Heritage Global Inc. (Form: 10-Q, Received: 05/13/2021 16:04:16)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-39471

Heritage Global Inc.

(Exact name of registrant as specified in its charter)


Florida	59-2291344
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

12625 High Bluff Drive, Suite 305, San Diego, CA 92130

(Address of Principal Executive Offices)

(858) 847-0659
(Registrant’s Telephone Number)

N/A

(Registrant’s Former Name)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	HGBL	Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of May 1, 2021, there were 35,672,477 shares of common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

Part I.	Financial Information	4

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020	4

	Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020 (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

Part II.	Other Information	30

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults Upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	31

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements.

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except share and per share amounts)

	March 31, 2021			December 31, 2020
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	15,852		$	23,385
Accounts receivable		2,297			1,496
Current portion of notes receivable, net		2,036			1,338
Inventory – equipment		91			235
Other current assets		447			498
Total current assets		20,723			26,952
Non-current portion of notes receivable, net		1,565			748
Equity method investments		2,402			2,402
Right-of-use assets		830			963
Property and equipment, net		132			130
Intangible assets, net		3,056			3,123
Goodwill		5,585			5,585
Deferred tax assets		4,450			4,402
Other assets		246			250
Total assets	$	38,989		$	44,555

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	7,202		$	13,609
Current portion of lease liabilities		301			380
Total current liabilities		7,503			13,989
Non-current portion of lease liabilities		564			623
Total liabilities		8,067			14,612

Stockholders’ equity:
Preferred stock, $10.00 par value, authorized 10,000,000 shares; issued and outstanding 568 shares of Series N as of March 31, 2021 and December 31, 2020		6			6
Common stock, $0.01 par value, authorized 300,000,000 shares; issued and outstanding 35,647,477 shares as of March 31, 2021 and 35,281,183 as of December 31, 2020		357			353
Additional paid-in capital		293,343			293,400
Accumulated deficit		(262,784	)		(263,816	)
Total stockholders’ equity		30,922			29,943
Total liabilities and stockholders’ equity	$	38,989		$	44,555

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

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands of US dollars, except share and per share amounts)

(unaudited)

	Three Months Ended March 31,
	2021		2020
Revenues:
Services revenue	$	5,030	$	4,088
Asset sales		2,071		156
Total revenues		7,101		4,244

Operating costs and expenses:
Cost of services revenue		1,175		551
Cost of asset sales		820		38
Selling, general and administrative		3,969		3,472
Depreciation and amortization		91		90
Total operating costs and expenses		6,055		4,151
Earnings of equity method investments		—		1
Operating income		1,046		94
Interest and other expense, net		3		(27	)
Income before income tax expense		1,049		67
Income tax expense		17		29
Net income	$	1,032	$	38

Weighted average common shares outstanding – basic		34,788,016		28,751,689
Weighted average common shares outstanding – diluted		37,533,065		30,200,114
Net income per share – basic	$	0.03	$	0.00
Net income per share – diluted	$	0.03	$	0.00

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

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands of US dollars, except share amounts)
(unaudited)

									Additional						Accumulated other
	Preferred stock				Common stock				paid-in			Accumulated			comprehensive
	Shares		Amount		Shares		Amount		capital			deficit			loss		Total
Balance as of December 31, 2020		568	$	6		35,281,183	$	353	$	293,400		$	(263,816	)	$	—	$	29,943
Issuance of common stock from stock option awards		—		—		366,294		4		(124	)		—			—		(120	)
Stock-based compensation expense		—		—		—		—		67			—			—		67
Net income		—		—		—		—		—			1,032			—		1,032
Balance as of March 31, 2021		568	$	6		35,647,477	$	357	$	293,343		$	(262,784	)	$	—	$	30,922

									Additional						Accumulated other
	Preferred stock				Common stock				paid-in			Accumulated			comprehensive
	Shares		Amount		Shares		Amount		capital			deficit			loss			Total
Balance as of December 31, 2019		568	$	6		29,339,101	$	293	$	285,099		$	(273,474	)	$	(77	)	$	11,847
Issuance of common stock from stock option awards		—		—		19,805		1		(3	)		—			—			(2	)
Stock-based compensation expense		—		—		—		—		75			—			—			75
Net income		—		—		—		—		—			38			—			38
Balance as of March 31, 2020		568	$	6		29,358,906	$	294	$	285,171		$	(273,436	)	$	(77	)	$	11,958

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

HERITAGE GLOBAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(unaudited)

	March 31,
	2021			2020
Cash flows used in operating activities:
Net income	$	1,032		$	38
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of deferred issuance costs and fees		49			59
Earnings of equity method investments		—			(1	)
Noncash lease expense		133			131
Depreciation and amortization		91			90
Deferred taxes		(48	)		43
Stock-based compensation expense		143			75
Changes in operating assets and liabilities:
Accounts receivable		(801	)		160
Inventory – equipment		144			(114	)
Other assets		55			(333	)
Accounts payable and accrued liabilities		(6,485	)		(132	)
Lease liabilities		(140	)		(134	)
Net cash used in operating activities		(5,827	)		(118	)

Cash flows (used in) provided by investing activities:
Investment in notes receivable		(2,494	)		(3,580	)
Payments received on notes receivable		929			421
Cash received on transfer of notes receivable to partners		—			3,994
Investment in equity method investments		—			(385	)
Cash distributions from equity method investments		—			136
Purchase of property and equipment		(23	)		(5	)
Net cash (used in) provided by investing activities		(1,588	)		581

Cash flows used in financing activities:
Proceeds from debt payable to third party		—			4,425
Repayment of debt payable to third party		—			(4,523	)
Proceeds from issuance of common stock from stock option awards		85			—
Payments of tax withholdings related to cashless exercises of stock option awards		(203	)		—
Net cash used in financing activities		(118	)		(98	)
Net (decrease) increase in cash and cash equivalents		(7,533	)		365
Cash and cash equivalents as of beginning of period		23,385			2,728
Cash and cash equivalents as of end of period	$	15,852		$	3,093

Supplemental cash flow information:
Cash paid for taxes	$	—		$	2
Cash paid for interest		—			29

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

HERITAGE GLOBAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 –Basis of Presentation

These unaudited condensed consolidated interim financial statements include the accounts of Heritage Global Inc. (“HGI”) together with its subsidiaries, including Heritage Global Partners, Inc. (“HGP”), Heritage Global LLC (“HG LLC”), Equity Partners HG LLC (“Equity Partners”), National Loan Exchange, Inc. (“NLEX”) and Heritage Global Capital LLC (“HGC”). These entities, collectively, are referred to as the “Company” in these financial statements. The Company’s unaudited condensed consolidated interim 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 HGI exercises control. All significant intercompany accounts and transactions have been eliminated upon consolidation. The Company began its asset liquidation operations in 2009 with the establishment of HG LLC. The business was subsequently expanded by the acquisitions of Equity Partners, HGP and NLEX in 2011, 2012 and 2014, respectively, and the creation of HGC in 2019. As a result, HGI 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. The Company’s reportable segments consist of the Industrial Assets Division and Financial Assets Division.

The Company has prepared the 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 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, 2020, filed with the SEC on March 8, 2021 (the “Form 10-K”).

The results of operations for the three month period ended March 31, 2021 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2021. The accompanying condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated balance sheet as of December 31, 2020, contained in the Company’s Form 10-K.

COVID-19

The spread of the novel coronavirus (“COVID-19”) had a minor negative impact on the Company’s performance during the first quarter of 2021 due to evolving travel and work restrictions, stimulus payments and credit policies impacting debt sales, and a delay in the sale of certain assets.

Going forward, the Company does not believe the COVID-19 pandemic will have material negative impacts on the Company’s financial performance, as its asset liquidation business is highly concentrated in distressed and surplus assets and the Company expects that there will be an increased supply of distressed and surplus assets as a result of the COVID-19 pandemic and any downward trends in the overall economy, resulting in more potential for principal and fee based deals. The Company believes that the continuing disruptions to the global supply chain, particularly those involving industrial assets, will further increase demand for U.S.-based surplus assets. Further, the Company expects that the COVID-19 pandemic will have the following positive impacts:

•continued increase in demand for HGP’s online auctions as a result of ongoing social distancing requirements in connection with the COVID-19 pandemic;

•increased activity for NLEX and HGC due to expanding volumes of nonperforming and charged-off consumer loans;

•increased funding opportunities for HGC due to tightening underwriting standards at conventional lenders; and

•incremental valuation opportunities for our valuation business as a result of greater focus on collateral on bank balance sheets.

However, positive expected impacts of the COVID-19 pandemic on the Company could be offset, at least in part, by negative impacts on certain of its business units relying on nonperforming and charged-off consumer loans. Any continuation of stimulus

payments and additional credit policies impacting debt sales may result in delayed revenues depending on the scope and magnitude of such policies.

Note 2 – Summary of Significant Accounting Policies

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, other assets, right-of-use assets, goodwill and intangible assets, liabilities, deferred income tax assets and liabilities including future years’ taxable income, and stock-based compensation. These estimates have the potential to significantly impact the Company’s consolidated financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

Reclassifications

Certain prior year balances within the condensed consolidated financial statements have been reclassified to conform to the current year presentation.

Revenue Recognition

Services revenue generally consists of commissions and fees from providing auction services, appraisals, brokering of sales transactions and providing merger and acquisition advisory services. Asset sales revenue generally consists of proceeds obtained through sales of purchased assets. 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 is considered to be within the asset liquidation business, which consists of two reportable segments, the Industrial Assets Division and the Financial Assets Division. Generally, revenue is recognized in the asset liquidation business 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 the Company’s total revenues (less than 1% of total revenues for the three month period ended March 31, 2021) 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.” As of March 31, 2021, the deferred revenue balance was approximately $21,000. Revenue is generally recognized in the period that the Company satisfies the performance obligation and cash is collected; however, in certain situations, the Company records receivables related to asset liquidation based on timing of payments for asset liquidation transactions held at the end of the reporting period. The Company does not record a “contract asset” for partially satisfied performance obligations.

The Company evaluates revenue from asset liquidation 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 the Company’s fee based asset liquidation transactions, and, therefore, the Company reports the revenue from transactions in which it acts as an agent on a net basis.

The Company also earns asset liquidation income through asset liquidation transactions that involve the Company acting jointly with one or more additional purchasers, pursuant to a partnership, joint venture or limited liability company (“LLC”) agreement (collectively, “Joint Ventures”). For these transactions, in which the Company’s ownership share meets the criteria for the equity method investments under ASC 323, the Company does not record asset liquidation revenue or expense. Instead, the Company’s

proportionate share of the net income (loss) is reported as earnings of equity method investments. In general, the Joint Ventures apply the same revenue recognition and other accounting policies as the Company.

In 2019, the Company began providing specialty financing solutions to investors in charged-off and nonperforming asset portfolios. Fees collected in relation to the issuance of loans, which are included within services revenue, include loan origination fees, interest income, portfolio monitoring fees, and a backend profit share percentage related to the underlying asset portfolio.

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. 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 portfolio monitoring fees and the backend profit share percentage are considered a separate earnings process as compared to the origination fees and interest income. Portfolio monitoring fees are recorded at the agreed upon rate at the time in which payments are made by the borrower. The backend profit share percentage is recognized in accordance with the agreed upon rate at the time in which the amount is realizable and earned. The revenue recognition policy was established due to the uncertainty of timing of the amount of backend profit share percentage that will be realized, and the lack of historical precedent as this is a new business for the Company.

During the three months ended March 31, 2021 and 2020, the Company generated revenues specific to one customer representing 10% and 19% of total revenues, respectively.

Leases

The Company is obligated to make future payments under existing lease agreements that (1) specifically identify the asset, and (2) convey the right to control the use of the identified asset in exchange for consideration for a period of time. The Company determines whether a contract is a lease at the inception of the arrangement. We evaluate leasing arrangements in accordance with the accounting guidance to determine whether the contract is operating or financing in nature. Leases with an initial term of 12 months or less, or under predefined thresholds, are not recorded on the condensed consolidated balance sheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The critical accounting policies used in the preparation of the Company’s audited consolidated financial statements are discussed in the Company’s Form 10-K. There have been no changes to these policies in the three months ended March 31, 2021.

Recent Accounting Pronouncements

In 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. ASU 2019-12 became effective January 1, 2021 and did not have a material impact on our consolidated financial statements.

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. The expected credit losses, and subsequent adjustments to such losses, will be 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. ASU 2016-13 eliminates the current accounting model for loans and debt securities acquired with deteriorated credit quality under ASC 310-30, which provides authoritative guidance for the accounting of the Company’s notes receivable. With respect to smaller reporting companies, the amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Note 3 – Notes Receivable, net

The Company’s notes receivable balance consists of loans to buyers of charged-off receivable portfolios which resulted in a total outstanding principal balance as of March 31, 2021 of approximately $3.6 million, net of unamortized deferred fees and costs on originated loans. As of December 31, 2020, the Company’s notes receivable balance was $2.1 million, net of unamortized deferred fees and costs on originated loans. The activity during the three months ended March 31, 2021 includes the issuance of additional notes of approximately $2.5 million, principal payments made by borrowers of approximately $0.9 million, and adjustments to our deferred fees and costs balance of approximately $0.1 million.

As of March 31, 2021, the Company has not recorded an allowance for credit losses related to notes receivable outstanding.

Note 4 – Stock-based Compensation

Options

As of March 31, 2021, the Company had four stock-based compensation plans, which are described more fully in Note 16 to the audited consolidated financial statements for the year ended December 31, 2020, contained in the Company’s Form 10-K.

During the three months ended March 31, 2021, the Company issued options to purchase 30,000 shares of common stock to certain of the Company’s employees and options to purchase 50,000 shares of common stock to the Company’s non-employee directors as part of their annual compensation.

