Heritage Global Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

These unaudited condensed consolidated interim financial statements include the accounts of Heritage Global Inc. ("HG") together with its subsidiaries, including Heritage Global Partners, Inc. (“HGP”), National Loan Exchange Inc. (“NLEX”), Heritage Global LLC (“HG LLC”), Heritage Global Capital LLC (“HGC”), Heritage ALT LLC (“ALT”), and Heritage DebtX LLC ("DebtX"). These entities, collectively, are referred to as "the Company,” "us" “we” or “our” in these condensed consolidated financial statements. These condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles 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 HG exercises control. All significant intercompany accounts and transactions have been eliminated upon consolidation.

The Company began its operations in 2009 with the establishment of HG LLC. The business was subsequently expanded by the acquisitions of HGP in 2012, NLEX in 2014, ALT in 2021, and DebtX in 2026, and the creation of HGC in 2019. As a result, HG is positioned to provide an array of value-added capital and financial asset solutions: auction and appraisal services, traditional asset disposition sales, and specialty financing solutions. As of June 30, 2026, the Company’s reportable segments consisted of (1) Auction and Liquidation through HGP, (2) Refurbishment & Resale through ALT, (3) Consumer Loans through NLEX, (4) Specialty Lending through HGC, and (5) Commercial Loans through DebtX. On July 30, 2026, the Board of Directors (the “Board”) of the Company authorized a strategic plan to wind down the Company’s Specialty Lending segment beginning in the third quarter of 2026. Refer to Note 16 - Subsequent Events, and the Company’s Current Report on Form 8-K, filed with the SEC on July 31, 2026, for additional information.

The Company prepared the unaudited condensed consolidated interim financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). In the opinion of management, these unaudited condensed financial statements reflect all adjustments that are necessary to present fairly the results for the interim periods included herein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are appropriate. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 12, 2026 (the “Form 10-K”).

The results of operations for the interim periods are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2026. The accompanying condensed consolidated balance sheet as of December 31, 2025 has been derived from the audited consolidated balance sheet as of December 31, 2025, contained in the Company’s Form 10-K.

Repurchase Program

The Company’s Board of Directors previously authorized a share repurchase program (“2022 Repurchase Program”), which permitted the Company to purchase up to an aggregate of $6.0 million in common shares over a three year period. The 2022 Repurchase Program ended on June 30, 2025, with the Company utilizing approximately $5.6 million of the authorized $6.0 million for the repurchase of 2,897,658 common shares in the open market.

Following the expiration of the 2022 Repurchase Program, the Company’s Board of Directors authorized a new share repurchase program (the “2025 Repurchase Program”) on July 31, 2025. The 2025 Repurchase Program authorizes the repurchase of up to $7.5 million of the Company’s outstanding common stock through June 30, 2028. The timing and actual number of shares repurchased will depend on various factors, including share price, general business and market conditions, and the opportunities within the Company’s operations. The Company repurchased 103,265 shares under the 2025 Repurchase Program for a purchase price of approximately $0.1 million during the three months ended June 30, 2026. As of June 30, 2026, the Company had approximately $7.2 million in aggregate dollar value of shares that may be purchased under the 2025 Repurchase Program.

Note 2 – Summary of Significant Accounting Policies

Use of estimates

The preparation of the Company’s unaudited condensed consolidated interim 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 and notes receivable, inventory, investments, goodwill and intangible assets, liabilities, deferred income tax assets and liabilities, including projecting future years’ taxable income, and stock-based compensation. These estimates have the potential to significantly impact our condensed consolidated interim 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.

Revenue recognition

The Company recognizes 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. 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.

All services and asset sales revenue from contracts with customers consists offour reportable segments: Auction and Liquidation, Refurbishment & Resale, Consumer Loans and Commercial Loans. 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 a 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 three and six months ended June 30, 2026 and 2025), and therefore not reported on a disaggregated basis. Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and the Company’s “contract liability”. The deferred revenue balance was approximately $0.7 million as of June 30, 2026 and $0.9 million as of December 31, 2025, and is reflected in other current liabilities on the condensed consolidated balance sheets. The deferred revenue balance is primarily related to customer deposits on asset sales within the Refurbishment & Resale segment. The Company records receivables in certain situations based on timing of payments for Auction and Liquidation transactions held at the end of the reporting period; however, revenue is generally recognized in the period that the Company satisfies the performance obligation and cash is collected. The Company does not record a “contract asset” for partially satisfied performance obligations.

For auction services and consumer loan sale transactions, funds are typically collected from buyers and are held by the Company on the seller's behalf. The funds are included in cash and cash equivalents in the condensed consolidated balance sheets. The Company releases the funds to the seller, less the Company's commission and other fees due, after the buyer has accepted the goods. The amount of cash held on behalf of the sellers is recorded as payables to sellers in the accompanying condensed consolidated balance sheets.

For commercial loan sale transactions, funds are not held by the Company on the seller’s behalf. The Company’s commission and other fees due from the seller are generally recognized at the time the sale transaction is closed and the invoice is issued.

The Company evaluates revenue from Auction and Liquidation, Consumer Loans and Commercial Loans segment transactions in accordance with the accounting guidance to determine whether to report such revenue on a gross or net basis. The Company has determined that it acts as an agent for its fee based transactions and therefore reports the revenue from transactions in which the Company acts as an agent on a net basis.

The Company also earns income through transactions that involve the Company acting jointly with one or more additional purchasers or lenders, pursuant to a partnership, joint venture or limited liability company agreement (collectively, “Joint Ventures”). For these transactions, in which the Company’s ownership share meets the criteria for the equity method investments under ASC Topic 323, Equity Method and Joint Ventures, the Company does not record revenue or expense. Instead, the Company’s proportionate share of the net income (loss) is reported as earnings of equity method investments. In general, the Joint Ventures apply the same revenue recognition and other accounting policies as the Company.

