specialty Lending - Concentration and credit risk As of December 31, 2024, we held a gross balance of investments in notes receivable of $30.2 million, recorded in both notes receivable and equity method investments.
Our income from secured lending consists of upfront fees, interest income, monthly monitoring fees and backend profit share. In general, we expect to earn an annual rate of return on our share of notes receivable outstanding of approximately 20% or more based on established terms of the loans funded and performance of collections.
Our income from secured lending consists of upfront fees, interest income, monthly monitoring fees and backend profit share.
Removed
We believe we have an opportunity to drive improved auction economics by serving more frequently in the role of principal rather than the lower margin role of broker. Further, we believe we have a strong growth opportunity in providing secured loans to our financial asset debt buyers, a service we are providing through HGC. Strong Management Team.
Added
Further, consumer lending and resulting charge-offs, specifically via credit cards, are expected to continue their upward trend to meet, and possibly exceed, pre-pandemic levels, which we believe will drive an increased supply of charged off and nonperforming assets. Additionally, we believe an active market for mergers and acquisitions in manufacturing industries drives demand for industrial asset liquidations and our services.
Removed
Our management team has decades of domain expertise with the ability to leverage extensive funding activity and widespread industry relationships.
Added
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Nonaccrual Loans, our largest borrower is in default. As a result, the balance of the loans outstanding with our largest borrower were in nonaccrual status as of December 31, 2024. Whether we will realize any return with respect to the impacted loans is uncertain.
Removed
In certain cases, our recovery options may be subject to concurrence of the originator or other prior holder of the assets. From inception of the specialty lending segment through December 31, 2023, we have not incurred actual credit losses.
Added
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.
Removed
Loan Restructuring In November 2023, our subsidiary, HGC and its affiliated joint ventures restructured loans with our largest borrower, which was experiencing financial difficulty, by restructuring certain outstanding loans (the "Restructured Loans") with an amortized cost basis of $51.6 million or 59% of the amortized cost basis of the total charged-off asset portfolio loans of HGC and its affiliated joint ventures.
Added
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.
Removed
Our share of the Restructured Loans at amortized cost basis is $22.2 million, or 57% of HGC’s share of the loan book. On our financial statements, $8.4 million is classified as notes receivable and $13.8 million is classified as equity method investments.
Removed
All Restructured Loans were modified by term extension, adding a weighted average of 1.5 years to the life of the Restructured Loans, which reduced the monthly payments for the borrower. HGC closely monitors the loans and the borrower’s financial condition and evaluates the borrower and loans for credit risk on a quarterly basis.
Removed
As of September 30, 2023, we increased our allowance for credit losses related to our largest borrower experiencing financial difficulty. This resulted in an allowance for credit losses on the loans later restructured of $1.0 million as of September 30, 2023.
Removed
We reevaluated the potential credit loss related to the Restructured Loans again at year-end and as of December 31, 2023, our allowance for credit losses related to the Restructured Loans was $1.1 million, of which $0.4 million was classified as notes receivable and $0.7 million was recorded within equity method investments.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe market price of our common stock may be volatile and this may adversely affect our stockholders. The price at which our common stock trades may be volatile. The stock market has recently experienced significant price and volume fluctuations that have affected the market prices of all securities, including securities of companies like us.
Biggest changeThe market price of our common stock may be volatile and this may adversely affect our stockholders. The price at which our common stock trades may be volatile.
The market price of our common stock may be influenced by many factors, including: • our operating and financial performance; • variances in our quarterly financial results compared to expectations; • the depth and liquidity of the market for our common stock; • we have a relatively small base of registered shares of common stock that could result in significant stock price movements upward or downward based on low levels of trading volume in our common stock; • future sales of common stock or debt or the perception that sales could occur; • investor perception of our business and our prospects; • developments relating to the occurrence of risks impacting our company, including any of the risk factors set forth herein; or • general economic and stock market conditions.
The market price of our common stock may be influenced by many factors, including: • our operating and financial performance; • variances in our quarterly financial results compared to expectations; • the depth and liquidity of the market for our common stock; • we have a relatively small base of shares of common stock that could result in significant stock price movements upward or downward based on low levels of trading volume in our common stock; • future sales of common stock or debt or the perception that sales could occur; • investor perception of our business and our prospects; • developments relating to the occurrence of risks impacting our company, including any of the risk factors set forth herein; or • general economic and stock market conditions.
Goodwill represents the amount by which the cost of an acquisition accounted for using the purchase method exceeds the fair value of the net assets acquired. Current accounting standards require that goodwill be periodically evaluated for impairment based on the fair value of the reporting unit. As of December 31, 2023 approximately 9% of our total assets represents goodwill.
Goodwill represents the amount by which the cost of an acquisition accounted for using the purchase method exceeds the fair value of the net assets acquired. Current accounting standards require that goodwill be periodically evaluated for impairment based on the fair value of the reporting unit. As of December 31, 2024 approximately 9% of our total assets represents goodwill.
Either situation could have a material adverse effect upon our use of working capital and our results of operations. 7 Our Specialty Lending segment may be concentrated. A significant portion of our Specialty Lending loan portfolio may at any time be concentrated with a small number of borrowers.
Either situation could have a material adverse effect upon our use of working capital and our results of operations. Our Specialty Lending segment is concentrated. A significant portion of our Specialty Lending loan portfolio may at any time be concentrated with a small number of borrowers.
Our executive officers, directors and their affiliates hold a large percentage of our common stock and their interests may differ from other stockholders. Our executive officers, directors and their affiliates beneficially own, in the aggregate, 12% of our common stock as of March 1, 2024.
Our executive officers, directors and their affiliates hold a large percentage of our common stock and their interests may differ from other stockholders. Our executive officers, directors and their affiliates beneficially own, in the aggregate, 12% of our common stock as of March 1, 2025.
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, 2023, we do not have any preferred stock outstanding that has any preferential 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, 2024, we did not have any preferred stock outstanding that has any preferential dividends.