The following summarizes the changes in common stock options for the three months ended March 31, 2021:

	Options			Weighted Average Exercise Price
Outstanding as of December 31, 2020		3,516,225		$	0.63
Granted		80,000		$	3.03
Exercised		(492,875	)	$	0.49
Outstanding as of March 31, 2021		3,103,350		$	0.71

Options exercisable as of March 31, 2021		2,183,537		$	0.47

The Company recognized stock-based compensation expense related to common stock options of $0.1 million for the three months ended March 31, 2021. As of March 31, 2021, there was approximately $0.7 million of unrecognized stock-based compensation expense related to unvested common stock options outstanding, which is expected to be recognized over a weighted average period of 3.2 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.

On June 1, 2018, the Company granted 600,000 shares of Company restricted common stock in connection with the Addenda to the Employment Agreements of David Ludwig and Tom Ludwig. The shares are subject to certain restrictions on transfer and a right of repurchase over five years, ending May 31, 2023, and require a continued term of service to the Company. Stock-based compensation expense related to the restricted stock awards, calculated by using the grant date fair value of $0.43 per share, was $12,900 for the three months ended March 31, 2021. The unrecognized stock-based compensation expense as of March 31, 2021 was approximately $0.1 million.

Warrants

On March 19, 2019, the Company entered into a Warrant Agreement (the “Warrant Agreement”) with Napier Park Industrial Asset Acquisition LP, a Delaware limited partnership (“Napier Park”). Pursuant to the Warrant Agreement, Napier Park is entitled to receive warrants to acquire shares of Company common stock with a fair market value of $71,368 for each $500,000 increment in excess of $2.5 million of Cumulative Gross Profit (as defined in the Warrant Agreement) achieved prior to December 19, 2022 to which the Company may become entitled in connection with its equity joint venture with Napier Park. During the fiscal year ended December 31, 2020 and the three months ended March 31, 2021, Napier Park did not receive any warrants.

Note 5 – Lessor Arrangement

On June 27, 2019, the Company, with certain partners, entered into agreements to lease, with a purchase option, a fully functional manufacturing building, including all machinery and equipment held within. The assets under lease relate to the Company’s purchase, with certain partners, of a pharmaceutical campus in Huntsville, Alabama, as disclosed in the Company’s Form 10-K. The lessee is obligated to make monthly lease payments over a ten-year period, totaling approximately $13.2 million for the real estate portion, and monthly lease payments over a six year period totaling approximately $9.7 million for the machinery and equipment. The purchase option for both the real estate and machinery and equipment can be exercised at any time on or after December 1, 2019 and before May 31, 2021 for a total purchase price of $20.0 million, of which $12.0 million and $8.0 million are allocated to the real estate and machinery and equipment, respectively. The lessor arrangement is classified as a sales-type lease, and, therefore, the present value of future lease payments was recognized as revenue and a lease receivable as of the effective date of the lease agreement.

The real estate portion of the lease arrangement is owned by CPFH LLC, the joint venture, and is accounted for under the equity method where the Company’s share in earnings from equity method investments is shown in one line item on the condensed consolidated income statement. Refer to Note 6 for further information.

The machinery and equipment portion of the arrangement is jointly owned by all the partners of CPFH LLC, apart from the joint venture entity. Therefore, the Company has derecognized the leased asset of approximately $0.9 million and recognized as revenue approximately $1.2 million, which represents the present value of future lease payments and a lease receivable included in the accounts receivable line item on the condensed consolidated balance sheet, consistent and reflective of its business model for asset sales. The Company expects to recognize approximately $0.5 million in interest income prior to the exercise of the purchase option, which is the difference between the present value (at a 5.50% discount rate) and the undiscounted lease payments.

Note 6 – Equity Method Investments

In November 2018, CPFH LLC, of which the Company holds a 25% share, was formed to purchase certain real estate assets among partners in a joint venture. In March 2019, Oak Grove Asset Acquisitions LP, of which the Company holds a 50% share, was formed for the execution of auction deals with Napier Park. In March 2020, HGC Origination I LLC and HGC Funding I LLC 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. The table below details the Company’s joint venture revenues and earnings during the three months ended March 31, 2021 and 2020 (in thousands):

	March 31,
	2021		2020
Revenues:
Oak Grove Asset Acquisitions LP	$	—	$	—
CPFH LLC		108		319
HGC Funding I LLC and Origination I LLC		—		8
Total revenues	$	108	$	327

Operating income:
Oak Grove Asset Acquisitions LP	$	—	$	—
CPFH LLC		—		—
HGC Funding I LLC and Origination I LLC		—		8
Total operating income	$	—	$	8

The table below details the summarized components of assets and liabilities of the Company’s joint ventures, as of March 31, 2021 and December 31, 2020 (in thousands):

	March 31,		December 31,
	2021		2020
Assets:
Oak Grove Asset Acquisitions LP	$	—	$	—
CPFH LLC		10,175		10,791
HGC Funding I LLC		—		—
Total assets	$	10,175	$	10,791

Liabilities:
Oak Grove Asset Acquisitions LP	$	1	$	1
CPFH LLC		4,495		5,374
HGC Funding I LLC		—		—
Total liabilities	$	4,496	$	5,375

Note 7 – 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 because the Company’s shares of Series N preferred shares, each of which is convertible to 40 common shares, have the right to receive dividends or dividend equivalents should the Company declare dividends on its common stock. Under the two-class method, earnings for the period are allocated on a pro-rata basis to the common and preferred stockholders. The weighted-average number of common and preferred shares outstanding during the period is then used to calculate basic EPS for each class of shares.

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

Stock options and other potential common shares are included in the calculation of diluted earnings per share (“diluted EPS”), since they are assumed to be exercised or converted, except when their effect would be anti-dilutive. The table below shows the calculation of the shares used in computing diluted EPS.

	Three Months Ended March 31,
Weighted Average Shares Calculation:	2021		2020
Basic weighted average shares outstanding		34,788,016		28,751,689
Treasury stock effect of common stock options and restricted stock awards		2,745,049		1,448,425
Diluted weighted average common shares outstanding		37,533,065		30,200,114

For the three months ended March 31, 2021 and 2020, there were potential common shares of 30,000 and approximately 0.1 million, respectively, that were excluded from the computation of diluted EPS, as the inclusion of such common shares would have been anti-dilutive.

Note 8 – Leases

The Company leases office and warehouse space primarily in three locations: Del Mar, CA; Burlingame, CA; and Edwardsville, IL. As each contract does not meet any of the four criteria of ASC 842 for financing lease classification, the Company has determined that each lease arrangement should be classified as an operating lease. The right-of-use assets and lease liabilities for each location are as follows (in thousands):

	March 31,		December 31,
Right-of-use assets:	2021		2020
Del Mar, CA	$	579	$	613
Burlingame, CA		23		99
Edwardsville, IL		228		251
	$	830	$	963

	March 31,		December 31,
Lease liabilities:	2021		2020
Del Mar, CA	$	608	$	641
Burlingame, CA		28		109
Edwardsville, IL		229		253
	$	865	$	1,003

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 a particular currency environment. The Company uses 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%.

Lease expense for these leases is recognized on a straight-line basis over the lease term. For both three month periods ended March 31, 2021 and 2020, lease expense was approximately $0.1 million. Undiscounted future minimum lease payments as of March 31, 2021 that have initial or remaining lease terms in excess of one year are as follows (in thousands):

2021 (remainder of year from April 1, 2021 to December 31, 2021)	$	231
2022		278
2023		218
2024		177
2025		30
Total undiscounted future minimum lease payments		934
Less imputed interest		(69	)
Present value of lease liabilities	$	865

Note 9 – Intangible Assets and Goodwill

Identifiable intangible assets

The Company’s identifiable intangible assets are associated with its acquisitions of HGP in 2012 and NLEX in 2014, as shown in the table below (in thousands), and are amortized using the straight-line method over their remaining estimated useful lives of one to four years. The Company’s tradename that was acquired as part of the acquisition of NLEX in 2014 has an indefinite life and therefore is not amortized.

	Carrying Value					Carrying Value
	December 31,					March 31,
Amortized Intangible Assets	2020		Amortization			2021
Customer Network (HGP)	$	62	$	(8	)	$	54
Trade Name (HGP)		513		(32	)		481
Customer Relationships (NLEX)		111		(27	)		84
Total		686		(67	)		619

Unamortized Intangible Assets
Trade Name (NLEX)		2,437		—			2,437
Total	$	3,123	$	(67	)	$	3,056

Amortization expense during the three months ended March 31, 2021 and 2020 was $0.1 million.

As of March 31, 2021, the estimated amortization expense for the remainder of the current fiscal year and the next three fiscal years is shown below (in thousands):

Year	Amount
2021 (remainder of year from April 1, 2021 to December 31, 2021)	$	203
2022		159
2023		129
2024		128
Total	$	619

Goodwill

The Company’s goodwill is related to its asset liquidation business and is comprised of goodwill from the acquisitions of HGP in 2012 and NLEX in 2014, as shown in the table below (in thousands). There were no additions to goodwill and no impairment losses to the carrying amount of goodwill during the three months ended March 31, 2021.

Acquisition	March 31, 2021		December 31, 2020
HGP	$	2,040	$	2,040
NLEX		3,545		3,545
Total goodwill	$	5,585	$	5,585

Note 10 – Debt

The Company had no outstanding debt as of March 31, 2021 and December 31, 2020.

In September 2018, Heritage Global Inc. entered into a secured promissory note and business loan agreement (the “2018 Credit Facility”) with First Choice Bank, for a $1.5 million revolving line of credit. The 2018 Credit Facility had an initial maturity date of October 5, 2019 and replaced the Line of Credit. The Company is permitted to use the proceeds of the loan solely for its business operations. The 2018 Credit Facility accrues interest at a variable rate, which is equal to the rate of interest last quoted by The Wall Street Journal as the “prime rate,” not to be less than 5.25% per annum, with a minimum interest charge of $100.00 per month.

In March 2019, Heritage Global Inc. entered into the Change in Terms Agreement and the First Amendment to Business Loan Agreement (collectively, the “Amendments”), which amended the Company’s 2018 Credit Facility. The Amendments, among other things, (i) increased the principal amount of the revolving line of credit to $3.0 million, (ii) extended the maturity date of the 2018 Credit Facility to April 5, 2020, and (iii) raised the floor interest rate under the 2018 Credit Facility from 5.25% to 5.50%.

On February 10, 2020, the Company entered into a secured promissory note, business loan agreement, commercial security agreement and agreement to provide insurance (the “Credit Facility”) with C3bank, National Association for a $5.0 million revolving line of credit, which replaced the 2018 Credit Facility. The Credit Facility had an initial maturity date of February 5, 2021, which was extended to April 5, 2021 on February 5, 2021. The Company is permitted to use the proceeds of the loan solely for its business operations. The Credit Facility accrues at a variable interest rate, which is equal to the rate of interest last quoted by The Wall Street Journal as the “prime rate,” not to be less than 5.50% per annum. The Company may prepay the Credit Facility without penalty. The Company is the borrower under the Credit Facility. The Credit Facility is secured by a first priority security interest in certain of the Company’s and its certain subsidiaries’ current and future tangible and intangible assets, inventory, chattel paper, accounts, equipment and general intangibles. The availability of additional draws under the 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 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 a debt to equity ratio. The 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. During the year ended December 31, 2020, the Company drew

on the line of credit for a total of $5.6 million and made repayments of principal totaling $5.6 million resulting in a zero balance as of December 31, 2020. During the three months ended March 31, 2021, the Company made no additional draws or repayments on the line of credit. As described more fully in Note 14—Subsequent Events, the Company entered into a New Credit Facility (as defined herein) for a $10.0 million revolving line of credit, which terminated the Credit Facility.

In January 2018, HG LLC, a wholly-owned subsidiary of HGI, settled a long-standing litigation matter that was commenced against the predecessor in interest of HG LLC. The settlement, which also involved several other co-defendant parties, included a complete release of HG LLC’s predecessor in interest and its successors and affiliates by the plaintiffs from all claims arising from or relating to the facts and circumstances underlying the litigation. The portion of the settlement attributable to HG LLC’s predecessor in interest was paid on behalf of HG LLC by 54 Finance, LLC (“54 Finance”) (an affiliate of a co-defendant in the litigation) in consideration of a promissory note dated January 30, 2018 (the “Note”) from HG LLC in the amount of $1,260,000. Pursuant to a guaranty dated January 30, 2018, HGI has guaranteed the obligations of HG LLC under the Note, which are required to be paid in 36 equal installments of $35,000, with any remaining outstanding balance due and payable in full on January 30, 2021. As of December 31, 2017, the Company accrued the present value of the Note based on the payment terms noted above and at an interest rate of 6.5%. Upon the occurrence of any Event of Default, as defined below, in the sole discretion of 54 Finance, the outstanding principal balance of the Note will bear interest at a rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to 12%. An “Event of Default” means: (a) any failure of HG LLC to pay when due any amount thereunder, when and as due, (b) any failure on the part of HG LLC to pay upon 54 Finance’s demand any fees, costs, expenses or other charges hereunder or otherwise due to HG LLC under the Note or the Guaranty, (c) any breach, failure or default under the Guaranty, (d) HG LLC or the Company repudiates or revokes, or purports to repudiate or revoke, any obligation under the Note or the Guaranty, or the obligation of the Company under the Guaranty is limited or terminated by operation of law or by the Company, or (e) HG LLC or the Company shall be or become insolvent, however defined, or admit in writing its inability to pay debts as they mature, or make a general assignment for the benefit of its creditors, or shall institute any bankruptcy, insolvency or similar proceeding under the laws of any jurisdiction, or shall take any action to authorize such proceeding. During 2020, the Company made the remaining scheduled payments on the Note totaling $455,000 resulting in a zero balance on the Note as of December 31, 2020.

Note 11 – Income Taxes

As of March 31, 2021, the Company had aggregate tax net operating loss carry forwards of approximately $77.6 million ($61.6 million of unrestricted net operating tax losses and approximately $16.0 million of restricted net operating tax losses). Substantially all of the net operating loss carry forwards expire between 2024 and 2037. The Company’s utilization of restricted net operating tax loss carry forwards against future income for tax purposes is restricted pursuant to the “change in ownership” rules in Section 382 of the Internal Revenue Code.