As of June 30, 2026, through its Specialty Lending segment, the Company provides specialty financing solutions to investors in charged-off and nonperforming asset portfolios. The Company recognizes revenue generated by lending activity in accordance with ASC 310. Fees collected in relation to the issuance of loans include loan origination fees, interest income, portfolio monitoring fees, and a backend profit share percentage related to the underlying asset portfolio. On July 30, 2026, the Board authorized a strategic plan to wind down the Company’s Specialty Lending segment beginning in the third quarter of 2026. Refer to Note 16 - Subsequent Events, and the Company’s Current Report on Form 8-K, filed with the SEC on July 31, 2026, for additional information.

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. 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 receipt of backend profit share and the amount of backend profit share which will be realized.

Through its Refurbishment and Resale segment, the Company offers financing on its standard laboratory equipment sales. The Company recognizes revenue upon shipment of its financed products in accordance with ASC 606. The Company records a loan receivable for the unpaid balance of the order. A loan amortization table is created upon shipment outlining the principal and interest income portion of each future payment. These loans are classified as held-for-investment and accounted for under the guidelines of ASC 310.

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. 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.

Nonaccrual Loans

The Company determines a loan to be in a default status when the minimum payment amount has not been received within the grace period of the payment due date. The status of default does not solely trigger nonaccrual loan status. The Company considers quantitative and qualitative factors when evaluating a loan in default status to determine the likelihood of recovering the outstanding principal balance and contractual interest payments. The Company also monitors its borrowers’ financial standing and performance on an ongoing basis and regularly updates the collection forecasts for the underlying charged off or nonperforming receivable portfolios related to each outstanding loan. If management determines (1) it is not probable that the projected cash flows expected from the borrower’s collection efforts on the underlying charged off or nonperforming receivable portfolio will be sufficient to satisfy all of the outstanding principal balance and contractual interest payments, and (2) it is not probable that the borrower will be able to meet the minimum required principal and interest payments through other operational cash flows, the Company will place the loans on nonaccrual status. If, based on its analysis, the Company elects to maintain accrual status after initial payment default, the loan will generally be placed on nonaccrual status if principal or interest payments become 90 days past due.

The accrual of interest is generally discontinued when a loan is placed in nonaccrual status. Interest received on such loans is accounted for using the cost-recovery or the cash-basis method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest payments received by the creditor are recorded as interest income provided the amount does not exceed the amount that would have been earned at the loan’s original effective interest rate. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and all remaining principal and interest payments are deemed probable.

Pursuant to the terms of existing credit agreements, the Company's largest borrower was required to collect on underlying charged off and nonperforming consumer loan portfolios and remit a required minimum monthly payment to the Company. However, this borrower became unable to make the required minimum monthly payments beginning in June 2024 and therefore is in default. The Company's share of payments received from the nonaccrual loans, including interest, will be applied against the outstanding loan balance. As of June 30, 2026, the amortized cost basis of loans in nonaccrual status was $4.6 million and is recorded within notes receivable. As of June 30, 2026, the Company's notes receivable balance of nonaccrual loans net of the $3.5 million allowance for credit losses, was $1.1 million.

Based upon the continuation of difficulties with the Company’s largest borrower, including a further decline in the second quarter of 2026, on July 30, 2026, the Board authorized a strategic plan to wind down the Company’s Specialty Lending segment beginning in the third quarter of 2026. Refer to Note 16 - Subsequent Events, and the Company’s Current Report on Form 8-K, filed with the SEC on July 31, 2026, for additional information.

Specialty Lending - Equity method investments impairment

Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment when there are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the investment's carrying amount. When it is determined such a loss in value is other than temporary, an impairment charge is recognized for the difference between the investment's carrying value and its estimated fair value. When determining whether a decline in value is other than temporary, management considers factors such as the duration and extent of the decline, the investee's financial condition and near-term prospects, and our ability and intention to retain our investment for a period that will be sufficient to allow for any anticipated recovery in the value of the investment. Management's estimate of fair value of an investment is based on the income approach. For the income approach, the fair value is typically based on the present value of expected future cash flows using discount rates believed to be consistent with those used by principal market participants.

Given the senior lender's priority position in cash flows generated from the underlying loan portfolios with the Company’s largest borrower (including the impacted loans that were placed in nonaccrual status in June 2024) and the change in collection strategy as well as the senior lender's sole and exclusive authority over defaulted loans, we believe we will not recover the carrying amount of our equity method investments in a liquidation event and we have determined that the loss in investment value is other than temporary. As a result, the Company concluded the asset was impaired and recorded a non-cash impairment charge of $18.2 million during the three months ended June 30, 2026.

Allowance for credit losses

The Company applies a current expected credit loss model, which is an impairment model based on expected losses rather than incurred losses. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance account that is deducted from, or added to, the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

The table below summarizes the allowance for credit loss balance as of, and the changes made during the year ended December 31, 2025 and the six months ended June 30, 2026, respectively (in thousands):

Accounts receivable

The Company carries accounts receivable at the face amounts less an allowance for estimated credit losses. The Company estimates its reserve for credit losses using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts.

The Company only extends credit to entities and institutions of significance, such as well-known academic and financial institutions and U.S. government agencies. Consequently, historical accounts receivable credit losses are nearly zero, which provides the starting point for management’s assessment of the reserve for credit losses for its accounts receivable. The Company estimates its expected credit losses for accounts receivable based on historical credit loss experience, its assessment of current conditions, and other relevant available information from internal and external sources on a quarterly basis.

As of both June 30, 2026 and December 31, 2025, the reserve for credit losses related to accounts receivable was approximately $0.2 million.