These factors also could make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, particularly to serve on our Audit Committee and Compensation Committee, or as executive officers. Item 1B. Unresolve d Staff Comments None. 13
These factors also could make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, particularly to serve on our Audit Committee and Compensation Committee, or as executive officers.
Concentration with a small number of borrowers exposes us to the risk that financial difficulty with a single borrower or a small number of borrowers can materially affect our business, financial conditions or operating results. Our Specialty Lending segment depends on the expertise, efforts and financial health of our borrowers.
Concentration with a small number of borrowers exposes us to the risk that financial difficulty with a single borrower or a small number of borrowers can materially affect our business, financial conditions or operating results.
Our Specialty Lending loan portfolio includes a notes receivable balance of approximately $23.8 million from one borrower, representing 62% of our total notes receivable as of December 31, 2023.
Our Specialty Lending loan portfolio includes a gross notes receivable balance of approximately $22.2 million from one borrower, representing 74% of our total gross notes receivable as of December 31, 2024.
Portfolios of charged off receivables fluctuate in price and volume, according to both the availability of new charged off receivables and the demand for these receivables.
Our Specialty Lending segment depends on the ability of our borrowers to purchase charged off receivables at favorable prices. Portfolios of charged off receivables fluctuate in price and volume, according to both the availability of new charged off receivables and the demand for these receivables.
If our borrowers' collection model forecasts are incorrect, or if unanticipated market conditions cause our borrowers' evaluations to be incorrect, our business, financial conditions and operating results could be negatively affected. Our Specialty Lending segment depends on the ability of our borrowers to purchase charged off receivables at favorable prices.
If our borrowers' collection model forecasts are incorrect, or if unanticipated market conditions cause our borrowers' evaluations to be incorrect, our business, financial conditions and operating results could be negatively affected. Our largest borrower is currently in default, and our loans to this borrower are in nonaccrual status.
Added
This borrower is currently in default, and our loans to this borrower are in nonaccrual status. 7 Our Specialty Lending segment depends on the expertise, efforts and financial health of our borrowers.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring the three months ended December 31, 2023, repurchases of the Company's common stock were as follows: Period (a) Total Number of Shares Purchased [1] (b) Average Price Paid per Share [2] (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs [3] October 1 through October 31, 2023 — $ — — $ — November 1 through November 30, 2023 — $ — — $ — December 1 through December 31, 2023 152,707 $ 2.62 396,175 $ 3,207,096 [1] No shares of our common stock were purchased other than through a publicly announced plan or program. [2] Amounts in this column reflect weighted average price paid per share, which includes commissions and other expenses associated with the repurchases. [3] This column reflects the approximate dollar value of shares of our common stock that are available for purchase under the $4.0 million repurchase program authorized by our Board of Directors on May 5, 2022 (“2022 Repurchase Program”).
Biggest changeDuring the three months ended December 31, 2024, repurchases of the Company's common stock were as follows: Period (a) Total Number of Shares Purchased [1] (b) Average Price Paid per Share [2] (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs [3] October 1 through October 31, 2024 271,220 $ 1.70 1,268,844 $ 3,686,720 November 1 through November 30, 2024 179,552 $ 1.67 1,448,396 $ 3,386,594 December 1 through December 31, 2024 214,187 $ 1.77 1,662,583 $ 3,007,858 [1] No shares of our common stock were purchased other than through a publicly announced plan or program. [2] Amounts in this column reflect weighted average price paid per share, which includes commissions and other expenses associated with the repurchases. [3] Our Board of Directors authorized a share repurchase program on May 5, 2022 (“Repurchase Program”), which permits the Company to purchase up to an aggregate of $4.0 million in common shares over a three year period ending in June 2025.
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities. Market Information Shares of our common stock, $0.01 par value per share, are quoted under the symbol “HGBL” on the Nasdaq Stock Market. Holders As of March 1, 2024, we had approximately 338 holders of common stock of record.
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities. Market Information Shares of our common stock, $0.01 par value per share, are quoted under the symbol “HGBL” on the Nasdaq Stock Market. Holders As of March 1, 2025, we had approximately 323 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, 2023, we do not have any preferred stock outstanding that has any preferential dividends. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.
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, 2024, we did not have any preferred stock outstanding that has any preferential dividends. Recent Sales of Unregistered Securities.
Removed
The Company did not sell any of its securities during the fiscal year ended December 31, 2023 that were not registered under the Securities Act of 1933, as amended. Issuer Purchases of Equity Securities.
Added
On December 12, 2024, the Company issued 14,001 shares of common stock to certain accredited personnel pursuant to the exercise of stock options. On December 17, 2024, the Company issued an additional 25,758 shares of common stock to certain accredited personnel pursuant to the exercise of stock options.
Removed
The 2022 Repurchase Program expires in June 2025. Item 6. [ Reserved]. 15
Added
These securities were issued in reliance on the exemption set forth in Section 4(a)(2) of the Securities Act of 1933, as amended. Issuer Purchases of Equity Securities.
Added
On September 13, 2024, our Board of Directors approved an amendment to the Company’s existing share repurchase program to (i) increase the authorized aggregate amounts of shares of the Company’s common stock the Company may repurchase from $4.0 million to $6.0 million and (ii) extend the term of the Repurchase Program from May 4, 2025 to June 30, 2025.
Added
This column reflects the approximate dollar value of shares of our common stock that are available for purchase under the Repurchase Program, as amended. Item 6. [ Reserved]. 15

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved]. 15 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 23 Item 8. Financial Statements and Supplementary Data. 23 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. 23 Item 9A. Controls and Procedures. 23 Item 9B.