The reported tax expense varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the income from operations before taxes primarily as a result of excess tax benefits from stock option exercises, offset by an increase in state tax expense of approximately $0.6 million due to California’s three-year net operating loss carryforward suspension that became effective on June 29, 2020.

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 March 31, 2021 and December 31, 2020.

Note 12 – Related Party Transactions

As part of the operations of NLEX, the Company leases office space in Edwardsville, IL that is owned by David Ludwig, the Company’s President of its Financial Assets Division and a member of its board of directors. The total amount paid to the related party for the three month periods ended March 31, 2021 and 2020 was approximately $28,000 and $27,000, respectively, and is included in selling, general and administrative expenses in the condensed consolidated income statements. All lease payments during the three months ended March 31, 2021 and the fiscal year ended December 31, 2020 were made to Mr. Ludwig. On June 1, 2018, the Company amended its lease agreement with David Ludwig to extend the term of the lease to May 31, 2023 and to set the rent amounts for the new term.

On March 30, 2021, the Company and Scott West entered into a Separation Agreement and General Release (the “Separation Agreement”). Under the terms of the Separation Agreement, Mr. West’s separation from the Company was effective on March 31, 2021. Mr. West will receive a payment of $200,000 (payable in equal installments over six months) and monthly payments of $775 for up to a year to offset health coverage costs. Further, Mr. West received 25,000 shares of the Company’s common stock, which will be forfeited to the Company during the two years following the effective date of the Separation Agreement in the event Mr. West

breaches the terms of the Separation Agreement. In addition, the Separation Agreement provides for customary mutual releases by the Company and Mr. West, and the Separation Agreement includes confidentiality, non-disparagement and other obligations.

Note 13 – Segment Information

The Company reports 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 the Company’s reportable segments. The Company manages its business primarily on differentiated revenue streams for services offered. The Company’s reportable segments consist of the Industrial Asset Division and Financial 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. Our Financial Assets Division provides liquidity to issuers of consumer credit that are looking to monetize nonperforming and charged-off loans — loans that creditors have written off as uncollectable. Nonperforming and charged-off loans typically originate from banks that issue unsecured consumer credit.

The Company evaluates the performance of its reportable segments based primarily on net operating income. Further, the Company does not utilize segmented asset information to evaluate the performance of its reportable segments and does not include intercompany transfers between segments for management reporting purposes.

The following table sets forth certain financial information for the Company's reportable segments (in thousands):

	Three Months Ended March 31,
	2021			2020
Industrial Assets Division:
Net operating income	$	1,340		$	47

Financial Assets Division:
Net operating income	$	461		$	552

Corporate and Other:
Net operating loss	$	(755	)	$	(505	)

Consolidated:
Net operating income	$	1,046		$	94

Note 14 – Subsequent Events

The Company has evaluated events subsequent to March 31, 2021 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.

On May 11, 2021, the Company entered into a promissory note, business loan agreement, commercial security agreement and pledge agreement (the “New Credit Facility”) with C3bank, National Association for a $10.0 million revolving line of credit. The New Credit Facility matures on May 11, 2023 and replaces the Credit Facility. The Company is permitted to use the proceeds of the loan solely for its business operations.

The New Credit Facility accrues 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 1.70% (such rate not to be less than 4.950% per annum). The Company will pay interest on the New Credit Facility in regular monthly payments, beginning on June 11, 2021. The New Credit Facility also provides for a minimum fee, which is offset by interest payments. The Company may prepay the New Credit Facility without penalty and may convert up to $5.0 million of revolving debt into term debt.

The Company is the borrower under the New Credit Facility. The New Credit Facility is secured by a security interest in certain of the Company’s and its certain 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.

condition and any guarantor’s attempt to revise its guarantee. The agreement governing the New 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 New 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.

On May 11, 2021, the Company terminated the Credit Facility as a result of entry into the New Credit Facility. See Note 10—Debt for a description of the material terms and conditions of the Credit Facility.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the information contained in the unaudited condensed consolidated interim financial statements of Heritage Global Inc. (together with its consolidated subsidiaries, “we”, “us”, “our” or the “Company”) and the related notes thereto for the three month periods ended March 31, 2021 and 2020, appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on March 8, 2020 (the “Form 10-K”).

Forward Looking Information

This Quarterly Report on Form 10-Q (the “Report”) contains certain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995 that are based on management’s exercise of business judgment as well as assumptions made by, and information currently available to, management. When used in this document, the words “may,” "will,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These statements are subject to certain risks, uncertainties, and assumptions, including the important factors noted under Item 1A “Risk Factors” in our Form 10-K, and as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation, and do not intend, to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.

Overview, History and Recent Developments

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

In 2014, HGI acquired all of the issued and outstanding capital stock in National Loan Exchange, Inc. (“NLEX”), a broker of charged-off receivables in the United States and Canada. As a result of this acquisition, NLEX operates as one of our wholly-owned divisions.

In 2019, the Company formed Heritage Global Capital LLC (“HGC”), a wholly-owned subsidiary of HGI, in order to provide specialty financing solutions to investors in charged-off and nonperforming asset portfolios.

The organization chart below outlines our basic domestic corporate structure as of March 31, 2021.

(1)	Registrant.

(2)	Full service, global auction, appraisal and asset advisory company.

(3)	Asset liquidation company that acquires and monetizes distressed and surplus assets.

(4)	Mergers and acquisitions (M&A) advisory firm specializing in financially distressed businesses and properties.

(5)	Broker of charged-off receivables.

(6)	Specialty financing solutions for charged-off and nonperforming asset portfolios.

COVID-19

The spread of the novel coronavirus (“COVID-19”) had a minor negative impact on our performance during the first quarter of 2021 due to evolving travel and work restrictions, stimulus payments and credit policies impacting debt sales, and a delay in the sale of certain assets.

Going forward, we do not believe the COVID-19 pandemic will have material negative impacts on our financial performance as our asset liquidation business is highly concentrated in distressed and surplus assets and we expect that there will be an increased supply of distressed and surplus assets as a result of the COVID-19 pandemic and any downward trends in the overall economy, resulting in more potential for principal deals. We believe that the continuing disruptions to the global supply chain, particularly those involving industrial assets, will further increase demand for U.S.-based surplus assets. Further, we expect that the COVID-19 pandemic will have the following positive impacts on our business:

•continued increase in demand for HGP’s online auctions as a result of ongoing social distancing requirements in connection with the COVID-19 pandemic;

•increased activity for NLEX and HGC due to expanding volumes of nonperforming and charged-off consumer loans;

•increased funding opportunities for HGC due to tightening underwriting standards at conventional lenders; and

•incremental valuation opportunities for our valuation business as a result of greater focus on collateral on bank balance sheets.

However, positive expected impacts of the COVID-19 pandemic on our business could be offset, at least in part, by negative impacts on certain of our business units relying on nonperforming and charged-off consumer loans. Any continuation of stimulus payments and additional credit policies impacting debt sales may result in delayed revenues depending on the scope and magnitude of such policies.

Asset liquidation

We are a value-driven, innovative leader in financial and capital asset liquidation transactions, valuations and advisory services. We specialize both in acting as an adviser, as well as in acquiring or brokering turnkey manufacturing facilities, surplus industrial machinery and equipment, industrial inventories, real estate, accounts receivable portfolios, intellectual property, and entire business enterprises.

Our asset liquidation business began operations in 2009 with the establishment of Heritage Global LLC (“HG LLC”). In addition to acquiring turnkey manufacturing facilities and used industrial machinery and equipment, HG LLC arranges traditional asset disposition sales, including liquidation and auction sales.

In 2012, we increased our in-house asset liquidation expertise with our acquisition of 100% of the outstanding equity of HGP, a global full-service auction, appraisal and asset advisory firm.

In 2014, we again expanded our asset liquidation operations with the acquisition of 100% of the outstanding equity of NLEX. NLEX is the largest volume broker of charged-off receivables in the United States and Canada, and its offerings include national, state and regional portfolios on behalf of many of the world’s top financial institutions. The NLEX acquisition is consistent with our strategy to expand and diversify the services provided by our asset liquidation business.

As a result of the events and acquisitions outlined above, management believes that our expanded platform will allow us to achieve our long term industry leadership goals.

Industry and Competition

Our asset liquidation business consists primarily of the auction, appraisal and asset advisory services provided by our Industrial Assets division and the accounts receivable brokerage specialty financing services provided by our Financials Assets division, each of which is further described below. Our asset liquidation business also includes the purchase and sale, including at auction, of industrial machinery and equipment, real estate, inventories, accounts receivable and distressed debt. The market for these services and assets is highly fragmented. To acquire auction or appraisal contracts, or assets for resale, we compete with other liquidators, auction companies, dealers and brokers. We also compete with them for potential purchasers, as well as with equipment manufacturers, distributors, dealers and equipment rental companies. Some competitors have significantly greater financial and marketing resources and name recognition.

We believe that our business is positioned to grow in all economic cycles. As the economy encounters situations of recession, flattening yield curves and rising credit costs, the asset liquidation business may experience wider margins on principal asset sales, a favorable lending cycle for charged-off and nonperforming asset portfolios, higher volumes of nonperforming assets and building surplus inventories and bankruptcies. In times of economic growth, our asset liquidation business has demonstrated its ability to experience growth based on our competitive advantages in the industry, including our domain expertise related to deal sourcing and execution capabilities, our diversification of integrated service platforms and our experience across underserved markets. We intend to continue to leverage our competitive advantages to grow within each service line and across platforms through increasing synergies, maintaining high incremental margins, improving earnings predictability, strengthening financial metrics reflected on our balance sheet and managing expenses.

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

Our Competitive Strengths

We believe we have attributes that differentiate us from our competitors and provide us with significant competitive advantages. Our key competitive strengths are described below.

Differentiated Business Model. We believe we have diversified business lines serving the financial and industrial asset liquidation market. We have multiple revenue streams in our brokerage and principal based auction services, advisory services and secured lending services. Further, our business is event-driven and we have repeat, forward-flow contracts in place with industry leading customers. We expect to drive growth in our revenue streams by taking different roles, and using partners as needed.

Compelling Macro Growth Drivers. 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, we believe the trend of growth in the marketplace of lending platforms is driving an increased supply of non-performing consumer loans. Additionally, 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. We believe we have an opportunity, upon securing additional working capital, 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. We have built an experienced executive-level management team with deep domain expertise. Our President and Chief Executive Officer, Ross Dove, is a third-generation auctioneer and a pioneering innovator in applying technology to the asset liquidation industry. Mr. Dove began his career in the auction business over thirty years ago, beginning with a small family-owned auction house and helping to expand it into a global firm, DoveBid, which was sold to a third party in 2008. In addition, our senior management team has deep domain expertise in both industrial asset and financial asset transactions. 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 will continue his employment with us in an advisory capacity until December 31, 2024. Also during 2020, Nick Dove was appointed as President, Industrial Assets Division, and David Ludwig was appointed as President, Financial Assets Division. Nick Dove previously served as Executive Vice President of Sales of Heritage Global Partners since August 2017. David Ludwig previously served as President of NLEX, a wholly-owned subsidiary of the Company, and has served in such capacity since the Company acquired NLEX in 2014.

Our Financial Assets Division

Our Financial Assets division provides liquidity to issuers of consumer credit that are looking to monetize nonperforming and charged-off loans — loans that creditors have written off as uncollectable. Nonperforming and charged-off loans typically originate from banks that issue unsecured consumer credit.

Through NLEX, we act as an advisor for sales of charged-off and nonperforming asset portfolios via an electronic auction exchange platform for banks, the U.S. government, and other debt holders throughout the United States and Canada. Since the 1980s, NLEX has sold over $150 billion face value of performing, nonperforming and charged-off assets. NLEX sales are concentrated in online, automotive, consumer credit card, student 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 is in the process of expanding into the FinTech and peer-to-peer lending sectors, where we believe NLEX has opportunity for significant growth. In addition, we plan to add post-sale initiatives, making our services more attractive to our customers as compared to our competitors. We expect that our income from secured lending will consist of upfront fees, interest income, monthly monitoring fees and backend profit share.

Our management team has decades of domain expertise with the ability to leverage extensive funding activity and widespread industry relationships. 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.

Our 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. The fees for our services typically range from 15–50%, depending on our role and the transaction. This division predominantly targets sellers of surplus or distressed “inside the building” assets. Our buyers consist of both end-users and dealers.

Our management team has decades of domain expertise with the ability to leverage extensive industry relationships and has access to a real-time database of actual sales data across 28 industrial sectors. We believe we have the opportunity for growth in our auction services through shifting toward higher-contribution principal deals and, assuming the acceleration of mergers and acquisitions in manufacturing industries continues, increased auction services for sales of surplus equipment. Further, we intend to leverage our Capital Asset Redeployment Enterprise (CARE) software package, which provides an internal asset redeployment management system for corporations. We believe we have the opportunity for growth in our valuation services through the addition of incremental bank-approved vendor lists, geographic expansion and through deeper penetration with our existing bank relationships.

Government Regulation

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

Legislation in the United States has increased public companies’ regulatory and compliance costs as well as the scope and cost of work provided by independent registered public accountants and legal advisors. As regulatory and compliance guidelines continue to evolve, we expect to continue to incur costs, which may or may not be material, in order to comply with legislative requirements or rules, pronouncements and guidelines by regulatory bodies.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations references our unaudited condensed consolidated interim financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and various other factors that are considered to be reasonable under the circumstances. Actual results could differ from those estimates.

Significant estimates required in the preparation of the unaudited condensed consolidated interim financial statements included in this Report include the assessment of collectability of revenue recognized, and the valuation of accounts receivable, inventory, other assets, right-of-use assets, goodwill, intangible assets, liabilities, deferred income tax assets and liabilities and stock-based compensation. These estimates are considered significant either because of the significance of the financial statement items to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.

We have no off-balance sheet arrangements.

We have not paid any dividends, and do not expect to pay any dividends in the future.

The critical accounting policies used in the preparation of our audited consolidated financial statements are discussed in our Form 10-K. There have been no changes to these policies in the three months ended March 31, 2021.