Notes receivable

Under ASC 326, the Company evaluates notes receivable as a single pool, for individual notes receivable and borrowers with similar risk characteristics. Notes receivable and borrowers that do not share risk characteristics are evaluated on an individual basis. Management evaluates the Company's notes receivables related to financing laboratory equipment sales within the notes receivable pool. Management estimates the reserve balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience typically provides the basis for an estimation of expected credit losses; however, the Company lacks sufficient data upon which to base a historical estimation.

The Company evaluates its allowance for credit losses over its notes receivable related to loans to buyers of charged-off and nonperforming receivable portfolios in its specialty lending segment individually for each loan and borrower using discounted cash flows based on estimated collections. In order to evaluate the need for an adjustment to the receivable balance related to credit losses, or impairment, the Company performs a review of all outstanding loan receivables on a quarterly basis to determine if any indicators exist that suggest the loan will not be fully recoverable and assess the credit quality of the loan receivables. This review includes monthly and cumulative key performance indicators for each loan and borrower, as well as evaluation of borrower's financial condition.

During the three months ended June 30, 2026, the Company increased its allowance for credit losses related to loans to buyers of charged-off and nonperforming receivable portfolios by $3.5 million primarily due to the continuation of difficulties with the Company’s largest borrower, including a further decline in the second quarter of 2026. Refer to Note 16 - Subsequent Events, and the Company’s Current Report on Form 8-K, filed with the SEC on July 31, 2026, for additional information. As of June 30, 2026, the Company's assessment of the allowance for credit losses associated with these notes receivable was informed by factors including the difficulties mentioned above. Based on its assessment, the Company concluded that the net amount expected to be collected from these notes receivable has declined materially.

Lacking historical internal data upon which to base a reserve for credit losses to notes receivable, the Company, under ASC 326, estimates its reserve using external credit loss experience data. Management observes that the Company's notes receivable related to the financing of laboratory equipment are similar in character to transactions undertaken by smaller banking institutions. For its notes receivables related to the financing of laboratory equipment sales, the Company estimates its expected credit losses based on the Scaled Current Expected Credit Loss (CECL) Allowance Loss Estimator ("SCALE rate") available from the Federal Reserve. The SCALE rate methodology is endorsed by the FASB and the Conference of State Bank Supervisors. Management determined under ASC 326 that the SCALE rate, a generally applicable rate, may be appropriately adjusted by its assessment of observable facts and relevant circumstances indicating that the factors analyzed in the determination of the SCALE rate may not conform to the Company's operations and borrower assessments. As of June 30, 2026 management determined that the SCALE rate plus 1% to be appropriate for the notes receivables related to the financing of laboratory equipment sales.

As of June 30, 2026 and December 31, 2025, the Company's allowance for credit losses related to notes receivable outstanding was approximately $3.9 million and $0.3 million, respectively.

Business combinations

Acquisitions are accounted for under ASC Topic 805, Business Combinations (“ASC 805”), which requires that assets acquired and liabilities assumed 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 and liabilities assumed (including identifiable intangible assets) should be recorded as goodwill. Effective January 1, 2026 Heritage DebtX LLC ("DebtX"), a wholly owned subsidiary of Heritage Global, Inc., acquired substantially all of the assets of The Debt Exchange Inc. for approximately $8.5 million. The purchase price allocation was based on an evaluation of the appropriate fair values and represents management's best estimate.

Recently adopted accounting pronouncements

On December 14, 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which requires enhanced annual disclosures with respect to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with adoption permitted on a prospective basis. The Company adopted this standard for the year ended December 31, 2025 and applied the new disclosure requirements prospectively.

In July 2025, the FASB issued an accounting pronouncement (ASU 2025-05) related to credit losses for accounts receivable and contract assets. The amendments in this update provide a practical expedient that permits an entity to assume that conditions at the balance sheet date remain unchanged over the life of the asset to simplify the estimation of expected credit losses for current accounts receivable and current contract assets. This update is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years, though early adoption is permitted. While the Company adopted this pronouncement for the fiscal year beginning January 1, 2026, the Company elected the practical expedient permitted under this ASU and the adoption has no material impact on the Company's consolidated financial statements.

Future accounting pronouncements

On November 4, 2024, the FASB issued ASU 2024-03, "Reporting Comprehensive Income—Expense Disaggregation Disclosures" ("ASU 2024-03") which requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. ASU 2024-03 is effective for all public business entities for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company anticipates that ASU 2024-03 will have no accounting impact but will require additional disclosure to further detail certain income statement expense information.

In September 2025, the FASB issued an accounting pronouncement (ASU 2025-06) related to accounting for internal-use software costs. The amendments in this update improve the operability of the guidance by removing all references to software development project stages so that the guidance is neutral to different software development methods. This update is effective for annual periods beginning after December 15, 2027, including interim periods within those fiscal years, though early adoption is permitted. The Company plans to adopt this pronouncement for our fiscal year beginning January 1, 2028 and anticipates that ASU 2025-06 will not have a material impact on the Company's consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, "Interim Reporting (Topic 270): Narrow-Scope Improvements," which clarifies interim disclosure requirements by improving the navigability of the required interim disclosures and clarifying when that guidance is applicable. The standard is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the potential impact the adoption of this standard will have on its consolidated financial statements and disclosures, which is not expected to be material.

Note 3 – Business Combinations

Effective January 1, 2026, (the “Acquisition Date”) and pursuant to an Asset Purchase Agreement dated January 9, 2026, Heritage DebtX LLC ("DebtX"), a wholly owned subsidiary of Heritage Global, Inc., completed the acquisition of substantially all of the assets of The Debt Exchange, Inc., a provider of loan sale advisory services for commercial and consumer debt. The acquisition enhances the Company’s capabilities in financial advisory services and expands its customer relationships within the banking and financial services sector. The total purchase consideration paid to The Debt Exchange, Inc. was approximately $8.5 million, consisting of cash paid at closing and amounts placed into escrow.