Biggest changeItem 6. [Reserved] 15 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25 Item 8. Financial Statements and Supplementary Data 25 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 25 Item 9A. Controls and Procedures 25 Item 9B.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFurther, we do not utilize segmented asset information to evaluate the performance of our reportable segments and do not include intercompany transfers between segments for management reporting purposes. 18 The following table sets forth operating income information for the Company's reportable segments (in thousands): Year Ended December 31, 2023 2022 Industrial Assets Division: Auction and Liquidation $ 4,918 $ 7,979 Refurbishment & Resale 2,847 1,187 Total divisional operating income 7,765 9,166 Financial Assets Division: Brokerage 8,946 4,709 Specialty Lending 1,862 1,213 Total divisional operating income 10,808 5,922 Corporate & other operating loss (4,254 ) (3,968 ) Consolidated operating income $ 14,319 $ 11,120 2023 Compared to 2022 Revenues and cost of revenues – Revenues were $60.5 million in 2023 as compared to $46.9 million in 2022 and costs of services revenue and asset sales were $20.7 million in 2023 compared to $20.9 million in 2022.
Biggest changeFurther, we do not utilize segmented asset information to evaluate the performance of our reportable segments and do not include intercompany transfers between segments for management reporting purposes. 18 The following table sets forth certain financial information for the Company's reportable segments (in thousands): Year Ended December 31, 2024 Auction and Liquidation Refurbishment & Resale Brokerage Specialty Lending Corporate and other Consolidated Gross profit [1] $ 10,560 $ 4,103 $ 14,069 $ 2,503 $ — $ 31,235 Operating expenses [2] (7,911 ) (3,655 ) (6,717 ) (1,800 ) (4,774 ) (24,857 ) Earnings from equity method investments 1,391 — — 1,297 — 2,688 Operating income (loss) $ 4,040 $ 448 $ 7,352 $ 2,000 $ (4,774 ) $ 9,066 Year Ended December 31, 2023 Auction and Liquidation Refurbishment & Resale Brokerage Specialty Lending Corporate and other Consolidated Gross profit [1] $ 13,545 $ 6,285 $ 16,762 $ 3,223 $ — $ 39,815 Operating expenses [2] (8,767 ) (3,438 ) (7,816 ) (2,280 ) (4,254 ) (26,555 ) Earnings from equity method investments 140 — — 919 — 1,059 Operating income (loss) $ 4,918 $ 2,847 $ 8,946 $ 1,862 $ (4,254 ) $ 14,319 [1] Within the Company’s Industrial Asset division, management allocates gross profit from certain auctions from the Auction and Liquidation segment (HGP) to the Refurbishment & Resale segment (ALT).
Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. 21 We adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”) on January 1, 2023, which requires the application of a credit loss model based prospectively on current expected credit losses (CECL).
Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. 23 We adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”) on January 1, 2023, which requires the application of a credit loss model based prospectively on current expected credit losses (CECL).
Our indebtedness consists of a promissory note dated August 23, 2021 (the “ALT Note”) issued in the amount of $2.0 million as part of the aggregate purchase price paid to acquire certain assets and liabilities of American Laboratory Trading, any amounts borrowed under the promissory note, business loan agreement, commercial security agreement and pledge agreement (the “2021 Credit Facility”) with C3bank, National Association, for a $10.0 million revolving line of credit, and the Term Loan (as defined below).
Our indebtedness consists of a promissory note dated August 23, 2021 (the “ALT Note”) issued in the amount of $2.0 million as part of the aggregate purchase price paid to acquire certain assets and liabilities of American Laboratory Trading and any amounts borrowed under the promissory note, business loan agreement, commercial security agreement and pledge agreement (the “2021 Credit Facility”) with C3bank, National Association, for a $10.0 million revolving line of credit.
Cash used in investing activities during 2023 was offset by cash provided by investing activities primarily of cash received on transfer of notes receivable to partners of $8.9 million, payments received on notes receivable of $11.9 million as well as return of investment and cash distributions received from equity method investments of $10.7 million.
Cash used in investing activities during 2023 was offset by cash provided by investing activities primarily of cash received on transfer of notes receivable to partners of $8.9 million, payments received on notes receivable of $11.9 million as well as return of investment and cash distributions received from equity method investments of $10.7 million. Cash flows from financing activities.
We determine our future capital and operating requirements based upon our current and projected operating performance and contractual commitments. We expect to be able to finance our future operations through a combination of working capital, future net cash flows from operating activities, our 2021 Credit Facility and Term Loan.
We determine our future capital and operating requirements based upon our current and projected operating performance and contractual commitments. We expect to be able to finance our future operations through a combination of working capital, future net cash flows from operating activities, and our 2021 Credit Facility.
We believe we can fund our operations and our debt service obligations during 2024 and beyond through a combination of cash flows from our on-going operations and accessing financing from our existing line of credit.
We believe we can fund our operations and our debt service obligations during 2025 and beyond through a combination of cash flows from our on-going operations and accessing financing from our existing line of credit.
The terms of the ALT Note require us to pay off the Note in 48 equal installments of approximately $44,000 with an interest rate of 3% per annum and a maturity date of August 23, 2025. As of December 31, 2023, we had an outstanding balance of $0.9 million on the ALT Note.
The terms of the ALT Note require us to pay off the Note in 48 equal installments of approximately $44,000 with an interest rate of 3% per annum and a maturity date of August 23, 2025. As of December 31, 2024, we had an outstanding balance of $0.4 million on the ALT Note.
For further discussion of our income taxes, see Note 14 to our consolidated financial statements. 22 Stock-based compensation Our stock-based compensation is primarily in the form of options to purchase common shares. The fair value of stock options is calculated using the Black-Scholes option pricing model.
For further discussion of our income taxes, see Note 13 to our consolidated financial statements. 24 Stock-based compensation Our stock-based compensation is primarily in the form of options to purchase common shares. The fair value of stock options is calculated using the Black-Scholes option pricing model.
To reflect the cumulative effects of the adoption of ASC 326, we recorded the allowance for credit losses and an increase to accumulated deficit of $0.2 million on the January 1, 2023 consolidated balance sheet, and balance of the allowance for credit losses was therefore $0.2 million as of January 1, 2023.
To reflect the cumulative effects of the adoption of ASC 326, we recorded the allowance for credit losses and an increase to accumulated deficit of $0.2 million and deferred tax asset of $0.1 million on the January 1, 2023 consolidated balance sheet, and balance of the allowance for credit losses was therefore $0.3 million as of January 1, 2023.