Management’s Discussion of Financial Condition

Liquidity and Capital Resources

Liquidity

We had working capital of $13.2 million and $13.0 million at March 31, 2021 and December 31, 2020, respectively.

On October 6, 2020, we completed a public offering (the “2020 Public Offering”) of 5,462,500 shares of our common stock, at a public offering price of $1.75 per share, which included a full exercise of the underwriters’ option to purchase 712,500 additional shares of common stock from us. We received approximately $8.7 million of net proceeds, after deducting underwriting discounts and commissions, but before offering expenses. We intend and continue to use the net proceeds to provide additional funds for general corporate purposes, which may include, without limitation, the expansion of the businesses of HGC and HGP, working capital and growth capital.

Our current assets as of March 31, 2021 decreased to $20.7 million compared to $27.0 million as of December 31, 2020 primarily due to decreased cash as a result of cash used in operating activities during the three months ended March 31, 2021. Our current liabilities as of March 31, 2021 decreased to $7.5 million compared to $14.0 million as of December 31, 2020 primarily due to the settlement of auction liabilities for certain auctions held in the fourth quarter of 2020.

During the three months ended March 31, 2021, our primary source of cash was the cash on hand plus the cash provided by our asset liquidation business. Cash disbursements during the three months ended March 31, 2021 consisted primarily of lending activity of $2.5 million under HGC, payment of operating expenses, and settlement of auction liabilities.

We believe we can fund our operations and our debt service obligations during 2021 and beyond through a combination of cash flows from our on-going asset liquidation operations, proceeds from the 2020 Public Offering, and proceeds from our Credit Facility.

Our indebtedness consists of any amounts borrowed under our Credit Facility. On February 10, 2020, we entered into a secured promissory note, business loan agreement, commercial security agreement and agreement to provide insurance (the “Credit Facility”) with C3bank, National Association for a $5.0 million revolving line of credit, which was subsequently amended on March 3, 2021. The Credit Facility had an initial maturity date of February 5, 2021, which was extended to April 5, 2021 on February 5, 2021. We are permitted to use the proceeds from the Credit Facility solely for our business operations. As of March 31, 2021, we had an outstanding balance of zero on the Credit Facility. As described more fully in Part II, Item 5. “Other Information,” the Company entered into a New Credit Facility (as defined herein) for a $10.0 million revolving line of credit, which terminated the Credit Facility.

Ownership Structure and Capital Resources

•

As of March 31, 2021, the Company had stockholders’ equity of $30.9 million, as compared to $29.9 million as of December 31, 2020.

•

On February 10, 2020, the Company entered into our Credit Facility with C3bank, National Association for a $5.0 million revolving line of credit, which replaced the 2018 Credit Facility. The Credit Facility had an initial maturity date of February 5, 2021, which was extended to April 5, 2021 on February 5, 2021. We had no outstanding borrowings under the Credit Facility as of March 31, 2021. As described more fully in Note 14 to the condensed consolidated financial statements, on May 11, 2021, the Company entered into a New Credit Facility for a $10.0 million revolving line of credit, which terminated the Credit Facility.

•

On October 6, 2020, the Company completed the 2020 Public Offering of an aggregate of 5,462,500 shares of the Company’s common stock, which included 712,500 shares of common stock sold pursuant to the full exercise of the underwriter’s option to purchase additional shares. We received approximately $8.7 million of net proceeds, after deducting underwriting discounts and commissions, but before offering expenses.

•

We determine our future capital and operating requirements based upon our current and projected operating performance and the extent of our contractual commitments. We expect to be able to finance our future operations through cash flows from our asset liquidation business, proceeds from the 2020 Public Offering, and draws on the Credit Facility, as needed. Capital requirements are generally limited to repayment of our debt obligations, investments in notes receivables, purchases of surplus and distressed assets and payment on lease obligations. We believe that our current capital resources are sufficient for these requirements. In the event additional capital is needed, we will draw on the Credit Facility.

Cash Position and Cash Flows

Cash and cash equivalents as of March 31, 2021 were $15.9 million as compared to $23.4 million as of December 31, 2020, a decrease of approximately $7.5 million.

Cash used in operating activities. Cash used in operations was $5.8 million during the three months ended March 31, 2021 as compared to $0.1 million during the same period in 2020. The approximate $5.7 million increase in cash used in operations was primarily attributable to a change of $6.7 million in operating assets and liabilities during the three months ended March 31, 2021 as compared to the same period in 2020. The amount was partially offset by a decrease in cash used in operations due to a change in net income adjusted for noncash items, which was $1.0 million higher during the three months ended March 31, 2021 as compared to the same period in 2020.

The significant changes in operating assets and liabilities during the three months ended March 31, 2021 as compared to the same period in 2020 are primarily due to the nature of our operations. We earn revenue from discrete asset liquidation deals that vary considerably with respect to their magnitude and timing, and that can consist of fees, commissions, asset sale proceeds, or a combination thereof. The operating assets and liabilities associated with these deals are, therefore, subject to the same variability and can be quite different at the end of any given period.

Cash (used in) provided by investing activities. Cash used in investing activities during the three months ended March 31, 2021 was $1.6 million compared to cash provided by investing activities of $0.6 million during the same period in 2020. The approximate $2.2 million change was primarily attributable to approximately $4.0 million cash received on transfer of notes receivable to partners in the three months ended March 31, 2020, which was not recurring in the same period in 2021. The amount was partially offset by a decrease in the net cash used in investments in notes receivable in excess of payments received on notes receivable of approximately $1.6 million.

Cash used in financing activities. Cash used in financing activities was $0.1 million during the three months ended March 31, 2021 and 2020. Financing activities during the three months ended March 31, 2021 consisted primarily of payments of tax withholdings related to cashless exercises of stock option awards, in excess of proceeds from issuance of common stock related to standard exercises of stock option awards. Financing activities during the same period in 2020 consisted of draws on the Credit Facility of $4.4 million and repayments of third party loans of $4.5 million (including $4.4 million on the Credit Facility).

Contractual Obligations

Our significant contractual obligations are our third party loans, client and partner asset liquidation settlement payments and lease obligations. The loan and lease obligations are fully described in the notes to the financial statements included in our Form 10-K.

On October 27, 2020, Heritage Global Partners, Inc. (“HGP”), a wholly-owned subsidiary of the Company, entered into an agreement (the “Lease”) with Hayward FGHK Industrial, LLC (“Landlord”) pursuant to which HGP will lease 30,321 square feet of industrial space in Hayward, California from Landlord. The Lease has a commencement date of April 1, 2021 and an initial term of ninety (90) months, unless terminated earlier by either party pursuant to the terms of the Lease. The Lease provides for an initial monthly base rent of $27,289, which increases on an annual basis to $33,562 per month in the final year. In addition, HGP is obligated to pay its share of maintenance costs of common areas. The Company is a guarantor of HGP’s obligations under the Lease, including the payment of rent. There is no material relationship between the Company, or any of its affiliates, and the landlord, or any of its affiliates, other than the contractual relationship under the Lease.

Management’s Discussion of Results of Operations

The following table sets out the Company’s condensed consolidated results of operations for the three months ended March 31, 2021 and 2020 (dollars in thousands).

	Three Months Ended March 31,					Change
	2021		2020			Dollars			Percent
Revenues:
Services revenue	$	5,030	$	4,088		$	942			23	%
Asset sales		2,071		156			1,915			1228	%
Total revenues		7,101		4,244			2,857			67	%

Operating costs and expenses:
Cost of services revenue		1,175		551			624			113	%
Cost of asset sales		820		38			782			2058	%
Selling, general and administrative		3,969		3,472			497			14	%
Depreciation and amortization		91		90			1			1	%
Total operating costs and expenses		6,055		4,151			1,904			46	%
Earnings of equity method investments		—		1			(1	)		(100	)%
Operating income		1,046		94			952			1013	%
Interest and other expense, net		3		(27	)		30			111	%
Income before income tax expense		1,049		67			982			1466	%
Income tax expense		17		29			(12	)		(41	)%
Net income	$	1,032	$	38		$	994			2616	%

Our asset liquidation business model 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 earned for appraisal, management advisory services and specialty finance services.

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. Our reportable segments consist of the Industrial Asset Division and Financial 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. Our Financial Assets Division provides liquidity to issuers of consumer credit that are looking to monetize nonperforming and charged-off loans — loans that creditors have written off as uncollectable. Nonperforming and charged-off loans typically originate from banks that issue unsecured consumer credit.

We evaluate the performance of its reportable segments based primarily on net operating income. Further, we do not utilize segmented asset information to evaluate the performance of its reportable segments and we do not include intercompany transfers between segments for management reporting purposes.

The following table sets forth certain financial information for the Company's reportable segments (in thousands):

	Three Months Ended March 31,
	2021			2020
Industrial Assets Division:
Net operating income	$	1,340		$	47

Financial Assets Division:
Net operating income	$	461		$	552

Corporate and Other:
Net operating loss	$	(755	)	$	(505	)

Consolidated:
Net operating income	$	1,046		$	94

Three-Month Period Ended March 31, 2021 Compared to Three-Month Period Ended March 31, 2020

Revenues and cost of revenues – Revenues were $7.1 million during the three months ended March 31, 2021 compared to $4.2 million during the same period in 2020. Costs of services revenue and asset sales were $2.0 million during the three months ended March 31, 2021 compared to $0.6 million during the same period in 2020. The gross profit of these items was $5.1 million during the three months ended March 31, 2021 compared to $3.7 million during the same period in 2020, an increase of approximately $1.4 million, or approximately 38%. The increased gross profit in the first quarter of 2021 reflects the vagaries of the timing and magnitude of asset liquidation transactions.

Selling, general and administrative expense – Selling, general and administrative expense was $4.0 million during the three months ended March 31, 2021 and $3.5 million during the same period in 2020.

Significant components of selling, general and administrative expense for the three months ended March 31, 2021 and March 31, 2020 are shown below (dollars in thousands):

	Three Months Ended March 31,
	2021		2020		% change
Compensation
HGP	$	1,613	$	1,045		54	%
NLEX		873		945		(8	)%
HGI		288		201		43	%
HGC		130		117		11	%
Stock-based compensation		143		75		91	%

Consulting		13		48		(73	)%
Board of Directors fees		67		64		5	%
Accounting, tax and legal professional fees		255		227		12	%
Insurance		121		99		22	%
Occupancy		222		220		1	%
Travel and entertainment		39		176		(78	)%
Advertising and promotion		87		152		(43	)%
Information technology support		68		63		8	%
Other		50		40		25	%
Total selling, general & administrative expense	$	3,969	$	3,472		14	%

As compared to the first quarter of 2020, there was an increase in selling, general and administrative expense during the first quarter of 2021 due to increased compensation expense within our HGI and HGP divisions as a result of improved financial performance and a one-time expense related to the Separation Agreement. This increase was offset by decreased compensation expense within our NLEX division as a result of declined financial performance, and decreased travel expense as a result of travel restrictions related to the COVID-19 pandemic.

Depreciation and amortization expense – Depreciation and amortization expense was $0.1 million during the three months ended March 31, 2021 and the same period in 2020, which consisted primarily of amortization expense related to intangible assets.

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. Other than the operating income of our liquidation business (a GAAP financial measure as shown in our condensed consolidated income statements), which we believe is the most important measure of our operational performance and trends, we believe that EBITDA and Adjusted EBITDA (non-GAAP financial measures) are key performance indicators (KPIs) for our business. These KPIs may not be defined or calculated in the same way as similar KPIs used by other companies.

We prepared our unaudited condensed consolidated financial statements in accordance with GAAP. We define EBITDA as net income plus depreciation and amortization, interest and other expense, and provision for income taxes. Adjusted EBITDA reflects EBITDA adjusted further to eliminate the effects of stock-based compensation. Management uses EBITDA and Adjusted EBITDA in assessing the Company’s results, evaluating the Company’s performance and in reaching operating and strategic decisions. Management believes that the presentation of EBITDA and Adjusted EBITDA, when considered together with our GAAP financial statements and the reconciliation to the most directly comparable GAAP financial measure, is useful in providing investors a more complete understanding of the factors and trends affecting the underlying performance of the Company on a historical and ongoing basis. 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).

	Three Months Ended March 31,
	2021			2020
Net income	$	1,032		$	38
Add back:
Depreciation and amortization		91			90
Interest and other expense, net		(3	)		27
Income tax expense		17			29
EBITDA		1,137			184

Management add back:
Stock based compensation		143			75
Separation Agreement		200			—
Adjusted EBITDA	$	1,480		$	259

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

As a Smaller Reporting Company, we are not required to provide the information required by this item.

Item 4. Controls and Procedures.

As of the end of the period covered by this Report, our Chief Executive Officer and Principal Financial Officer (the “Certifying Officers”) conducted evaluations of our disclosure controls and procedures. As defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Certifying Officers have concluded that our disclosure controls and procedures were effective.

Further, there were no changes in our internal control over financial reporting during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to the legal proceedings discussed in our Form 10-K.

Item 1A. Risk Factors

As a Smaller Reporting Company, we are not required to provide the information required by this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On March 10, 2021, the Company issued 12,019 shares of common stock to certain accredited personnel pursuant to the exercise of stock options. These securities were issued in reliance on the exemptions set forth in Rule 506(b) of Regulation D under the Securities Act of 1933 (the “Act”), as amended and Section 4(a)(2) of the Act, respectively.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

New Credit Facility

The availability of additional draws under the New 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 New 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.

On May 11, 2021, the Company terminated the Credit Facility as a result of entry into the New Credit Facility. A description of the material terms and conditions of the Credit Facility are included in the “Liquidity and Capital Resources—Liquidity” section of Part I, Item 2 contained in this Quarterly Report on Form 10-Q.

This summary is qualified in its entirety by reference to the full text of the promissory note, business loan agreement, and commercial security agreement, which are attached hereto as Exhibit 10.2, 10.3, and 10.4, respectively, and incorporated by reference herein.

Item 6. Exhibits.