The Company has determined the transaction to be a business combination in accordance with ASC 805 Business Combinations. Accordingly, the assets acquired and liabilities assumed in the transaction were recorded at their estimated acquisition fair values, while transaction costs associated with the acquisition were expensed as incurred pursuant to the purchase method of accounting in accordance with ASC 805. The Company’s purchase price allocation was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data. Fair values are determined based on the requirements of ASC Topic 820, Fair Value Measurement (“ASC 820”).

The following table summarizes the allocation of the purchase consideration to the estimated fair values of assets acquired and liabilities assumed as of the Acquisition Date (in thousands):

The $3.1 million of intangible assets are attributable to $1.3 million of customer relationships which will be amortized over a useful life of 15 years, $1.8 million for the DebtX trade name which has an indefinite useful life, and approximately $26,000 of non-compete agreements which will be amortized overone year.

The excess of the consideration transferred over the fair values of assets acquired and liabilities assumed was recorded as goodwill, which was primarily attributed to increased synergies that are expected to be achieved from the acquisition. Goodwill is expected to be deductible for income tax purposes.

The financial results of DebtX have been included in the Company's consolidated financial statements since the Acquisition Date and have been reported as the Commercial Loans segment within the Company's Financial Assets Division. For the six months ended June 30, 2026, DebtX contributed revenue of $2.4 million and net loss of $0.5 million to the Company's consolidated results.

For the year ended December 31, 2025, The Debt Exchange, Inc. reported, on a standalone basis, revenues of approximately $6.6 million and operating income of approximately $0.8 million. As the acquisition was effective on January 1, 2026, these unaudited results were not included in the Company’s consolidated results of operations for the year ended December 31, 2025.

The Company incurred acquisition-related costs of $0.3 million that consisted primarily of legal and advisory services. These costs are included in selling, general and administrative expenses for the year ended December 31, 2025.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information presented in the table below (in thousands) is provided for illustrative purposes only and summarizes the combined results of operations of the Company and DebtX for the three and six months ended June 30, 2026 and 2025. For purposes of this pro forma presentation, the acquisition of substantially all of the assets of The Debt Exchange, Inc. is assumed to have occurred on January 1, 2025. The pro forma financial information for all periods presented also includes the estimated business combination accounting effects resulting from this acquisition, notably amortization expense from the acquired intangible assets and certain other integration related impacts.

This unaudited pro forma financial information should not be relied upon as being indicative of the historical results that would have been obtained if the acquisition had actually occurred on January 1, 2025, and are not intended to be a projection of future trends or results.

The pro forma financial information for all periods presented also includes the estimated business combination accounting effects resulting from this acquisition, notably amortization expense from the acquired intangible assets and certain other integration related impacts.

Note 4 – Accounts Receivable, net

As further discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, the Company’s accounts receivable are primarily related to the operations of its business. With respect to auction proceeds and asset dispositions, including NLEX’s brokerage transactions, the assets are not released to the buyer until payment has been received. With respect to appraisal service fees, ALT's laboratory equipment sales and DebtX's loan sale advisory service fees, the Company extends credit to entities and institutions of significance, such as well-known academic and financial institutions and U.S. government agencies. 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 its accounts receivable. As the Company’s business expands, more comprehensive credit assessments may be required.

In accordance with ASC 326, the Company performs a review of accounts receivables on a quarterly basis. During the six months ended June 30, 2026, the Company recorded no material adjustments for credit losses in selling, general and administrative expense on the consolidated statement of income related to accounts receivable. As of both June 30, 2026 and December 31, 2025, the reserve for credit losses was approximately $0.2 million.

Note 5 – Notes Receivable, net

The Company’s notes receivable, net consists of investments in loans to buyers of charged-off and nonperforming receivable portfolios through HGC and financing of laboratory equipment sales through ALT.

As of June 30, 2026 and December 31, 2025, the Company’s outstanding notes receivable balance related to loans to buyers of charged-off and nonperforming receivable portfolios, net of unamortized deferred fees and costs on originated loans, and adjusted for the allowance for credit losses was $3.9 million and $8.8 million, respectively. The activity during the six months ended June 30, 2026 includes the additional investment in notes receivable of approximately $1.3 million, which was offset by principal payments made by borrowers of approximately $2.7 million and a $3.5 million increase to the allowance for credit losses, related to the Board's decision to wind down the Specialty Lending segment.

As of June 30, 2026 and December 31, 2025, the Company’s outstanding notes receivable balance related to financing of laboratory equipment sales, net of unamortized deferred fees and costs on originated loans and adjusted for the reserve for credit losses was $0.8 million and $0.6 million, respectively. The activity during the six months ended June 30, 2026 includes the investment in notes receivable of approximately $0.7 million, which was offset by principal payments made by purchasers of $0.5 million and an immaterial amount of deferred financing fees, and allowance for credit losses.

The table below shows the Company’s lending activity for the six months ended June 30, 2026 (in thousands):

In accordance with ASC 326, the Company performs a review of notes receivable on a quarterly basis. During the six months ended June 30, 2026 and in connection with the Board's decision to wind down the Specialty Lending segment, the Company recorded an increase of $3.5 million to the provision for credit losses in selling, general and administrative expense on the consolidated statement of income. As of June 30, 2026 and December 31, 2025, the amortized cost basis of notes receivable in nonaccrual status was $4.6 million and $4.8 million, respectively.

Note 6 – Stock-based Compensation

As of June 30, 2026, the Company had four stock-based compensation plans, which are described more fully in Note 16 – Stockholders' Equity - Stock-Based Compensation Plansof the Company's audited consolidated financial statements for the year ended December 31, 2025 contained in the Company’s Form 10-K.

Stock Options

During the six months ended June 30, 2026, the Company issued options to purchase 955,000 shares of common stock to certain of the Company’s employees. During the same period, the Company canceled 45,000 options to purchase common stock as a result of employee resignations. During the six months ended June 30, 2026 the Company issued 7,956 shares of common stock pursuant to the cashless exercise of options to purchase 31,875 shares of common stock.