The maturity date was modified to October 27, 2024. We are permitted to use the proceeds of the loan solely for our business operations. As of December 31, 2023, we had no outstanding balance on the 2021 Credit Facility.
The maturity date was modified to June 27, 2026. We are permitted to use the proceeds of the loan solely for our business operations. As of December 31, 2024, we had no outstanding balance on the 2021 Credit Facility.
We expect that future net cash flows from our operating activities will continue to be the primary source of cash required to fund our ongoing operations for the foreseeable future. 16 Ownership Structure and Capital Resources At December 31, 2023 and 2022, we had stockholders’ equity of $61.1 million and $48.3 million, respectively.
We expect that future net cash flows from our operating activities will continue to be the primary source of cash required to fund our ongoing operations for the foreseeable future. 16 Ownership Structure and Capital Resources At December 31, 2024 and 2023, we had stockholders’ equity of $65.2 million and $61.1 million, respectively.
Similar to notes receivable, the loans held by the joint ventures are evaluated on a quarterly basis to determine if an adjustment to the allowance for credit losses is needed. As of December 31, 2023, the SCALE rate increased to 1.4183% and the credit loss rate specific to equity method investments was 4.3%.
Similar to notes receivable, the loans held by the Joint Ventures are evaluated on a quarterly basis to determine if an adjustment to the allowance for credit losses is needed. As of December 31, 2024, the SCALE rate increased to 1.3644% and the credit loss rate specific to equity method investments was 4.5%.
See Note 17 to our consolidated financial statements for further discussion of our stock-based compensation.
See Note 16 to our consolidated financial statements for further discussion of our stock-based compensation.
On May 26, 2023, the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Modification Agreement”), by and between the Company and C3 Bank. The Modification Agreement modifies and reaffirms the 2021 Credit Facility to, among other things, extend the maturity date, modify the applicable interest rate, and further modify the loan covenants.
On December 27, 2024, the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Modification Agreement”), by and between the Company and C3 Bank. The Modification Agreement modifies and reaffirms the 2021 Credit Facility to, among other things, extend the maturity date, modify the applicable interest rate, and further modify the loan covenants.
As of December 31, 2023, we have recorded an allowance for credit losses related to notes receivable outstanding of $0.7 million. See Note 2 and Note 3 to our consolidated financial statements for further detail. Equity Method Investments As noted above, we conduct a portion of our business through Joint Ventures.
As of December 31, 2024 and December 31, 2023, our allowance for credit losses related to notes receivable outstanding was $0.4 million and $0.7 million, respectively. See Note 2 and Note 3 to our consolidated financial statements for further detail. Equity Method Investments As noted above, we conduct a portion of our business through Joint Ventures.
With the exception of revenue generated within our Specialty Lending segment, revenue is recognized for both services revenue and asset sales revenue based on the ASC 606 standard recognition model, which consists of the following: (1) an agreement exists between two or more parties that creates enforceable rights and obligations, (2) the performance obligations are clearly identified, (3) the transaction price has been determined, (4) the transaction price has been properly allocated to each performance obligation, and (5) the entity satisfies a performance obligation by transferring a promised good or service to a customer for each of the entities.
With the exception of revenue generated within our Specialty Lending segment, revenue is recognized for both services revenue and asset sales revenue based on the ASC 606 standard recognition model, which consists of the following: (1) an agreement exists between two or more parties that creates enforceable rights and obligations, (2) the performance obligations are clearly identified, (3) the transaction price has been determined, (4) the transaction price has been properly allocated to each performance obligation, and (5) the entity satisfies a performance obligation by transferring a promised good or service to a customer for each of the entities. 21 All services and asset sales revenue from contracts with customers consists of three of our reportable segments: Auction and Liquidation, Refurbishment & Resale, and Brokerage segments.
As of December 31, 2023, the SCALE rate increased to 1.4183% and our credit loss rate specific to notes receivable was 3.6%. The increase over the SCALE rate was due to both risks with the concentrated balance and declining collections industry-wide.
As of December 31, 2024, the SCALE rate increased to 1.3644% and our credit loss rate specific to notes receivable was 3.7%. The increase over the SCALE rate was due to both risks with the concentrated balance and declining collections industry-wide.
The operating assets and liabilities associated with such transactions are therefore subject to the same variability and can be different at the end of any given period. Cash used in investing activities. Cash used in investing activities during 2023 was $15.9 million, as compared to cash used in investing activities of $7.5 million during 2022.
The operating assets and liabilities associated with such transactions are therefore subject to the same variability and can be different at the end of any given period. Cash flows from investing activities. Cash provided by investing activities during 2024 was $10.9 million, as compared to cash used in investing activities of $15.9 million during 2023.
In the fourth quarter of 2022, we recorded a reduction to the valuation allowance resulting in a net deferred tax asset balance of approximately $9.4 million as we believe that it was more likely than not that a significant portion of our net operating loss carryforwards will be utilized.
In 2023, we recorded a reduction to the valuation allowance of $2.2 million resulting in a net deferred tax asset balance of approximately $9.1 million as we believed that it was more likely than not that a significant portion of our net operating loss carryforwards will be utilized.
The decrease of $1.5 million is primarily due to a decrease in accounts payable and accrued liabilities of $1.7 million and the current portion of third party debt of $1.7 million, offset by an increase in payables to sellers of $1.8 million.
The decrease of $0.1 million is primarily due to a decrease in accounts payable and accrued liabilities of $1.2 million and the current portion of third party debt of $1.3 million, offset by an increase in payables to sellers of $2.4 million.
The loan origination fees are offset with any direct origination costs and are deferred upon issuance of the loan and amortized over the lives of the related loans, as an adjustment to interest income.
For both the Specialty Lending and Refurbishment and Resale segments, loan origination fees are offset with any direct origination costs and are deferred upon issuance of the loan and amortized over the lives of the related loans, as an adjustment to interest income.
In both years the depreciation of property, plant and equipment was not material. Off-Balance Sheet Arrangements – We had no off-balance sheet arrangements during the years ended December 31, 2023 and 2022. Key Performance Indicators We monitor a number of financial and non-financial measures on a regular basis in order to track our underlying operational performance and trends.