(a) Exhibits

Exhibit No.		Identification of Exhibit
3.1		Amended and Restated Articles of Incorporation (restated for filing purposes only) (filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed on March 9, 2020 (File No. 000-17973), and incorporated herein by reference).
3.2		Restated Bylaws, as amended (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 30, 2020 (File No. 001-39471), and incorporated herein by reference).

4.1		Warrant Agreement by and between Heritage Global Inc. and Napier Park Industrial Asset Acquisition, LP, effective as of March 19, 2019 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 25, 2019 (File No. 000-17973), and incorporated herein by reference).
10.1		Separation Agreement, dated March 30, 2021, by and between Heritage Global Inc. and Scott West
10.2		Business Loan Agreement, dated May 11, 2021, by and between Heritage Global Inc. and C3bank, National Association

10.3		Promissory Note, dated May 11, 2021, by and between Heritage Global Inc. and C3bank, National Association

10.4		Commercial Security Agreement, dated May 11, 2014, by and between Heritage Global Inc. and C3bank, National Association

10.5		Pledge and Security Agreement, dated May 11, 2021, by and between Heritage Global Inc. and C3bank, National Association

10.6		Side Letter, dated May 5, 2021, by and between Heritage Global Inc. and C3bank, National Association

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.

	Heritage Global Inc.

Date: May 13, 2021	By:	/s/ Ross Dove
		Ross Dove
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Brian J. Cobb
		Brian J. Cobb
		Vice President of Finance and Controller
		(Principal Financial Officer)

Exhibit 10.1

SEparation AGREEMENT & GENERAL RELEASE

This Separation Agreement and General Release (“Agreement”) is made and entered into as by and between Heritage Global Inc. (“HGI”) on the one hand, and Scott A. West (“Executive”), on the other hand. HGI and Executive together are referred to herein as the Parties. This Agreement shall be effective on the eighth day after it is signed by Executive and returned to James Sklar at HGI, provided it has not been revoked by Executive (“Effective Date”).

RECITALS

WHEREAS certain disputes have arisen between Executive and HGI concerning their respective rights and liabilities arising out of Executive’s employment at HGI, and the separation of his employment following a paid administrative leave that commenced on March 18, 2021;

WHEREAS, the Parties have agreed that Executive’s employment shall end effective March 31, 2021 (“Separation Date”);

WHEREAS, HGI and Executive desire to compromise, settle and release any claims, whether known or unknown, relating to or arising out of any dispute involving Executive’s employment with HGI and the separation thereof (“the Dispute”);

NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

TERMS

1.Payment of Money. HGI shall pay to Executive the gross amount of two hundred thousand dollars ($200,000.00), less applicable payroll deductions, as a compromise payment (“Payment”) and in settlement of all claims covered by this Agreement. The Payment will be made payable to “Scott A. West” via Direct Deposit, in regular increments for six months, commencing no sooner than eight (8) days and no later than thirty (30) days after HGI’s receipt (by James Sklar) of Executive’s signature on this Agreement.

2.Cobra Reimbursement. HGI shall reimburse Executive for the current amount HGI pays for Executive’s health coverage, in the amount of seven hundred and seventy five dollars ($775) per month (“Monthly Cobra Offset”) to offset his costs under Cobra. The Monthly Cobra Offset may continue for up to one year following the Effective Date. Moreover, Executive understands that if he is employed elsewhere within one year of the Effective Date, and health coverage is provided by his new employer, that he will so notify HGI and will no longer be eligible for the Monthly Cobra Offset.

CONFIDENTIAL

3.Restricted Stock. Within five (5) Business Days following the execution of this Agreement, Company shall issue to Executive 25,000 shares of the Company’s common stock, subject to restrictions as set forth below (the “Restricted Stock”). The Restricted Stock shall be forfeited to the Company during the two (2) years following the date of this Agreement (the “Restricted Period”) in the event that Executive breaches this Agreement. During the Restricted Period, Executive will be prohibited from selling, transferring, pledging, assigning or otherwise encumbering or disposing of the Restricted Stock, and the Company may take reasonable steps to ensure compliance with these prohibitions. Executive represents to the Company that he meets the definition of an accredited investor, as that term is defined in Rule 501 of Regulation D.

4.Indemnification. Executive acknowledges that the Payment paid to him described in Paragraph 1, and the Cobra reimbursement in Paragraph 2, and the Restricted Stock in Paragraph 3, are a liquidated payment, and Executive agrees to indemnify and hold harmless HGI and its current and former officers, owners, directors, employees, administrators, agents and assigns against any and all claims or liabilities that may be asserted by any governmental agency (including but not limited to any local, state, or federal taxing authority or agency) with respect to any local, state, or federal taxes that may be payable by Executive as a result of such Payment paid to him by HGI. This indemnity will continue in full force and effect for so long as any governmental agency can or may assert such a claim against HGI.

5.Executive’s Representations.

(a)Executive acknowledges that as of the Separation Date, all wages and accrued vacation owed to him by HGI have been paid, and that all business expenses he has incurred in connection with his employment have been reimbursed, and that any bonus he believes he may be owed is included in the Payment.

(b)Executive further acknowledges that he has returned all of HGI’s property and equipment in his possession or otherwise under his control, including but not limited to: all originals and any copies of any of HGI documents containing confidential information (such as financial information, reports, Board documents, manuals, personnel information, etc.); keys; laptop; cellular telephone; and any other property of HGI. Executive further agrees to provide (at the time he signs this Agreement) a list of all HGI vendors or third parties for which he has a password or login credentials.

(c)Executive represents that he has not filed a claim for workers’ compensation benefits and has no known occupational injury or illness.

6.Request for References/Letter of Recommendation. HGI will provide a letter of reference to Executive along with the first installment of the Payment. The reference letter may be negotiated by the Parties, but is subject to approval by HGI’s counsel. Executive agrees that he will direct any requests for references to Ross Dove, who will provide references consistent with the letter of reference.

CONFIDENTIAL

7.Non-admission of Liability. Executive and HGI acknowledge that the foregoing consideration does not constitute an admission of liability, express or implied, on the part of HGI with respect to any fact or matter which may be involved in Executive’s employment with HGI, or any dispute or claim he might have. Executive acknowledges that HGI is providing Executive with the above-recited consideration solely for the purpose of resolving any potential controversy relating to Executive’s employment with HGI.

8.General Mutual Release.

(a)Executive (for himself, his heirs, administrators, executors, agents and assigns) does hereby forever release, waive, discharge and covenant not to sue HGI, or any related entity, or its respective current or former predecessors, successors, parent entities, owners, subsidiaries, related entities (including Heritage Global Partners, Inc.), officers, employees, directors, partners, agents and assigns (collectively “HGI Released Parties”) (including but not limited to Allan Silber, Morris Perlis, Michael Hexner, Ross Dove and Kirk Dove), with respect to any and all claims, assertions of claims, debts, demands, actions, suits, expenses, attorneys’ fees, costs, damages and liabilities of any nature, type and description, known or unknown, arising out of any fact or matter in any way connected with Executive’s employment at HGI. This release specifically includes (but is not limited to) any claims under any foreign national, federal, state or local employment, wrongful dismissal, fair employment practices, civil rights or any other laws or regulations, including, but not limited to, the California Constitution, the California Labor Code (including but not limited to Sections 132a and 4553), the California Fair Employment & Housing Act, the California Government Code, the California Civil Code, the California Penal Code, the Families First Coronavirus Response Act, Title VII of the Civil Rights Act, the Employee Retirement Income Security Act, the Civil Rights Act, the Equal Pay Act, the Americans with Disabilities Act, the United States Constitution, the Age Discrimination in Employment Act, the Older Workers’ Benefit Protection Act, and/or any other local, state, or federal law governing discrimination in employment and/or the payment of wages and benefits. This release will apply to all known, unknown, suspected, unsuspected, anticipated, and unanticipated claims, liens, injuries and damages including, but not limited to, claims sounding in tort or contract, claims for compensation, benefits or other remuneration or attorneys’ fees, costs or disbursements, claims for physical or emotional distress or injuries and claims based upon any other duty or obligation of any kind or description whether arising in law, under statute, or in equity, which can lawfully be released under federal and state law. This release does not affect any legal rights that Executive may have arising after the Effective Date.

(b)HGI for itself, its current or former predecessors, successors, parent entities, owners, subsidiaries, related entities (including Heritage Global Partners, Inc.), officers, employees, directors, partners, agents and assigns does hereby forever release, waive, discharge and covenant not to sue Executive (his heirs, administrators, executors, agents and assigns) (collectively “West Released Parties”), with respect to any and all claims, assertions of claims, debts, demands, actions, suits, expenses, attorneys’ fees, costs, damages and liabilities of any nature, type and description, known or unknown, arising out of any fact or matter in any way connected with Executive’s employment at HGI. This release specifically includes (but is not limited to) any claims under any foreign national, federal, state or local employment, wrongful dismissal, fair employment practices,

CONFIDENTIAL

civil rights or any other laws or regulations, including, but not limited to, the California Constitution, the California Labor Code (including but not limited to Sections 132a and 4553), the California Fair Employment & Housing Act, the California Government Code, the California Civil Code, the California Penal Code, the Families First Coronavirus Response Act, Title VII of the Civil Rights Act, the Employee Retirement Income Security Act, the Civil Rights Act, the Equal Pay Act, the Americans with Disabilities Act, the United States Constitution, the Age Discrimination in Employment Act, the Older Workers’ Benefit Protection Act, and/or any other local, state, or federal law governing discrimination in employment and/or the payment of wages and benefits. This release will apply to all known, unknown, suspected, unsuspected, anticipated, and unanticipated claims, liens, injuries and damages including, but not limited to, claims sounding in tort or contract, claims for compensation, benefits or other remuneration or attorneys’ fees, costs or disbursements, claims for physical or emotional distress or injuries and claims based upon any other duty or obligation of any kind or description whether arising in law, under statute, or in equity, which can lawfully be released under federal and state law.

(c)Executive and HGI understand and for valuable consideration hereby expressly waive all of the rights and benefits of Section 1542 of the California Civil Code, which section reads as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR THE RELEASED PARTY.

9.No Pending Litigation. Executive represents that there is no pending action filed in any court of law against HGI or any HGI Released Party in connection with Executive’s employment with HGI, and that there is no pending charge or complaint filed with any state, federal or local agency, including but not limited to the Equal Employment Opportunity Commission, the Department of Fair Employment and Housing, the Department of Labor, and/or the California Labor Commissioner. If applicable, Executive hereby withdraws any request he has made for a copy of his personnel file and/or pay records, and waives any right to request and/or receive copies of those records in the future.

10.Executive’s Confidentiality Obligations.

(a)The Parties agree to publicly message Executive’s departure as a “mutual decision” consistent with the representations in HGI’s 8K filed on March 24, 2021.

(b)To the extent permissible under applicable law, Executive agrees that the existence of this Agreement and the terms of this Agreement, including but not limited to the Payment and the amount of the Payment are absolutely confidential. Executive agrees that he will not: (i) communicate or disclose in any way to any individual (including present and former employees of HGI) the existence of and/or the amount of the Payment made by HGI; (ii) give any

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indication of the amount of the Payment; or (iii) voluntarily (where not compelled by legal process by a court or government agency) testify about the Payment. Executive may communicate the terms and conditions of this Agreement only: (a) to those rendering financial or legal advice to Executive and having a bona fide need to know such terms and conditions (collectively “Advisors”); or (b) to government agencies for tax purposes (such as the IRS and the Franchise Tax Board); or (c) when compelled by legal process by a court or governmental agency; or (d) to his spouse; provided, however, that he will advise any such individuals beforehand of the existence of his confidentiality obligations under this Agreement and their corresponding obligations. Any violation of this confidentiality requirement by the individuals within groups (a) and (d) will be treated as a violation of this Agreement by Executive.

(c)Executive understands that he is bound by the Confidentiality Agreement he signed during employment, dated, March 6, 2014. Executive agrees to take his post separation obligations to protect HGI’s confidential information seriously.

11.Non-Disparagement/Litigation Assistance.

(a)Executive agrees to refrain from any disparagement of HGI, including to HGI’s shareholders, employees, members of the public, or other businesses, whether via social media or otherwise. Executive also agrees not to post on HGI shareholder forums and not to attend live shareholder events (although he is welcome to listen to recordings).

(b)HGI agrees to refrain from any disparagement of Executive to HGI shareholders, HGI employees, HGI Board members, members of the public or other businesses, whether via social media or otherwise.

(c)Executive further agrees not to commence, maintain, prosecute or participate in (except as may be required by law, pursuant to court order, or in response to a valid subpoena) any action, charge, complaint, or proceeding of any kind (on his own behalf and/or on behalf of any other person or entity and/or on behalf of or as a member of any alleged class of persons) in any court, or before any administrative or investigative body or agency (whether public, quasi-public or private) against HGI or any HGI Released Party with respect to any act, omission, transaction or occurrence arising out of his employment at HGI.

12.Cooperation. During the six month period following the Effective Date, and for the duration of any litigation that commences during the twelve month period following the Effective Date, Executive agrees to make himself reasonably available to and cooperate with HGI in any manner requested by HGI. Executive understands and agrees that his cooperation would include, but not be limited to: timely responding to emails from HGI; answering questions from HGI in a timely, truthful, and complete manner; meeting with HGI representatives and agents at reasonable times and places; volunteering to HGI any pertinent information; and providing to HGI all relevant documents that are or may come into his possession or under his control. Executive understands that in the event the Company asks for his cooperation in accordance with the terms of this paragraph, HGI will not compensate him for such cooperation beyond the Payment and will

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reimburse Executive solely for reasonable and necessary expenses upon his submission of appropriate documentation.

13.Subpoenas. In the event Executive is subpoenaed by a court or other legal tribunal to testify or provide documents regarding his role as Chief Financial Officer or any other aspect of his employment with HGI, other individuals’ employment with HGI, HGI’s practices or procedures, or any other subject matter involving, relating to or referring to HGI, he will immediately give notice to HGI by sending via email a scanned copy of such subpoenas to James Sklar (or HGI’s subsequent General Counsel), such that any such subpoenas are received within five (5) days of Executive’s receipt of such subpoena. Executive agrees that he will take no action, direct or indirect, to encourage or suggest the issuance of such subpoenas.