The following summarizes the changes in common stock options for the six months ended June 30, 2026:

The Company recognized stock-based compensation expense related to common stock options of $0.4 million and $0.3 million for the six months ended June 30, 2026 and 2025, respectively. As of June 30, 2026, there was approximately $1.0 million of unrecognized stock-based compensation expense related to unvested common stock options outstanding, which is expected to be recognized over aweighted average period of 1.7 years.

Restricted Stock

Restricted stock awards represent a right to receive shares of common stock at a future date determined in accordance with the participant’s award agreement. There is no exercise price and no monetary payment required for receipt of restricted stock awards or the shares issued in settlement of the award. Instead, consideration is furnished in the form of the participant’s services to the Company. Compensation cost for these awards is based on the fair value of the shares of common stock on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period.

The following summarizes the restricted stock awards and related stock-based compensation expense (in thousands, except share count and award fair value):

[1]These restricted stock awards vest 25% annually over four years, until fully vested on December 31, 2028.

[2]These restricted stock awards vest 25% quarterly over one year, until fully vested on March 5, 2027.

The Company determined the fair value of the shares awarded by using the closing price of our common stock as of the grant date. Stock-based compensation expense related to the restricted stock awards was approximately $0.1 million and $0.2 million for the six months ended June 30, 2026 and 2025, respectively. The unrecognized stock-based compensation expense as of June 30, 2026 was approximately $0.2 million, which is expected to be recognized over aweighted average period of 1.7 years.

Note 7 – Equity Method Investments

The Company has significant influence over the operations and financial policies of each of its equity method investments.

Joint ventures formed in connection with the Company's Auction and Liquidation segment

In December 2023, KNFH II LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets and machinery and equipment among partners in a joint venture.

In January 2025, DLZ Solutions LLC ("DLZ"), a joint venture in which the Company holds a 20% share, entered into a purchase agreement to purchase certain real estate assets and a lease agreement to lease back the purchased real estate assets to the seller.

In December 2022, DHC8 LLC, of which the Company held a 13.33% share was formed to provide funding and receive principal and interest payments as a result of the initial investment. This joint venture was dissolved in June 2025.

Joint ventures formed in connection with the Company's Specialty Lending segment

In March 2020, HGC Origination I LLC and HGC Funding I LLC, of which the Company initially held a 25% share in each, were formed as joint ventures with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients. HGC Funding I LLC was dissolved in December 2025.

In May 2023, HGC MPG Funding LLC, of which the Company initially held a 25% share, was formed as a joint venture with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients.

During the second quarter of 2026, the Company identified indicators of a potential other-than-temporary decline in value of its equity method investments in the Specialty Lending segment. Based on its evaluation of these indicators, the Company concluded that the decline in value of its equity method investments in HGC Origination LLC and HGC MPG Funding LLC is other-than-temporary. Accordingly, during the three months ended June 30, 2026, the Company recorded an impairment charge of $18.2 million to reduce the carrying amount of these investments to their estimated fair value. Refer to Note 2 – Specialty Lending – Equity Method Investment Impairment for further information.

The table below details the Company’s joint venture revenues, earnings, assets, and liabilities for the six months ended and as of June 30, 2026 (in thousands):

The table below details the Company’s joint venture revenues, earnings, assets, and liabilities for the six months ended and as of June 30, 2025 (in thousands):

Lessor Arrangements

In December 2023, the Company, with certain partners making up the KNFH II LLC joint venture, entered into a purchase and sale agreement for a pharmaceutical plant in Fenton, Missouri, including land, a building, and all machinery and equipment held within, with a purchase price of $8.0 million.

In April 2024, KNFH II LLC entered into a purchase and sale agreement for the machinery and equipment within the pharmaceutical plant with a purchase price of $5.0 million. Additionally, KNFH II LLC entered into a lease agreement for the lease of the real estate assets; the building and land. This lease agreement includes a purchase option with a purchase price of $8.0 million that is expected to be exercised by the lessee. The lessor arrangement is classified as a sales-type lease, and, therefore, the present value of future lease payments, including the purchase option, has been recognized as revenue and a lease receivable as of the effective date. As of June 30, 2026, the Company recognized approximately $1.2 million in life-to-date earnings of equity method investments, related to the Company’s share of net income attributable to KNFH II LLC.

On January 29, 2025, DLZ, a joint venture in which the Company holds a 20% share, entered into a purchase agreement for a pharmaceutical plant in Huntsville, Alabama, including land and a building, with a purchase price of approximately $7.8 million. Simultaneously, DLZ entered into a lease agreement with the Seller, for the lease of the real estate assets, the building and land. This lease agreement includes a purchase option exercisable prior to the end of the first 18-month lease term with a purchase price of approximately $9.7 million. Concurrently, the Company sold a one-third economic interest in cash flows related to the DLZ investment, which is reflected as a secured borrowing on its balance sheet within other current liabilities. In March 2026, the Seller exercised its purchase option and the joint venture received payment in full. As of June 30, 2026, the Company has recorded approximately $0.6 million in life-to-date earnings in equity method investments and approximately $0.2 million in cost of services revenue related to the investment on the consolidated statement of income.

Additionally, on January 29, 2025, the Company purchased a 20% participating interest in a financial asset for approximately $1.6 million. The participants’ investment was used to purchase machinery and equipment at the same pharmaceutical plant in Huntsville, Alabama for approximately $7.8 million. The participants entered into a lease agreement to lease the purchased machinery and equipment back to the seller with an 18-month lease term which includes purchase option exercisable prior to the end of the term with a purchase price of approximately $9.5 million. Concurrently, the Company sold a one-third economic interest in cash flows related to its participating interest, which is reflected as a secured borrowing on its balance sheet within other current liabilities. In March 2026, the Seller made an additional principal payment which reduces the contractual purchase price upon the exercise of the purchase option. As of June 30, 2026, the Company reflects its participating interest of $0.8 million on its balance sheet within other long-term assets. The Company has recorded approximately $166,000 in life-to-date services revenue and approximately $55,000 in life-to-date costs of services revenue related to the investment on the consolidated statement of income.