Off-Balance Sheet Arrangements – We had no off-balance sheet arrangements during the years ended December 31, 2024 and 2023. Key Performance Indicators We monitor a number of financial and non-financial measures on a regular basis in order to track our underlying operational performance and trends.
Fees collected in relation to the issuance of loans includes loan origination fees, interest income, portfolio monitoring fees, and a backend profit share percentage related to the underlying asset portfolio.
Fees collected in relation to the issuance of loans includes loan origination fees, interest income, portfolio monitoring fees, and a backend profit share percentage related to the underlying asset portfolio. The monitoring fees and the backend profit share are considered a separate earnings process as compared to the origination fees and interest income.
Liquidity and Capital Resources Liquidity At December 31, 2023, we had working capital of $11.6 million, as compared to working capital of $7.7 million at December 31, 2022, an increase of $3.9 million. Our current assets increased to $26.3 million at December 31, 2023 compared to $23.9 million at December 31, 2022.
Liquidity and Capital Resources Liquidity At December 31, 2024, we had working capital of $18.5 million, as compared to working capital of $11.6 million at December 31, 2023, an increase of $6.9 million. Our current assets increased to $33.1 million at December 31, 2024 compared to $26.3 million at December 31, 2023.
We evaluate the performance of our reportable segments based primarily on operating income. Notwithstanding the foregoing, the reported segment operating income for ALT and HGC represents incremental costs for managing these segments as part of their sister segments (HGP for ALT and NLEX for HGC).
Notwithstanding the foregoing, the reported segment operating income for ALT and HGC represents incremental costs for managing these segments as part of their sister segments (HGP for ALT and NLEX for HGC).
The increase over the SCALE rate was due to both risks with the concentrated balance and declining collections industry-wide. As of December 31, 2023, we have recorded an allowance for credit losses related to its equity method investments of $0.9 million. See Note 2 and Note 5 to our consolidated financial statements for further detail.
The increase over the SCALE rate was due to both risks with the concentrated balance and declining collections industry-wide. As of December 31, 2024 and December 31, 2023, we have recorded an allowance for credit losses related to its equity method investments of $1.0 million and $0.9 million, respectively.
We report segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of our reportable segments. We manage our business primarily on differentiated revenue streams for services offered.
We report segment information based on the “management” approach. The management approach designates the internal reporting used by the Chief Operating Decision Maker (CODM), which we determined to be Ross Dove, CEO, for making decisions and assessing performance as the source of our reportable segments. We manage our business primarily on differentiated revenue streams for services offered.
Our current liabilities decreased to $14.7 million at December 31, 2023 as compared to $16.2 million at December 31, 2022.
Our current liabilities decreased to $14.6 million at December 31, 2024 as compared to $14.7 million at December 31, 2023.
Cash provided by financing activities. Cash provided by financing activities was $2.5 million during 2023, as compared to cash provided by financing activities of $0.1 million during 2022.
Cash used in financing activities was $9.1 million during 2024, as compared to cash provided by financing activities of $2.5 million during 2023.
The exception to recognition at this point in time occurs when certain contracts provide for advance payments recognized over a period of time. Services revenue recognized over a period of time is not material in comparison to total revenues (less than 1% of total revenues for the year ended December 31, 2023), and therefore not reported on a disaggregated basis.
Services revenue recognized over a period of time is not material in comparison to total revenues (less than 1% of total revenues for the year ended December 31, 2024), and therefore not reported on a disaggregated basis.
The change in our current assets was primarily due to an increase in the current portion of notes receivable of $2.1 million, accounts receivable of $0.9 million, and inventory of $0.5 million, offset by decreases in cash and cash equivalents of $0.4 million and other current assets of $0.7 million.
The change in our current assets of $6.8 million is primarily due to a decrease in the current portion of notes receivable of $3.2 million and accounts receivable of $0.4 million, offset by increases in cash and cash equivalents of $9.5 million, inventory of $0.3 million, and other current assets of $0.6 million.
Cash used in investing activities during 2023 consisted primarily in investment in notes receivable of $29.8 million and equity method investments of $17.2 million.
Cash provided by investing activities during 2024 was offset by cash used in investing activities consisting primarily of investments in notes receivable of $5.7 million and equity method investments of $0.3 million. Cash used in investing activities during 2023 consisted primarily of investments in notes receivable of $29.8 million and equity method investments of $17.2 million.
Our contractual requirements are limited to the outstanding debt and lease commitments with related and unrelated parties. Capital requirements are generally limited to our purchases of surplus and distressed assets and our investment activity under our Specialty Lending segment.
Our contractual requirements are limited to the outstanding debt and lease commitments with related and unrelated parties. Capital requirements are generally limited to our purchases of surplus and distressed assets and our investment activity under our Specialty Lending segment. We believe that our current capital resources, including available borrowing capacity from our 2021 Credit Facility, are sufficient for these requirements.
Our use of EBITDA and Adjusted EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure. You should carefully evaluate the financial information below, which reconciles our GAAP reported net income to EBITDA and Adjusted EBITDA for the periods presented (in thousands).
Our use of EBITDA and Adjusted EBITDA is not meant to be, and should not be, considered in isolation or as a substitute for, or superior to, any GAAP financial measure.
The interest method is used to arrive at a periodic interest cost (including amortization) that will represent a level effective rate on the sum of the face amount of the debt and (plus or minus) the unamortized premium or discount and expense at the beginning of each period.
The interest method is used to arrive at a periodic interest cost (including amortization) that will represent a level effective rate on the sum of the face amount of the debt and (plus or minus) the unamortized premium or discount and expense at the beginning of each period. 22 Nonaccrual Loans We determine a loan to be in default status when the minimum payment amount has not been received within the grace period of the payment due date.
We earn revenue from discrete auction and 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 all.
The significant changes in operating assets and liabilities during 2024 as compared to 2023 are primarily due to the nature of our operations. We earn revenue from discrete auction and 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 all.