14.Arbitration. The Parties agree to resolve any disputes that they may have with each other regarding the validity, interpretation, or effect of this Agreement or any alleged violations of it through final and binding arbitration. The arbitration will be conducted pursuant to the employment dispute resolution rules of JAMS (https://www.jamsadr.com/rules-employment), in southern California before an experienced, neutral arbitrator licensed to practice law in California who has been selected in accordance with such rules, and who has no conflict of interest with either party or either party’s attorney. The arbitrator may not modify or change this Agreement in any way. All out-of-pocket costs of the arbitration, including the fees of the arbitrator, the costs of any record or transcript of the arbitration, administrative fees, and other fees and costs will be paid in equal shares by Executive and HGI prior to the arbitration.

15.Attorneys’ Fees. Executive and HGI agree that if any action is brought to enforce the terms, conditions and provisions of this Agreement (including the confidentiality and non-disparagement provisions above), the prevailing party will be entitled to all reasonable costs and attorneys’ fees incurred in enforcing any of the terms, conditions and provisions hereof.

16.Consideration and Revocation Period. Executive acknowledges with his signature on this Agreement that he has had at least twenty-one (21) days within which to consider this Agreement and its consequences, or that he has been advised of his right to that 21-day period and that he has voluntarily waived that 21-day period. Executive further acknowledges that he has been advised that he has seven (7) days after his execution of this Agreement to revoke it. Any such revocation must be in writing and delivered by hand or email (receipt confirmed) to James Sklar (or HGI’s subsequent General Counsel). Executive further acknowledges that he has read this Agreement in its entirety and that he fully understands all of the terms and conditions contained herein. Executive further acknowledges that he is entering into this Agreement knowingly, voluntarily and of his own free will. Notwithstanding any other provision of the Agreement, the parties agree that the Agreement will not be interpreted as a waiver of any claims Executive may have against HGI under the Age Discrimination in Employment Act (“ADEA”) arising after the Effective Date.

17.Use of Agreement. Executive and HGI agree that this Agreement may be used as evidence in a subsequent proceeding in which any of the parties allege a breach of this Agreement, notwithstanding the confidentiality and non-disparagement provisions above.

CONFIDENTIAL

18.Captions. The captions herein have been inserted for identification and reference purposes only and shall not be used in the construction or interpretation of this Agreement.

19.Counterparts/By Electronic Signature or DocuSign. This Agreement may be executed in counterparts by electronic copy or DocuSign, each of which shall be deemed an original, and all of which together shall constitute but one and the same instrument.

20.Severability. If any provision or provisions of this Agreement shall be held invalid, illegal or unenforceable, the validity, legality and/or enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If any terms or sections of this Agreement are determined to be unenforceable, they shall be modified so that the unenforceable term or section is enforceable to the greatest extent possible.

21.California Law. This Agreement will be governed by and construed under the laws of the State of California without reference to principals of choice of law thereof.

22.Entire Agreement. This Agreement is the entire Agreement among Executive and HGI regarding Executive’s employment, and supersedes any prior oral or written agreements or understandings. HGI and Executive have made no promises to the other, other than those contained in this Agreement.

23.Voluntary Agreement. Executive and HGI expressly declare and represent that they have read and understood the meaning of the terms and conditions contained in this Agreement, and that they have had the opportunity to consult with legal counsel prior to executing this Agreement. Executive and HGI further declare and represent that they fully understand the content and effect of this Agreement and that they approve and accept the terms and conditions contained herein, and that this Agreement is executed freely and voluntarily without coercion.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement consisting of 23 paragraphs and 7 pages as of the dates listed below.

HERITAGE GLOBAL INC.


By:	/s/ Ross Dove
	Ross Dove, Chief Executive Officer
	Dated: 3/30/2021
	/s/ Scott A. West
	Scott A. West, Chief Financial Officer
	Dated:3/30/2021

CONFIDENTIAL

Exhibit 10.2

BUSINESS LOAN AGREEMENT

Borrower:Heritage Global Inc.Lender:C3bank, National Association

12625 High Bluff Drive, Suite 305Riverside Office

San Diego, CA 921303727 Arlington Ave

Riverside, CA 92506

THIS BUSINESS LOAN AGREEMENT dated May 5, 2021, is made and executed between Heritage Global Inc. ("Borrower") and C3bank, National Association ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement.

TERM. This Agreement shall be effective as of May 5, 2021, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until May 7, 2023.

LINE OF CREDIT. The Indebtedness includes a revolving line of credit. Advances under the Indebtedness, as well as directions for payment from Borrower's accounts, may be requested orally by Borrower or as provided in the "Advance Authority" section below. All requests shall be confirmed in writing on the day of the request. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person as described in the "Advance Authority" section below or (B) credited to any of Borrower's accounts with Lender.

ADVANCE AUTHORITY. The following person or persons are authorized, except as provided in this paragraph, to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of such authority: JAMES SKLAR, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL & SECRETARY. FUNDS WILL BE DISBURSED AS REQUESTED BY BORROWER AND APPROVED BY A C3BANK OFFICER.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.

Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insurance as required below; (5) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel.

Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.

Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.

Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.

No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:

Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Florida. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which is presently engaged or presently proposes to engage. Borrower maintains an office at 12625 High Bluff Drive, San Diego, CA 92130. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities.

Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None.

Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties.

Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when

BUSINESS LOAN AGREEMENT

Loan No: 13880(Continued)Page 2

delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.

Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.

Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, any, that have been disclosed to and acknowledged by Lender in writing.

Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.

Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral.

Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

ADDENDUM TO REPRESENTATIONS AND WARRANTIES PARAGRAPH:. Assume Names. Certain of HGI's subsidiaries operate certain lines of business under assumed names duly filed in the respective counties as follows:

a."Heritage Zetabid Realty Services" and Heritage Zetabid Realty & Auctions Services" (San Diego County)

b."Heritage Global Patents and Trademarks" (San Diego County).

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:

Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.

Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.

Financial Statements. Furnish Lender with the following:

Additional Requirements. Reporting Covenants

Borrower

Borrower shall provide to Lender, in form and substance reasonably acceptable to Lender, to the extent applicable:

quarterly financial statements and operating statements, within 45 days after the end of each quarter, each report covering such quarter to date.

annual audited financial statements of Borrower within 120 days after the end of each year;
certified quarterly reporting on all financial covenants;

(4) such other (A) information concerning Borrower’s operation and finances as Lender may reasonably request from time to time; and (B) reporting requirements in respect of the Borrower customarily found for similar financings and others appropriate to the specific transaction as may be agreed between Borrower and Lender.

On request, Borrower must promptly provide Bank, within 5-days, with any other financial or other information concerning its affairs

and

properties as Bank may reasonably request.

Any and all other information including third party reports received by Borrower related to the Property shall be made available to the Bank within 5-business days from the reasonable request thereof;

BUSINESS LOAN AGREEMENT

Loan No: 13880(Continued)Page 3

The following financial covenants to be tested quarterly:

Equity and Liquidity: Borrower to maintain Equity of at least $25,000,000 and on balance sheet Total Liquidity of at least $3,000,000.

Definitions

Total Liquidity: The sum of (a) cash, plus (b) cash equivalents, plus (c) remaining availability on the subject line of credit.

Equity: GAAP total stockholder’s equity

Debt to Equity Ratio: Borrower to maintain ratio that does not exceed .75x (defined as Total Debt Equity).

Definitions

Total Debt: Total outstanding debt

Equity: GAAP total stockholder’s equity

Debt to Current Asset Ratio: Borrower to maintain a Total Debt to Total Current Asset ratio equal to or less than .75x.

Definitions

Total Current Assets: The sum of (a) Cash and equivalents, plus (b) Accounts Receivable, plus (c) Inventory, plus (d) Other current

assets

Total Debt: Total outstanding debt

Debt Service Coverage Ratio: Borrower to maintain DSCR of at least 1.30x (defined as trailing 12-month EBITDA company-wide

trailing 12-month debt payments).

Definitions

EBITDA: The total Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) as reported in the borrower’s public SEC

filings (i.e., 10-Q and 10-K), unadjusted.

Debt Payments: The sum of (a) the assumed debt service on the subject line calculated at the balance of $10,000,000, at the

then-current loan rate,

and for the following amortization periods seven (7) years during year one (1), and five (5) years for the remainder of the term plus (b)

current portion of outstanding long-term Debt of Borrower

(not including that included in (a)), plus (c) Interest Expenses paid by the Borrower (not including that included in (a))

Debt to EBITDA Ratio: For year 1, Total Debt shall not exceed 2.5 times trailing 12-month EBITDA. For year 2 and each year

thereafter, Total Debt shall not exceed 2.0 times trailing 12-month EBITDA.

Definitions,

Same definitions for EBITDA and Total Debt defined previously.

Out of Debt Covenant: The outstanding balance to be paid down to $5,000,000 for at least 30 days in a calendar year (non-consecutive).

Dividends: No dividends during the life of the loan, without bank approval.

Banking Relationship: Primary (100.0%) banking relationship with C3bank required. Borrower to maintain its primary demand deposit account (the account into which substantially

all of borrower’s receipts from operations are deposited and from which substantially all of borrower’s disbursements are made) with C3bank. Unless otherwise approved by lender

(which approval lender will not unreasonably withhold, condition or delay), Borrower and its subsidiaries to maintain their primary demand deposit account relationship with C3bank.

/s/JS Initial

All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.

Additional Information. Furnish such additional information and statements, as Lender may request from time to time.

Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require.

Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.

Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.

Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower's books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.

Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related

BUSINESS LOAN AGREEMENT

Loan No: 13880(Continued)Page 4

Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.

Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.

Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.

Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.

Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records may request, all at Borrower's expense.

Compliance Certificates. Unless waived in writing by Lender, provide Lender at least annually, with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement.

Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.

Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender.

Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge or restructure as a legal entity (whether by division or otherwise), consolidate with or acquire any other entity, change its name, convert to another type of entity or redomesticate, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure.

Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.

Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any

other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings,

BUSINESS LOAN AGREEMENT

Loan No: 13880(Continued)Page 5

or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Borrower fails to make any payment when due under the Loan.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.

Insecurity. Lender in good faith believes itself insecure.

Right to Cure. If any default, other than a default on Indebtedness, is curable and Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, may be cured Borrower or Grantor, as the case may be, after Lender sends written notice to Borrower or Grantor, as the case may be, demanding cure of such default: (1) cure the default within

fifteen (15) days; or (2) the cure requires more than fifteen (15) days, immediately initiate steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continue and complete all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

ADDENDUM TO CHANGE IN OWNERSHIP PARAGRAPH:. The occurrence of either (I) a sale to all or substantially all of the assets of the Borrower, or (II) the acquisition in a single transaction, or series of related transactions, of at lest 50% or more of the outstanding capital stock of the Borrower.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect

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Loan No: 13880(Continued)Page 6

to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of California without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of California.

Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Riverside County, State of California.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that becomes legal, valid and enforceable. If the offending provision cannot be so modified, shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates.

Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.

Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

ADDENDUM TO MISC CONSENT TO LOAN PARTICIPATION:. "Borrower further agrees that the purchaser of any such participation interest shall be subject to an non-disclosure agreement regarding the protection of Borrower's confidential information".

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.

Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.

Borrower. The word "Borrower" means Heritage Global Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.

BUSINESS LOAN AGREEMENT

Loan No: 13880(Continued)Page 7

Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.

GAAP. The word "GAAP" means generally accepted accounting principles.

Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.

Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan.

Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Lender. The word "Lender" means C3bank, National Association, its successors and assigns.

Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.

Note. The word "Note" means the Note dated May 5, 2021 and executed by Heritage Global Inc. in the principal amount of $10,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.

Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.

Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.

Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED MAY 5, 2021.

BORROWER:

HERITAGE GLOBAL INC.


By:	/s/ James Sklar
	Executive Vice President, General Counsel and Secretary of Heritage Global Inc.

BUSINESS LOAN AGREEMENT

Loan No: 13880(Continued)Page 8

LENDER:

C3BANK, NATIONAL ASSOCIATION

By:

/s/Andrew Meitzen
Authorized Signer
Andrew Meitzen, SVP/Chief Credit & Risk Officer

Exhibit 10.3

PROMISSORY NOTE

Borrower:Heritage Global Inc.

12625 High Bluff Drive San Diego, CA 92130

, Suite 305

Lender:C3bank, National Association
Riverside Office

3727 Arlington Ave
Riverside, CA 92506

Principal Amount: $10,000,000.00Date of Note: May 5, 2021

PROMISE TO PAY. Heritage Global Inc. ("Borrower") promises to pay to C3bank, National Association ("Lender"), or order, in lawful money of the United States of America, the principal amount of Ten Million & 00/100 Dollars ($10,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on May 7, 2023. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning June 7, 2021, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any late charges; and then to any unpaid collection costs. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing.

ANNUAL UNUSED FEE (MINIMUM INTEREST):. Upon the first anniversary of the loan closing date and upon the maturity date, an unused fee shall be payable to Lender equal to (i) 30 days of interest on the full Loan commitment at the interest rate floor of 4.95% (equal to $41,250), less (ii) the actual amount of interest earned and paid to C3bank during the prior 12 months

_____Initial.

CONVERSION FEATURE:. Within 120 days prior to maturity, the Borrower may elect to draw up to $5MM of the line at maturity and refinance the loan into a 3-year amortizing term loan. The rate for the term will be the interest rate in effect on the line at the date of maturity. Loan shall not be in default at maturity in order for Borrower to exercise the conversion feature. All covenants and conditions will remain the same except for the GAAP Equity covenant of $25,000,000 which will be revised to 75.0% of the previous quarter’s GAAP Equity at the time of conversion.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the WALL STREET JOURNAL PRIME (the "Index"). Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each DAY. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 3.250% per annum. Interest on the unpaid principal balance of this Note will be calculated as described in the "INTEREST CALCULATION METHOD" paragraph using a rate of 1.700 percentage points over the Index, adjusted necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 4.950%. NOTICE: Under no circumstances will the interest rate on this Note be less than 4.950% per annum or more than the maximum rate allowed by applicable law.