Note 8 – Earnings 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 becausethe Company’s shares of Series N preferred stock, 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. For both the three and six months ended June 30, 2026 and 2025, the earnings allocated to the outstanding preferred shares were not material.

In periods in which the Company records 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. As the preferred stock does not participate in losses, the two-class method is not used in periods in which the Company records a net loss.

Stock options and other potential common shares are included in the calculation of diluted earnings per share (“diluted EPS”). In calculating diluted EPS, such shares are assumed to be exercised or converted, except when their effect would be anti-dilutive.

The table below shows the calculation of the number of shares used in computing diluted EPS:

Because the Company reported a net loss for the three and six months ended June 30, 2026, incremental shares from stock options and restricted stock awards were excluded from diluted loss per share because their effect would have been anti-dilutive. Accordingly, diluted weighted-average shares and diluted loss per share equal basic weighted-average shares and basic loss per share for those periods. For both the three and six months ended June 30, 2025, there were potential common shares of 0.9 million that were excluded from the computation of diluted EPS, as the inclusion of such common shares would have been anti-dilutive.

Note 9 – Leases

The Company leases office and warehouse space infour locations: Del Mar, California, Hayward, California, San Diego, California and Edwardsville, Illinois. The Company determined that all of its lease arrangements are classified as operating leases.

On August 12, 2022, the Company entered into an agreement with Liberty Industrial Park, LLC pursuant to which the Company leases 6,627 square feet of industrial space in San Diego, California. The commencement date of the lease was September 1, 2022 and the lease term expires on August 30, 2027. It provides for an initial monthly base rent of $11,266, which increases on an annual basis to $13,180 per month in the final year. In addition, the Company is obligated to pay its share of maintenance costs of common areas.

On June 1, 2023, the Company amended its Edwardsville office building lease with David Ludwig, extending the term of the agreement to May 31, 2027 and setting rent amounts for the new term. It provides for an initial monthly base rent of $9,412, which increases on an annual basis to $9,914 per month in the final year.

On September 23, 2024, the Company amended its Del Mar office lease with OF 09 Hacienda, LLC, extending the term of the agreement by 24 months to February 28, 2027 and setting rent amounts for the new term. The amended Del Mar office lease provides for an initial monthly base rent of $14,660 beginning March 1, 2025 and increases on an annual basis to $15,099 per month in the final year.

On March 1, 2026, the Company vacated its Del Mar leased office space and determined that it would no longer use the facility in its operations. The Company is marketing the space for sublease and remains obligated for payments under the original lease through February 28, 2027. As a result of the change in use, management evaluated the related operating lease right-of-use asset for impairment under ASC 360, Property, Plant, and Equipment.

The Company determined that the carrying amount of the related operating lease right-of-use asset was not recoverable and recorded a noncash impairment loss of approximately $73,000, reducing the carrying amount of the operating lease right-of-use asset from approximately $113,000 to approximately $39,000. The impairment loss is included in selling, general and administrative expense in the accompanying consolidated statement of income.

The fair value of the impaired right-of-use asset was determined using expected sublease cash flows based on broker-supported estimated market rent and expected sublease term. Significant assumptions included the expected timing of sublease commencement, expected market rental rate, expected sublease term, and expected costs, if any, to obtain a subtenant. The impairment did not affect the related operating lease liability, as there was no modification to the underlying lease agreement or change in the Company’s contractual lease payments.

The right-of-use assets and lease liabilities for each lease location are as follows (in thousands):

The Company’s leases generally do not provide an implicit rate, and, therefore, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within the same particular economic environment. The Company used its incremental borrowing rate as of January 1, 2019 for operating leases that commenced prior to that date. As of January 1, 2019, the Company’s incremental borrowing rate was 5.25%. For leases commencing after January 1, 2019 the Company uses its incremental borrowing rate at time of commencement. On September 1, 2022, June 1, 2023, and September 23, 2024, the Company’s incremental borrowing rate was 5.50%,7.25%, and 6.25%, respectively. The weighted average remaining lease term for operating leases is 1.8 years and the weighted average discount rate is 5.3% as of June 30, 2026.

Lease expense is recognized on a straight-line basis over the lease term. For the six month periods ended June 30, 2026 and 2025, lease expense was approximately $0.5 million and $0.4 million, respectively. As of June 30, 2026, undiscounted future minimum lease payments related to leases that have initial or remaining lease terms in excess of one year are as follows (in thousands):

Note 10 – Property and Equipment, net

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. The life of the building acquired in connection with the ALT purchase transaction was determined to be 25 years. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Estimated service lives arefive years for furniture, fixtures and office equipment andthree years for software and technology assets. 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.

On February 11, 2025, the Company purchased real estate for $7.4 million consisting of land and a building which is used as the Company’s corporate headquarters and as warehouse and office space for the operations of HGP. The Company allocated $2.8 million of the purchase price to the building and $4.6 million to the land. The life of the building was determined to be 30 years. The Company capitalized a total of $2.7 million in building improvements and the building was placed in service on March 1, 2026 with a total depreciable cost of approximately $5.6 million.

Also included in the purchase transaction was an agreement for a short-term leaseback to the seller, which ended on March 31, 2025, and resulted in a credit within the closing statement of approximately $0.1 million. This credit is considered rental income and classified as service revenue on our 2025 consolidated statement of income, and reflected as gross profit within our Corporate and other segment.