Management’s Discussion of Results of Operations The following table summarizes our consolidated results of operations (in thousands): 17 Year Ended December 31, 2023 2022 Revenues: Services revenue $ 39,480 $ 23,419 Asset sales 21,065 23,495 Total revenues 60,545 46,914 Operating costs and expenses: Cost of services revenue 8,007 4,654 Cost of asset sales 12,724 16,256 Selling, general and administrative 26,040 21,326 Depreciation and amortization 514 536 Total operating costs and expenses 47,285 42,772 Earnings of equity method investments 1,059 6,978 Operating income 14,319 11,120 Interest expense, net (324 ) (113 ) Income before income tax expense (benefit) 13,995 11,007 Income tax expense (benefit) 1,520 (4,486 ) Net income $ 12,475 $ 15,493 Our revenue has several components: (1) traditional fee based asset disposition services, such as commissions from on-line and webcast auctions, liquidations and negotiated sales, and commissions from the NLEX charged-off receivables business, (2) the acquisition and subsequent disposition of distressed and surplus assets, including industrial machinery and equipment and real estate, and (3) fees and interest earned for appraisal, management advisory services and specialty lending services.
Cash provided by financing activities in 2023 of $2.5 million was primarily attributable to $13.0 million in proceeds from draws on our 2021 Credit Facility and Term Loan, offset by $8.9 million in repayments to our 2021 Credit Facility, $0.7 million in repayments to our Term Loan, $0.5 million in repayments to our ALT Note, as well as repurchase of our common stock under our Repurchase Program of approximately $0.4 million. 17 Management’s Discussion of Results of Operations The following table summarizes our consolidated results of operations (in thousands): Year Ended December 31, 2024 2023 Revenues: Services revenue $ 32,607 $ 39,480 Asset sales 12,754 21,065 Total revenues 45,361 60,545 Operating costs and expenses: Cost of services revenue 5,805 8,007 Cost of asset sales 8,321 12,724 Selling, general and administrative 24,266 26,040 Depreciation and amortization 591 514 Total operating costs and expenses 38,983 47,285 Earnings of equity method investments 2,688 1,059 Operating income 9,066 14,319 Interest expense, net (93 ) (324 ) Income before income tax expense 8,973 13,995 Income tax expense 3,791 1,520 Net income $ 5,182 $ 12,475 Our revenue has several components: (1) traditional fee based asset disposition services, such as commissions from on-line and webcast auctions, liquidations and negotiated sales, and commissions from the NLEX charged-off receivables business, (2) the acquisition and subsequent disposition of distressed and surplus assets, including industrial machinery and equipment and real estate, and (3) fees and interest earned for appraisal, management advisory services and specialty lending services.
Year Ended December 31, 2023 2022 Net income $ 12,475 $ 15,493 Add back: Depreciation and amortization 514 536 Interest expense, net 324 113 Income tax expense (benefit) 1,520 (4,486 ) EBITDA 14,833 11,656 Management add back: Stock based compensation 776 540 Adjusted EBITDA $ 15,609 $ 12,196 Recently adopted accounting pronouncements In 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which applies a current expected credit loss model, which is a new impairment model based on expected losses rather than incurred losses.
You should carefully evaluate the financial information below, which reconciles our GAAP reported net income to EBITDA and Adjusted EBITDA for the periods presented (in thousands). 20 Year Ended December 31, 2024 2023 Net income $ 5,182 $ 12,475 Add back: Depreciation and amortization 591 514 Interest expense, net 93 324 Income tax expense 3,791 1,520 EBITDA 9,657 14,833 Management add back: Stock based compensation 1,253 776 Adjusted EBITDA $ 10,910 $ 15,609 Recently adopted accounting pronouncements In 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which applies a current expected credit loss model, which is a new impairment model based on expected losses rather than incurred losses.
Selling, general and administrative expense – Selling, general and administrative expense was $26.0 million in 2023 as compared to $21.3 million in 2022, an increase of $4.7 million or 22%.
Selling, general and administrative expense – Selling, general and administrative expense was $24.3 million in 2024 as compared to $26.0 million in 2023, a decrease of $1.8 million or 7%.
As compared to 2022 there was an increase in selling, general and administrative expense during 2023 primarily due to increased compensation expense as a result of improved performance across our segments and increased headcount.
As compared to 2023 there was a decrease in selling, general and administrative expense during 2024 primarily due to decreased compensation expense as a result of lower performance in certain operational segments.
As of December 31, 2023, the allowance for credit losses was $1.7 million, with $0.1 million classified as accounts receivable, $0.7 million classified as notes receivable and $0.9 million classified as equity method investments. Critical Accounting Policies The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions.
As of December 31, 2023, the allowance for credit losses was $1.7 million, with $0.1 million classified as accounts receivable, $0.7 million classified as notes receivable and $0.9 million classified as equity method investments.
Services revenue generally consists of commissions and fees from providing auction services, appraisals, brokering of sales transactions, and secured lending. Asset sales revenue generally consists of proceeds obtained through sales of purchased assets.
Revenue recognition We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) and ASC Topic 310, Receivables (“ASC 310”). Services revenue generally consists of commissions and fees from providing auction services, appraisals, brokering of sales transactions, and secured lending. Asset sales revenue generally consists of proceeds obtained through sales of purchased assets.
Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and our “contract liability”. As of December 31, 2023, the deferred revenue balance was $0.5 million. The deferred revenue balance is primarily related to customer deposits on asset sales within our Refurbishment & Resale segment.
Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and our “contract liability”.
The approximate $6.5 million change was primarily attributable to a change of $8.6 million in net income adjusted for noncash items during 2023 as compared to 2022, which includes significant changes of a $5.9 million change in earnings from equity method investments and a $5.4 million change in deferred taxes, offset by a $3.0 million decrease in net income.
The approximate $5.3 million decrease was primarily attributable to a decrease of $6.3 million in net income adjusted for noncash items during 2024 as compared to 2023, offset by an increase in operating assets and liabilities of $1.0 million during 2024 as compared to 2023.
Our critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below. 20 Revenue recognition We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) and ASC Topic 310, Receivables (“ASC 310”).
Critical Accounting Policies The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions. Our critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.
Cash provided by financing activities in 2023 of $2.5 million was primarily attributable to $13.0 million in proceeds from draws on our 2021 Credit Facility and Term Loan, offset by $8.9 million in repayments to our 2021 Credit Facility, $0.7 million in repayments to our Term Loan, $0.5 million in repayments to our ALT Note, as well as repurchase of our common stock under our 2022 Repurchase Program of approximately $0.4 million.
Cash used in financing activities in 2024 of $9.1 million was primarily attributable to $6.3 million in repayments to our Term Loan (as discussed further under Note 11 – Debt), $0.5 million in repayments to our ALT Note, as well as repurchase of our common stock under our Repurchase Program of approximately $2.2 million.
During 2023, our primary source of cash was the cash on hand, proceeds from the Term Loan and cash provided by our operating activities.
During 2024, our primary source of cash was the cash on hand, payments received on notes receivable of $11.0 million and $7.7 million of cash provided by our operating activities.
Cash Position and Cash Flows Cash and cash equivalents at December 31, 2023 were $12.3 million compared to $12.7 million at December 31, 2022. Cash provided by operating activities. Cash provided by operating activities was $13.0 million during 2023 as compared to $6.5 million during 2022.
Cash provided by operating activities was $7.7 million during 2024 as compared to $13.0 million during 2023.
The monitoring fees and the backend profit share are considered a separate earnings process as compared to the origination fees and interest income. Monitoring fees are recorded at the agreed upon rate, and at the moment in which payments are made by the borrower.
Monitoring fees are recorded at the agreed upon rate, and at the moment in which payments are made by the borrower. The backend profit share is recognized in accordance with the agreed upon rate at the time in which the amount is realizable and earned.
Significant components of selling, general and administrative expense were as shown below (dollars in thousands): Year Ended December 31, 2023 2022 % change Compensation: Auction and Liquidation $ 6,502 $ 6,380 2 % Refurbishment & Resale 2,314 1,601 45 % Brokerage 6,217 4,911 27 % Specialty Lending 1,030 659 56 % Corporate & other 2,357 2,061 14 % Stock-based compensation 776 540 44 % Consulting 98 108 -9 % Board of Directors fees 322 308 5 % Accounting, tax and legal professional fees 1,696 1,200 41 % Insurance 540 467 16 % Occupancy 1,285 1,105 16 % Travel and entertainment 831 683 22 % Advertising and promotion 604 448 35 % Information technology support 436 383 14 % Provision for credit losses 530 — 100 % Other 502 472 6 % Total selling, general and administrative expense $ 26,040 21,326 22 % 19 Depreciation and amortization expense – Depreciation and amortization expense in each of the years ended 2023 and 2022 was $0.5 million and consisted almost entirely of amortization expense related to intangible assets.
Significant components of selling, general and administrative expense were as shown below (dollars in thousands): 19 Year Ended December 31, 2024 2023 % change Compensation: Auction and Liquidation $ 5,714 $ 6,502 (12 )% Refurbishment & Resale 2,413 2,314 4 % Brokerage 5,185 6,217 (17 )% Specialty Lending 1,483 1,030 44 % Corporate & other 2,228 2,357 (5 )% Stock-based compensation 1,253 776 61 % Board of Directors fees 401 322 25 % Accounting, tax and legal professional fees 1,558 1,421 10 % Insurance 590 540 9 % Occupancy 1,263 1,285 (2 )% Travel and entertainment 603 831 (27 )% Advertising and promotion 611 604 1 % Information technology support 607 711 (15 )% Provision for credit losses (256 ) 530 (148 )% Other 613 600 2 % Total selling, general and administrative expense $ 24,266 26,040 (7 )% Reclassifications – Certain prior year balances within schedule of selling, general and administrative expense above have been reclassified to conform to current year presentation.
Cash disbursements during 2023 consisted primarily of investments in notes receivable net of cash received on transfer of notes to partners of $21.0 million, equity method investments of $17.2 million, repayment on our 2021 Credit Facility of $8.9 million, repayment on our ALT Note of $0.5 million, repayment on our Term Loan of $0.7 million, payment of operating expenses, and settlement of auction liabilities.
Cash disbursements during 2024 consisted primarily of investments in notes receivable of $5.7 million, repurchase of our common stock under our Repurchase Program of approximately $2.2 million, repayments on our ALT Note of $0.5 million, repayments on our Term Loan of $6.3 million (as discussed further under Note 11 – Debt), payment of operating expenses, and settlement of auction liabilities.
The backend profit share is recognized in accordance with the agreed upon rate at the time in which the amount is realizable and earned. The recognition policy was established due to the uncertainty of timing of the amount of backend profit share that will be realized.
The recognition policy was established due to the uncertainty of timing of the amount of backend profit share that will be realized. Through our Refurbishment and Resale segment, we offer financing on our standard laboratory equipment sales. We recognize revenue upon shipment of our financed products in accordance with ASC 606.
All services and asset sales revenue from contracts with customers consists of three of our reportable segments: Auction and Liquidation, Refurbishment & Resale, and Brokerage segments. Generally, revenue is recognized at the point in time in which the performance obligation has been satisfied and full consideration is received.
Generally, revenue is recognized at the point in time in which the performance obligation has been satisfied and full consideration is received. The exception to recognition at this point in time occurs when certain contracts provide for advance payments recognized over a period of time.
In the fourth quarter of 2023, we further reduced the valuation allowance by $2.2, resulting in a net deferred tax asset balance of approximately $9.1 million, to align with our updated forecasts.
In 2024, we increased the valuation allowance by $1.3 million, resulting in a net deferred tax asset balance of approximately $6.0 million. The change to the valuation allowance was primarily due to the application of our nonaccrual loan policy, which resulted in a decrease to our estimates related to the utilization of net operating loss carryforwards in 2025.