The following summarizes the components of the Company’s property and equipment (in thousands):

Note 11 – Intangible Assets and Goodwill

Intangible assets

The Company’s identifiable intangible assets as of June 30, 2026 and December 31, 2025 are shown below (in thousands except for lives):

Amortization expense during the six months ended June 30, 2026 and 2025 was $0.2 million and $0.1 million, respectively. The Company estimates that the residual value for intangible assets isnot significant.

As of June 30, 2026, the estimated amortization expense for the remainder of the current fiscal year and the next five fiscal years and thereafter is shown below (in thousands):

Goodwill

The Company’s goodwill relates to its acquisition of various entities. Goodwill consists of the following at June 30, 2026 and December 31, 2025 (in thousands):

The Company recognized goodwill of $5.3 million in 2026 related to the acquisition of substantially all of the assets of The Debt Exchange, Inc. There wereno impairments recorded to the carrying value of goodwill during the six months ended June 30, 2026 or 2025.

Note 12 – Debt

Outstanding debt as of June 30, 2026 and December 31, 2025 is summarized as follows (in thousands):

As of June 30, 2026, the estimated principal repayments on outstanding debt for the remainder of the current fiscal year, the next five fiscal years and thereafter is shown below (in thousands):

2021 Credit Facility

On May 5, 2021, the Company entered into a promissory note, business loan agreement, commercial security agreement and pledge agreement (the “2021 Credit Facility”) with C3bank, National Association ("Lender") for a $10.0 million revolving line of credit. The Company is permitted to use the proceeds of the loan solely for its business operations. The Company is the borrower under the 2021 Credit Facility. The 2021 Credit Facility is secured by a security interest in certain of the Company’s subsidiaries’ current and future tangible and intangible assets, inventory, chattel paper, accounts, equipment and general intangibles, and a pledge of the equity of the direct and indirect subsidiaries of the Company.

Per the Loan Modification Agreement and Reaffirmation of Loan (the “2023 Modification Agreement”), effective as of May 26, 2023, by and between the Company and Lender, the applicable interest rate spread and floor of the 2021 Credit Facility was modified to be the Wall Street Journal Prime rate plus 1.00% (such rate not to be less than 6.75% per annum). Additionally, the 2023 Modification Agreement modified the loan covenants to provide that the Company shall pay the Lender an annual unused line fee, payable on the earlier of (a) bi-annually every six (6) months in arrears, within ten (10) days thereof, commencing on October 27, 2023, or (b) the payment in full of the 2021 Credit Facility, but only if the average balance of the 2021 Credit Facility for the respective nine months is below $5.0 million. The availability of additional draws under the 2021 Credit Facility is conditioned, among other things, on the compliance with certain customary representations and warranties, including default, insolvency or bankruptcy, material adverse change in financial condition and any guarantor’s attempt to revise its guarantee. The agreement governing the 2021 Credit Facility also contains customary affirmative covenants regarding, among other things, the maintenance of records, maintenance of certain insurance coverage, compliance with governmental requirements and maintenance of several financial covenants. The 2021 Credit Facility contains certain customary financial covenants and negative covenants that, among other things, include restrictions on the Company’s ability to create, incur or assume indebtedness for borrowed money, including capital leases or to sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of the Company’s assets.

The Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Sixth Modification Agreement”), effective as of December 27, 2024, to extend the maturity date of the 2021 Credit Facility to June 27, 2026. The Sixth Modification Agreement also raises the interest rate floor by 0.25% to 7.0% and modifies certain compliance covenants.

On June 25, 2026 the Company and Lender entered into a change in terms agreement that extends the maturity date of the 2021 Credit Facility to July 27, 2026. The 2021 Credit Facility matured on July 27, 2026 and the Company is actively working with the Lender to establish a new line of credit which management believes will be executed in the third quarter of 2026. As of June 30, 2026, there wasno outstanding balance on the 2021 Credit Facility.

Mortgage

On February 6, 2025, Heritage Nancy Ridge LLC (“Heritage Nancy Ridge”), an indirect and wholly owned subsidiary of the Company entered into a promissory note, a business loan agreement and commercial security agreement (collectively, the “Mortgage Loan Agreement”) with C3bank, National Association (the “Lender”). The Mortgage Loan Agreement provides for a $4.1 million term loan (the “Mortgage”). Heritage Nancy Ridge used the proceeds of the Mortgage to purchase real property and the building located at 6130 Nancy Ridge Drive in San Diego, California (the “Nancy Ridge Property”) on February 11, 2025, which will be used as the Company’s future corporate headquarters and as future warehouse and office space for the operations of Heritage Global Partners, Inc., a subsidiary of the Company that operates the Auction and Liquidation segment of the Company.

The maturity date of the Mortgage Loan Agreement is February 5, 2035. The Mortgage Loan Agreement sets the interest rate to accrue at a rate of 6.5% for the first three years of the Mortgage. For the remainder of the term, the Mortgage Loan Agreement sets the interest rate spread and interest rate floor to accrue at a variable interest rate, which is based on the one-month Term SOFR as published daily by CME Group, plus a margin of 2.25%. Additionally, the Mortgage Loan Agreement provides that in the event of prepayment, Heritage Nancy Ridge shall pay the Lender a prepayment fee during the first year of the Mortgage equal to three percent (3%) of the amount prepaid, followed by two percent (2%) of the amount prepaid in year two of the Mortgage, and one percent (1%) of the amount prepaid in year three of the Mortgage.

Heritage Ridge Nancy is the borrower and the Company is the guarantor under the Mortgage Loan Agreement. The Mortgage Loan Agreement is secured by a security interest in the Nancy Ridge Property. The Mortgage Loan Agreement contains customary affirmative covenants regarding, among other things, the maintenance of records, maintenance of certain insurance coverage, compliance with governmental requirements and maintenance of several financial covenants. The Mortgage Loan Agreement also contains certain customary financial covenants and negative covenants. The outstanding balance of the Mortgage as of June 30, 2026 was $4.1 million.