Removed
On May 26, 2023, the Company entered into a promissory note, a business loan agreement and commercial security agreement (collectively, the “2023 Credit Facility”) with C3 Bank. The 2023 Credit Facility provides for a new $7.0 million term loan (the "Term Loan"). The Company is permitted to use the proceeds of the Term Loan solely for its business operations.
Added
In the event additional capital is needed, we believe we can obtain additional debt financing through capital partners. Cash Position and Cash Flows Cash and cash equivalents at December 31, 2024 were $21.7 million compared to $12.3 million at December 31, 2023. Cash flows from operating activities.
Removed
The maturity date of the Term Loan is April 27, 2028.
Added
Cash provided by investing activities during 2024 consisted primarily of payments received on notes receivable of $11.0 million as well as return of investment and cash distributions received from equity method investments of $6.0 million.
Removed
The Term Loan sets the interest rate spread and interest rate floor to accrue at a variable interest rate, which is based on the rate of interest last quoted by The Wall Street Journal as the “prime rate,” plus a margin of 0.25% and a floor of no less than 6.5%.
Added
Our CODM evaluates the performance of our reportable segments based primarily on operating income and routinely receives internal reports that analyze operating income for the reporting segments. The CODM is not routinely provided detailed information regarding significant operating expenses by segment, and such information is not considered critical for allocating resources or assessing the performance of each segment.
Removed
The Term Loan requires we pay monthly installments over a 5-year term with adjustments for changes in the variable interest rate. As of December 31, 2023, we had an outstanding balance of $6.3 million on the Term Loan.
Added
Our operating expenses are comprised mainly of fixed and variable compensation, marketing, outside services such as audit, legal and information technology, occupancy, and other regulatory costs incurred as a public entity.
Removed
We believe that our current capital resources, including available borrowing capacity from our 2021 Credit Facility and Term Loan, are sufficient for these requirements. In the event additional capital is needed, we believe we can obtain additional debt financing through capital partners.
Added
Additionally, earnings from equity method investments related to significant transactions involving real estate, machinery and equipment in the Company's Auction and Liquidation segment and Joint Venture lending activity related to the Company's Specialty Lending segment are significant in the computation of segment operating income and reported separately as shown in the table below.
Removed
The amount was offset by changes in operating assets and liabilities of $2.0 million during 2023 as compared to 2022. The significant changes in operating assets and liabilities during 2023 as compared to 2022 are primarily due to the nature of our operations.
Added
From time to time, ALT may source and refer an auction project to HGP or directly sell equipment inventory through the auction channel. In these instances, the gross profit related to these transactions are allocated to ALT rather than accounted for under the segment profit or loss of HGP.
Removed
Cash used in investing activities in 2022 of $7.5 million was attributable to our investment in equity method investments of $14.6 million, which $12.2 million related to activity within our Specialty Lending segment, $1.4 million directly related to the acquisition of two pharmaceutical plants, by KNFH LLC, a joint venture, and $1.0 million investment in DHC8 LLC.
Added
In 2024, the total amount of gross profit allocated to ALT from HGP was approximately $1.4 million, as compared to the total amount of gross profit allocated to ALT from HGP in 2023 of approximately $3.8 million. [2] All financing arrangements are originated with Corporate and other.
Removed
In addition, we used $8.4 million in funding our investment in notes receivable.
Added
Management may determine from time to time that interest incurred from financing arrangements are directly attributable to a specific segment. As a result, interest incurred may be charged to the segment and included in that segment’s profit or loss as a charge to operating expense.
Removed
Cash used in investing activities during 2022 was offset by cash provided by investing activities of $15.8 million, which consisted primarily of payments received on notes receivable of $3.4 million, return of investment of $5.3 million and cash distributions received from equity method investments of $7.0 million, of which included $0.7 million related to specialty lending activity within our Financial Assets division, $3.8 million from the sale of the remaining real estate assets of CPFH LLC, the joint venture, located in Huntsville, Alabama, and $2.5 million from the sales of real estate and machinery and equipment assets of KNFH LLC.
Added
In 2024, the total amount of interest allocated to the Specialty Lending segment (HGC) from Corporate and other was approximately $0.3 million, as compared to the total amount of interest allocated to HGC from Corporate and other in 2023 of approximately $0.5 million. 2024 Compared to 2023 Revenues and cost of revenues – Revenues were $45.4 million in 2024 as compared to $60.5 million in 2023 and costs of services revenue and asset sales were $14.1 million in 2024 compared to $20.7 million in 2023.
Removed
Cash provided by financing activities in 2022 of $0.1 million was primarily attributable $2.9 million in proceeds from draws on our 2021 Credit Facility, offset by aggregate repayment of debt payable to third parties of $2.4 million and repurchase of our common stock under our 2022 Repurchase Program of approximately $0.4 million.
Added
This resulted in gross profit of $31.2 million in 2024 compared to $39.8 million in 2023, a decrease of approximately $8.6 million or approximately 22%.
Removed
This resulted in gross profit of $39.8 million in 2023 compared to $26.0 million in 2022, an increase of approximately $13.8 million or approximately 53%. The increased gross profit in the current year reflects the significant improvement in performance of our core business segments and increased volume in the financial assets division from both the brokerage and specialty lending segments.
Added
The decrease in gross profit in the current year is primarily due to a significant one-time principal auction transaction in our Industrial Asset Division in the first quarter of 2023, as well as decreased volume of transactions within our Brokerage segment as compared to 2023.
Added
Depreciation and amortization expense – Depreciation and amortization expense in 2024 was $0.6 million, as compared to $0.5 million in 2023. Depreciation and amortization expense in both years consisted primarily of amortization expense related to intangible assets, while the depreciation of property, plant and equipment was not material.
Added
As of December 31, 2024, the allowance for credit losses was $1.5 million, with $0.1 million classified as accounts receivable, $0.4 million classified as notes receivable and $1.0 million classified as equity method investments.
Added
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which, among other updates, requires enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss.
Added
ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. The adoption of ASU 2023-07 resulted in additional disclosures for our segment results, which are included in Note 17 of our consolidated financial statements.

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