Note 13 – Income Taxes

As of June 30, 2026, the Company had aggregate federal net operating loss carry-forwards of $15.5 million available for utilization against taxable income achieved in 2026 and beyond. These net operating loss carry forwards begin to expire in 2026. The Company records net deferred tax assets to the extent that it believes such assets will more likely than not be realized. As a result of cumulative losses and uncertainty with respect to future taxable income, the Company has provided a partial valuation allowance against its net deferred tax assets. As of June 30, 2026, the Company's valuation allowance against its deferred tax assets was approximately $0.3 million. The Company didnot have a valuation allowance as of December 31, 2025. The Company has no net operating loss carry forwards limited under Section 382 of the Internal Revenue Code as of June 30, 2026.

The reported income tax benefit varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the loss from operations before taxes primarily as a result of the impact of state income taxes.

In July 2025, the One Big Beautiful Bill Act (the “OBBB”) was enacted into law, which includes significant tax related provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The Company currently does not expect the OBBB to have a material impact on its annual effective tax rate in 2026.

Note 14 – Related Party Transactions

As part of the operations of NLEX, the Company leases office space in Edwardsville, IL that is owned by the President of NLEX and a member of the board of directors of the Company, David Ludwig. The total amount paid to the related party for the six month periods ended June 30, 2026 and 2025 was approximately $58,000 and $57,000, respectively, and is included in selling, general and administrative expenses in the unaudited condensed consolidated statements of income.

Note 15 – Segment Information

Ross Dove, the Company’s Chief Executive Officer, is the chief operating decision maker. The CODM uses segment operating income (loss) to assess segment performance and allocate resources. The CODM is not regularly provided segment asset information, and the Company therefore does not disclose segment assets.

The following tables set forth certain financial information for the Company's reportable segments for the three month periods ended June 30, 2026 and 2025 (in thousands):

The following tables set forth certain financial information for the Company's reportable segments for the six month periods ended June 30, 2026 and 2025 (in thousands):

[1]Within the Company’s Industrial Asset division, management allocates gross profit resulting from certain auctions from Auctions and Liquidation (HGP) to Refurbishment & Resale (ALT). From time to time, ALT may source and refer an auction project to HGP or directly sell lab equipment inventory through the auction channel. In these instances, the profits relating to these transactions are allocated to ALT rather than accounted for under the segment profit or loss of HGP. During the three months ended June 30, 2026, the total amount of gross profit allocated to ALT from HGP was not material, as compared to the total amount of gross profit allocated to ALT during the same period of 2025 of approximately $0.4 million. During the six months ended June 30, 2026, the total amount of gross profit allocated to ALT from HGP was approximately $0.1 million, as compared to the total amount of gross profit allocated to ALT during the same period of 2025 of approximately $0.6 million.

[2]All financing arrangements are originated with Corporate and other. 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. No interest expense has been allocated to operating segments during the three or six months ended June 30, 2026 and 2025.

Note 16 – Subsequent Events

The Company has evaluated events subsequent to June 30, 2026 for potential recognition or disclosure in its condensed consolidated financial statements. There have been no material subsequent events requiring recognition or disclosure in this Quarterly Report on Form 10-Q, other than noted below.

Acquisition of Boston Note Company

On July 31, 2026, a wholly owned subsidiary of the Company operating in its Financial Assets Division acquired Boston Note Company, a nationwide broker and buyer of privately held loans, notes, and mortgages, commonly known as seller notes or carry-back notes. Following the transaction, Boston Note Company will do business as Boston Note, a Heritage Global company. Aggregate purchase consideration is expected to be approximately $2.0 million if all contingent milestones are achieved.

Wind Down of Specialty Lending Segment

On July 30, 2026, the Board authorized a strategic plan (the “Exit Plan”) to wind down the Company’s Specialty Lending segment, which has operated through Heritage Global Capital LLC, a wholly owned subsidiary of the Company (“HGC”), and provided specialty financing solutions to investors in charged-off and nonperforming asset portfolios. Based upon the continuation of difficulties with its largest borrower as previously described in the Company's Annual Report on Form 10-K and the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2026, filed with the SEC on May 7, 2026, declining further in the second quarter of 2026, and the Board’s evaluation of the business of the Specialty Lending segment in consultation with its advisors, the Board determined that the Exit Plan is in the best interests of the Company. As part of the Exit Plan, HGC will take steps to wind down or exit its position in the joint ventures through which HGC conducts a portion of the business of Specialty Lending segment.

In connection with the implementation of the Exit Plan, the Company expects to incur cash expenditures consisting primarily of employee-related costs related to the wind down process and professional services expenses. The total amount of these expenditures has yet to be determined and will depend on the duration and scope of the activities necessary to implement the Exit Plan. The Company will file an amendment to the Company’s Current Report on Form 8-K, filed with the SEC on July 31, 2026, after it makes a determination of such estimate.

In addition, the Company will recognize a material non-cash impairment charge of approximately $21.7 million, which the Company recognized for the reporting period ended June 30, 2026. Of the aggregate non-cash impairment charges, (i) $18.2 million consists of the write-down of equity method investments and (ii) approximately $3.5 million consists of an increase in the reserve for credit losses for notes receivable.

The Company anticipates that the Exit Plan will commence in the third quarter of 2026 and the completion date will depend on the duration and scope of the activities necessary to implement the Exit Plan. As part of the Exit Plan, the Company, through the Specialty Lending segment, may continue to fund an immaterial number of loans or pursue restructuring efforts with its remaining borrowers.

The costs (including the categories of costs incurred) and timing estimates related to the Exit Plan are subject to a number of assumptions and actual results may differ. As the Exit Plan is implemented, management will continue to evaluate the estimated costs (including the categories of costs incurred) and timing set forth above and may revise its estimates of such costs and timing, as appropriate.