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method.

PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, early

payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in "without recourse", or
similar language. If Borrower sends such a payment, Lender may accept without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: C3bank, National Association; Riverside Office; 3727 Arlington Ave; Riverside, CA 92506.

LATE CHARGE. If a payment is 11 days or more late, Borrower will be charged 6.000% of the regularly scheduled payment or $5.00, whichever is greater.

INTEREST AFTER DEFAULT. Upon default, at Lender's option, and permitted by applicable law, Lender may add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in this Note (including any increased rate). Upon default, the interest rate on this Note shall, permitted under applicable law, immediately become 17.000%.

DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

PROMISSORY NOTE

Loan No: 13880(Continued)Page 2

not apply there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Cure Provisions. If any default, other than a default in payment, is curable and Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, may be cured Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. Borrower also will pay any court costs, in addition to all other sums provided by law.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of California without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of California.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Riverside County, State of California.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $24.50 Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored.

COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instrument listed herein:

(A) a Commercial Security Agreement dated May 5, 2021 made and executed between Heritage Global Inc., Heritage Global Partners Inc., Heritage Global LLC, National Loan Exchange, Inc., Heritage Global Capital LLC and Equity Partners HG, LLC and Lender on collateral described as: inventory, chattel paper, accounts, equipment and general intangibles.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested orally by Borrower or as provided in this paragraph. All oral requests shall be confirmed in writing on the day of the request. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following person or persons are authorized, except as provided in this paragraph, to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of such authority: JAMES SKLAR, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL & SECRETARY. FUNDS WILL BE DISBURSED AS REQUESTED BY BORROWER AND APPROVED BY A C3BANK OFFICER. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Borrower may notify Lender Lender reports any inaccurate information about Borrower's account(s) to a consumer reporting agency. Borrower's written notice describing the specific inaccuracy(ies) should be sent to Lender at the following address: C3bank, National Association 3727 Arlington Ave Riverside, CA 92506.

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

PROMISSORY NOTE

Loan No: 13880(Continued)Page 3

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:

HERITAGE GLOBAL INC.
By: /s/James Sklar

James Sklar, Executive Vice President, General
Counsel and Secretary of Heritage Global Inc

Exhibit 10.4

COMMERCIAL SECURITY AGREEMENT

Borrower:Heritage Global Inc.Lender:C3bank, National Association

12625 High Bluff Drive , Suite 305Riverside Office

San Diego, CA 921303727 Arlington Ave

Riverside, CA 92506

Grantor:

Heritage Global Inc.; Heritage Global Partners Inc.;
Heritage Global LLC; National Loan Exchange, Inc.;
Heritage Global Capital LLC; and Equity Partners
HG, LLC

12625 High Bluff Drive , Suite 305

San Diego, CA 92130

THIS COMMERCIAL SECURITY AGREEMENT dated May 5, 2021, is made and executed among Heritage Global Inc.; Heritage Global Partners Inc.; Heritage Global LLC; National Loan Exchange, Inc.; Heritage Global Capital LLC; and Equity Partners HG, LLC ("Grantor"); Heritage Global Inc. ("Borrower"); and C3bank, National Association ("Lender").

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement:

All inventory, equipment, accounts (including but not limited to all health-care-insurance receivables), chattel paper, instruments (including but not limited to all promissory notes), letter-of-credit rights, letters of credit, documents, deposit accounts, investment property, money, other rights to payment and performance, and general intangibles (including but not limited to all software and all payment intangibles); all oil, gas and other minerals before extraction; all oil, gas, other minerals and accounts constituting as-extracted collateral; all fixtures; all timber to be cut; all attachments, accessions, accessories, fittings, increases, tools, parts, repairs, supplies, and commingled goods relating to the foregoing property, and all additions, replacements of and substitutions for all or any part of the foregoing property; all insurance refunds relating to the foregoing property; all good will relating to the foregoing property; all records and data and embedded software relating to the foregoing property, and all equipment, inventory and software to utilize, create, maintain and process any such records and data on electronic media; and all supporting obligations relating to the foregoing property; all whether now existing or hereafter arising, whether now owned or hereafter acquired or whether now or hereafter subject to any rights in the foregoing property; and all products and proceeds (including but not limited to all insurance payments) of or relating to the foregoing property.

The word collateral shall not include any accounts, chattel paper, instructions of, or equity interests in, any special purpose vehicle in which HG Capital has an equity interest but only to the extent such assets have been pledged as collateral securing an obligation made by a person with an interest in such special purpose vehicle.

In addition, the word "Collateral" also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:

(A)All accessions, attachments, accessories, tools, parts, supplies, replacements of and additions to any of the collateral described herein, whether added now or later.

(B)All products and produce of any of the property described in this Collateral section.

(C)All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section.

(D)All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party's insurer, whether due to judgment, settlement or other process.

(E)All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.

FUTURE ADVANCES. In addition to the Note, this Agreement secures all future advances made by Lender to Borrower regardless of whether the advances are made a) pursuant to a commitment or b) for the same purposes.

BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this Agreement or by applicable law, (A) Borrower agrees that Lender need not tell Borrower about any action or inaction Lender takes in connection with this Agreement; (B) Borrower assumes the responsibility for being and keeping informed about the Collateral; and (C) Borrower waives any defenses that may arise because of any action or inaction of Lender, including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the Collateral; and Borrower agrees to remain liable under the Note no matter what action Lender takes or fails to take under this Agreement.

GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (A) this Agreement is executed at Borrower's request and not at the request of Lender; (B) Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral to Lender; (C) Grantor has established adequate means of obtaining from Borrower on a continuing basis information about Borrower's financial condition; and (D) Lender has made no representation to Grantor about Borrower or Borrower's creditworthiness.

GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waives any right to require Lender to (A) make any presentment, protest, demand, or notice of any kind, including notice of change of any terms of repayment of the Indebtedness, default by Borrower or any other guarantor or surety, any action or nonaction taken by Borrower, Lender, or any other guarantor or surety of Borrower, or the creation of

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Loan No: 13880(Continued)Page 2

new or additional Indebtedness; (B) proceed against any person, including Borrower, before proceeding against Grantor; (C) proceed against any collateral for the Indebtedness, including Borrower's collateral, before proceeding against Grantor; (D) apply any payments or proceeds received against the Indebtedness in any order; (E) give notice of the terms, time, and place of any sale of any collateral pursuant to the Uniform Commercial Code or any other law governing such sale; (F) disclose any information about the Indebtedness, the Borrower, any collateral, or any other guarantor or surety, or about any action or nonaction of Lender; or (G) pursue any remedy or course of action in Lender's power whatsoever.

Grantor also waives any and all rights or defenses arising by reason of (A) any disability or other defense of Borrower, any other guarantor or surety or any other person; (B) the cessation from any cause whatsoever, other than payment in full, of the Indebtedness; (C) the application of proceeds of the Indebtedness by Borrower for purposes other than the purposes understood and intended by Grantor and Lender; (D) any act of omission or commission by Lender which directly or indirectly results in or contributes to the discharge of Borrower or any other guarantor or surety, or the Indebtedness, or the loss or release of any collateral by operation of law or otherwise; (E) any statute of limitations in any action under this Agreement or on the Indebtedness; or (F) any modification or change in terms of the Indebtedness, whatsoever, including without limitation, the renewal, extension, acceleration, or other change in the time payment of the Indebtedness is due and any change in the interest rate.

Grantor waives all rights and defenses arising out of an election of remedies by Lender even though that election of remedies, such as a non-judicial foreclosure with respect to security for a guaranteed obligation, has destroyed Grantor's rights of subrogation and reimbursement against Borrower by operation of Section 580d of the California Code of Civil Procedure or otherwise.

Grantor waives all rights and defenses that Grantor may have because Borrower's obligation is secured by real property. This means among other things: (1) Lender may collect from Grantor without first foreclosing on any real property collateral pledged by Borrower and (2) If Lender forecloses on any real property collateral pledged by the Borrower (A) The amount of the Borrower's obligation may be reduced only by the price for which the collateral is sold at the foreclosure sale, even the collateral is worth more than the sale price; (B) The Lender may collect from the Grantor even the Lender, by foreclosing on the real property collateral, has destroyed any right the Grantor may have to collect from the borrower. This is an unconditional and irrevocable waiver of any rights and defenses the Grantor may have because the Borrower's obligation is secured by real property. These rights and defenses include, but are not limited to, any rights and defenses based upon Sections 580a, 580b, 580d, or 726 of the Code of Civil Procedure.

Grantor understands and agrees that the foregoing waivers are unconditional and irrevocable waivers of substantive rights and defenses to which Grantor might otherwise be entitled under state and federal law. The rights and defenses waived include, without limitation, those provided by California laws of suretyship and guaranty, anti-deficiency laws, and the Uniform Commercial Code. Grantor further understands and agrees that this Agreement is a separate and independent contract between Grantor and Lender, given for full and ample consideration, and is enforceable on its own terms. Grantor acknowledges that Grantor has provided these waivers of rights and defenses with the intention that they be fully relied upon by Lender. Until all Indebtedness is paid in full, Grantor waives any right to enforce any remedy Grantor may have against Borrower or any other guarantor, surety, or other person, and further, Grantor waives any right to participate in any collateral for the Indebtedness now or hereafter held by Lender.

GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that:

Perfection of Security Interest. Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper and instruments not delivered to Lender for possession by Lender. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Borrower may not be indebted to Lender.

Notices to Lender. Grantor will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor's name; (2) change in Grantor's assumed business name(s); (3) change in the management of any Corporation or in the management or in the members or managers of the limited liability company Grantor; (4) change in the authorized signer(s); (5) change in Grantor's principal office address; (6) change in Grantor's state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor's name or state of organization will take effect until after Lender has received notice.

No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement, and its membership agreement does not prohibit any term or condition of this Agreement.

Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the

Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or previously shipped or delivered pursuant to a contract of sale, or for services previously performed by Grantor with or for the account debtor. So long as this Agreement remains in effect, Grantor shall not, without Lender's prior written consent, compromise, settle, adjust, or extend payment under or with regard to any such Accounts. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.

Location of the Collateral. Except in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts or general intangibles, the records concerning the Collateral) at Grantor's address shown above or at such other locations as are acceptable to Lender. Upon Lender's request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located.

Removal of the Collateral. Except in the ordinary course of Grantor's business, including the sales of inventory, Grantor shall not remove the Collateral from its existing location without Lender's prior written consent. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of California, without Lender's prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral.

Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, or as

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Loan No: 13880(Continued)Page 3

otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor's business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.

Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons.

Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral.

Inspection of Collateral. Lender and Lender's designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located.

Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized.

Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.

Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify and defend shall survive the payment of the Indebtedness and the satisfaction of this Agreement.

Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including Lender so chooses "single interest insurance," which will cover only Lender's interest in the Collateral.

Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness.

Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility.

Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount

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Loan No: 13880(Continued)Page 4

of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.

Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect

Lender's security interest. Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect,
protect, and continue Lender's security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title there is a default. Lender may file a copy of this Agreement as a financing statement.

100% EQUITY PLEDGE. 100% OF THE EQUITY INTERESTS IN HERITAGE GLOBAL PARTNERS INC.; HERITAGE GLOBAL LLC; HERITAGE GLOBAL CAPITAL LLC; EQUITY PARTNERS HG, LLC AND NATIONAL LOAN EXCHANGE INC.

GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral.

Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of any Event of Default.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Payment Default. Borrower fails to make any payment when due under the Indebtedness.

Other Defaults. Borrower or Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower or Grantor.

Default in Favor of Third Parties. Borrower or Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or Grantor's property or ability to perform their respective obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or Grantor or on Borrower's or Grantor's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower's or Grantor's existence as a going business, the insolvency of Borrower or Grantor, the appointment of a receiver for any part of Borrower's or Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower or Grantor.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Borrower's or Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply there is a good faith dispute by Borrower or Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and Borrower or Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the Indebtedness or guarantor, endorser, surety, or accommodation party dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

Adverse Change. A material adverse change occurs in Borrower's or Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.

Insecurity. Lender in good faith believes itself insecure.

Cure Provisions. If any default, other than a default in payment, is curable and Grantor has not been given a notice of a breach of the same provision of this Agreement within the preceding twelve (12) months, may be cured Grantor, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the

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rights of a secured party under the California Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:

Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Borrower would be required to pay, immediately due and payable, without notice of any kind to Borrower or Grantor.

Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.

Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person's right to notification of sale. The requirements of reasonable notice shall be met such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.

Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.

Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender's discretion transfer any Collateral into Lender's own name or that of Lender's nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Borrower for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Borrower shall be liable for a deficiency even the transaction described in this subsection is a sale of accounts or chattel paper.

Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies may have available at law, in equity, or otherwise.

Election of Remedies. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Choice of Venue. If there is a lawsuit, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of Riverside County, State of California.

Joint and Several Liability. All obligations of Borrower and Grantor under this Agreement shall be joint and several, and all references to Grantor shall mean each and every Grantor, and all references to Borrower shall mean each and every Borrower. This means that each Borrower and Grantor signing below is responsible for all obligations in this Agreement. Where any one or more of the parties is a corporation, partnership, limited liability company or similar entity, is not necessary for Lender to inquire into the powers of any of the officers, directors, partners, members, or other agents acting or purporting to act on the entity's behalf, and any obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Agreement.

Preference Payments. Any monies Lender pays because of an asserted preference claim in Borrower's or Grantor's bankruptcy will become a part of the Indebtedness and, at Lender's option, shall be payable by Borrower and Grantor as provided in this Agreement.

COMMERCIAL SECURITY AGREEMENT

Loan No: 13880(Continued)Page 6

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

Power of Attorney. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral.

Waiver of Co-Obligor's Rights. If more than one person is obligated for the Indebtedness, Grantor irrevocably waives, disclaims and relinquishes all claims against such other person which Grantor has or would otherwise have by virtue of payment of the Indebtedness or any part thereof, specifically including but not limited to all rights of indemnity, contribution or exoneration.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any person or circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other person or circumstance. If feasible, the offending provision shall be considered modified so that becomes legal, valid and enforceable. If the offending provision cannot be so modified, shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.

Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.

Borrower. The word "Borrower" means Heritage Global Inc. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.

Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.

Grantor. The word "Grantor" means Heritage Global Inc.; Heritage Global Partners Inc.; Heritage Global LLC; National Loan Exchange, Inc.; Heritage Global Capital LLC; and Equity Partners HG, LLC.

Guaranty. The word "Guaranty" means the guaranty from guarantor, endorser, surety, or accommodation party to Lender, including without limitation a guaranty of all or part of the Note.

Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes the future advances set forth in the Future Advances provision of this Agreement together with all interest thereon.

COMMERCIAL SECURITY AGREEMENT

Loan No: 13880(Continued)Page 7

Lender. The word "Lender" means C3bank, National Association, its successors and assigns.

Property. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement.

Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

BORROWER AND GRANTOR HAVE READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREE TO ITS TERMS. THIS AGREEMENT IS DATED MAY 5, 2021.

GRANTOR:

HERITAGE GLOBAL INC.
By: /s/James Sklar

James Sklar, Executive Vice President, General
Counsel and Secretary of Heritage Global Inc.

HERITAGE GLOBAL PARTNERS INC.

By:

___/s/James Sklar___
James Sklar, Executive Vice President, General
Counsel and Secretary of Heritage Global Partners
Inc.

HERITAGE GLOBAL LLC
By: /s/James Sklar

James Sklar, Executive Vice President, General
Counsel and Secretary of Heritage Global LLC

NATIONAL LOAN EXCHANGE, INC.

By:

__/s/David Ludwig
David Ludwig, President of National Loan Exchange,
Inc.

HERITAGE GLOBAL CAPITAL LLC

By:

___/s/James Sklar___
James Sklar, Executive Vice President, General
Counsel and Secretary of Heritage Global Capital
LLC

EQUITY PARTNERS HG, LLC

By:

___/s/James Sklar___
James Sklar, Executive Vice President, General
Counsel and Secretary of Equity Partners HG, LLC

COMMERCIAL SECURITY AGREEMENT

Loan No: 13880(Continued)Page 8

BORROWER:

HERITAGE GLOBAL INC.
By: /s/James Sklar

James Sklar, Executive Vice President, General
Counsel and Secretary of Heritage Global Inc.

Exhibit 10.5

PLEDGE AND SECURITY AGREEMENT

This PLEDGE AND SECURITY AGREEMENT (this “Pledge Agreement”), is made as of May 5, 2021, by HERITAGE GLOBAL INC., a Florida corporation (together with its permitted successors and assigns, “Pledgor”), having an address at 12625 High Bluff Drive, Suite 305, San Diego, CA 92130, for the benefit of C3BANK, a national banking association, having an address at 850 S. Coast Highway 101, Encinitas, California 92024 (together with its successors and assigns, “Lender”).

RECITALS

A.Pledgor is the sole member or stockholder, as applicable, of Heritage Global Partners, Inc., a California corporation (“HGP”); Heritage Global, LLC, a Delaware limited liability company (“HG”); Heritage Global Capital, LLC, a Delaware limited liability company (“HGC”); and National Loan Exchange, Inc., an Illinois corporation (“NLEX”). Pledgor is the sole member of HG the sole member of Equity Partners HG, LLC, a Delaware limited liability company (“EPHG”). (HGP, together with HG, HGC, NLEX, and EPHG collectively, the “Pledged Entities” and each, a “Pledged Entity”).

.Pursuant to that certain Business Loan Agreement (together with all extensions, renewals, modifications, substitutions and amendments thereof, the “Loan Agreement”), dated as of the date hereof, and by and between Pledgor and Lender, Pledgor has become indebted to Lender with respect to a loan in the maximum principal amount of up to Ten Million and No/100 Dollars ($10,000,000.00) (the “Loan”). Initially capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

B.As a condition precedent to making the Loan, Lender requires that Pledgor execute and deliver this Pledge Agreement to Lender. Pledgor acknowledges that it will receive material benefits from the making of the Loan.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Pledgor agrees as follows:

1. Defined Terms. As used herein, the following terms shall have the following meanings:

(a)“Assignment of Interest” shall have the meaning ascribed thereto in Section 2 hereof.

(b)“Charter Documents” means the agreements and instruments listed on Exhibit A hereto, as each of the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time.

(c)“Collateral” shall have the meaning ascribed thereto in Section 2 hereof.

DMSLIBRARY01\33769679.v2

(d)“Pledged Interests” shall have the meaning ascribed thereto in Section 2 hereof.

(e)“Secured Obligations” shall mean the due payment, performance and observance of all of the obligations contemplated by the Loan Agreement.

(f)“Uniform Commercial Code” means the Uniform Commercial Code as in effect from time to time in the State of California except for matters which the Uniform Commercial Code of the State of California provides shall be governed by the Uniform Commercial Code in effect in any state, in which case “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect from time to time in such other state.

2. Pledge and Delivery of Collateral.

(a) The Pledge. As collateral security for the prompt payment and performance of the Secured Obligations, Pledgor hereby pledges and grants to Lender a security interest in all of Pledgor’s right, title, interest, claim and estate in and to each and all of the following property, whether now owned by Pledgor or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to herein as “Collateral”):

(i)all membership interests of, or other equity interests in the Pledged Entities, and all options, warrants and other rights and privileges of any type or nature now existing or hereafter acquired by Pledgor in respect of such membership interests or other equity interests (whether in connection with any capital increase, recapitalization, reclassification or reorganization of the Pledged Entities or otherwise), all investment property and all rights, preferences, privileges, dividends, distributions, redemption payments, or liquidation payments and general intangibles relating to the foregoing (all such membership interests and other equity interests, and all such options, warrants, other rights, investment property, preferences, privileges, dividends, distributions, redemption payments, or liquidation payments and general intangibles and other rights being hereinafter collectively referred to as the “Pledged Interests”);

(ii)all certificates, instruments, or other writings representing or evidencing the Pledged Interests, and all accounts, payment intangibles and general intangibles arising out of, or in connection with, the Pledged Interests;

(iii)any and all moneys, payment intangibles or property due and to become due to Pledgor now or in the future in respect of the Pledged Interests, or to which Pledgor may now or in the future be entitled to in its capacity as a member or stockholder of the Pledged Entities, whether by way of a dividend, distribution, return of capital, or otherwise;

(iv)all other claims, causes of action, choses of action and other property of any type or nature which the Pledgor now has or may in the future acquire in its capacity as a member or stockholder of the Pledged Entities against the Pledged Entities and its property, including general intangibles relating thereto in any manner or any respect;

(v)all rights of Pledgor under the Charter Documents and/or applicable law, including, without limitation, all voting and consent rights of Pledgor arising thereunder or otherwise, in each case, in connection with Pledgor’s ownership of the Pledged Interests, including general intangibles relating thereto in any manner or any respect; and

(vi)to the extent not otherwise included in clauses (i) through (v), (A) all proceeds and products of any and all of the property of Pledgor described in clauses (i) through (v) above, whether now owned and existing or hereafter acquired or arising, including, without limitation, (i) all rents, issues, royalties, distributions, revenues and profits of or from any of the foregoing, (ii) whatever is now or hereafter received by Pledgor upon the collection or sale, exchange, lease, transfer or other disposition (whether voluntary or involuntary) of, or otherwise with respect to, any item of Collateral, whether constituting accounts, general intangibles, equipment, inventory, money, deposit accounts, payment intangibles, goods, chattel paper, documents, instruments, insurance proceeds, securities, and any other tangible or intangible personal property, (iii) any such items that are now or hereafter acquired by Pledgor with any proceeds or products of Collateral, (iv) any amounts now or hereafter payable under any insurance policy by reason of any loss or damage to any Collateral or any proceeds or products thereof, and (v) the right to further transfer, including to pledge, mortgage, license, assign or sell, any of the Collateral or any interest therein, and (B) to the extent related to any property described in said clauses or such proceeds, all present and future books and records, files, invoices, papers and correspondence relating thereto, including, without limitation, books of account and ledgers of every kind and nature, computer programs, computer tapes, computer software, and all electronically recorded data relating to Pledgor or the business of Pledgor or to any or all of the Collateral, all equipment, receptacles, containers and cabinets for such books and records.

(b) Delivery of the Collateral. All certificates or instruments, if any, representing or evidencing any of the Collateral shall be delivered to and held by or on behalf of Lender pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer, stock powers endorsed by Pledgor in blank, or assignments in blank, all in form and substance reasonably satisfactory to Lender. Upon the occurrence and during the continuance of an Event of Default, Lender shall have the right, at any time, in its discretion upon written notice to Pledgor, to transfer to or to register in the name of Lender or its nominee any or all of the Collateral. Prior to or concurrently with the execution and delivery of this Pledge Agreement, Pledgor shall deliver to Lender (i) with respect to a Pledged Entity that is a limited liability company, an assignment of membership interest, or (ii) with respect to a Pledged Entity that is a corporation, an instrument of transfer, in each case endorsed by such Pledgor in blank (each, as applicable, an “Assignment of Interest”), in the form set forth on Exhibit B1-B3 hereto, for Pledgor’s Pledged Interests, transferring all of such Pledged Interests in blank, duly executed by Pledgor and undated. Lender shall have the right, at any time in its discretion upon the occurrence and during the continuance of an Event of Default and without notice to Pledgor, to transfer to, and to designate on Pledgor’s Assignment of Interest, any Person to whom the Pledged Interests are sold in accordance with the provisions hereof. In addition, Lender shall have the right at any time to exchange any Assignment of Interest representing or evidencing the Pledged Interests or any portion thereof for one or more

additional or substitute Assignments of Interest representing or evidencing smaller or larger percentages of the Pledged Interests represented or evidenced thereby, subject to the terms thereof.

(c) Obligations Unconditional. The obligations of Pledgor hereunder are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the Loan Agreement, the Note or any other Related Documents, or any substitution, release or exchange of any guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or Pledgor, it being the intent of this Section 2(c) that the obligations of each Pledgor hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not affect the liability of any Pledgor hereunder:

(i)at any time or from time to time, without notice to Pledgor, the time for any performance of or compliance with any of the obligations shall be extended, or such performance or compliance shall be waived;

(ii)any of the acts mentioned in any of the provisions of the Loan Agreement, the Note, or any other Related Documents shall be done or omitted;

(iii)the maturity of any of the obligations shall be accelerated, or any of the obligations shall be modified, supplemented or amended in any respect, or any right under the Loan Agreement, the Note, or any other Related Documents, or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the obligations or any security or collateral therefor shall be terminated, released or exchanged in whole or in part or otherwise dealt with; or

(iv)any lien or security interest granted to, or in favor of Lender as security for any of the Obligations shall fail to be perfected or shall be released.

(d) Financing Statements. Pledgor hereby authorizes Lender to file at any time or times, one or more UCC financing statements covering the Collateral and UCC assignment financing statements assigning the UCC financing statements which constitute part of the Collateral, each in the office of the Secretary of State of the State of Florida, or any other state where the Pledged Interests are formed.

3. Reinstatement. The obligations of Pledgor under this Pledge Agreement shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of such Pledgor in respect of the obligations is rescinded or must be otherwise restored by any holder of any of the obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and Pledgor agrees that it will indemnify Lender and on demand for all reasonable costs and expenses (including, without limitation, reasonable fees of counsel) incurred by Lender in connection with such rescission or restoration.

4. Representations, Warranties of Pledgor. Pledgor represents and warrants that:

(a)Existence; Capacity. Pledgor: (i) is a corporation organized and validly existing under the laws of the State of Florida; (ii) has all requisite power, and has all governmental licenses, authorizations, consents and approvals required to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary under applicable law.

(b)Litigation. There are no legal or arbitral proceedings or any proceedings by or before any Governmental Authority or other agency, now pending or (to the knowledge of Pledgor) threatened against Pledgor, the Collateral and/or Borrower.

(c)No Breach. None of the execution and delivery of this Pledge Agreement by Pledgor, the consummation of the transactions herein or therein contemplated and compliance with the terms and provisions hereof or thereof will conflict with or result in a breach of, or require any consent under (except such consents that have been obtained on or prior to the date hereof), any organizational documents of Pledgor or Borrower, any applicable law or regulation, or any order, writ, injunction or decree of any court or Governmental Authority, or any agreement or instrument to which Pledgor is a party or by which it is bound or to which it is subject or constitute a default under any such agreement or instrument, or (except for the security interest granted pursuant to this Pledge Agreement) result in the creation or imposition of any lien upon any assets or revenues of Pledgor.

(d)Necessary Action. Pledgor has all requisite power and authority to execute, deliver and perform its obligations under this Pledge Agreement; the execution, delivery and performance by Pledgor of this Pledge Agreement has been duly authorized by all necessary action; and this Pledge Agreement has been duly and validly executed and delivered by Pledgor and constitutes its legal, valid and binding obligation, enforceable against Pledgor in accordance with its terms, subject to bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights in general and to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

(e)Approvals. No authorizations, approvals and consents of, and no filings and registrations with, any governmental or regulatory authority or agency or under the organizational documents of Pledgor or the Pledged Entities or any other person are necessary for (i) the execution, delivery or performance by Pledgor of this Pledge Agreement or for the validity or enforceability thereof, (ii) the grant by Pledgor of the assignments and security interests granted hereby, or the pledge by Pledgor of the Collateral pursuant hereto, (iii) the perfection or maintenance of the pledge, assignment and security interest created hereby (including, without limitation, the first priority nature of such pledge, assignment and security interest) except for the filing of financing statements under the Uniform Commercial Code or (iv) the exercise by Lender of all or any of the rights and remedies in respect of the Collateral pursuant to this Pledge Agreement (and upon such exercise, for the purchaser of such Collateral to be admitted as a member or owner of the Pledged Entities to the full extent of the Pledged Interests).

(f)Ownership. Pledgor own one hundred percent (100%) of the membership or other equity interests in the Pledged Entities, and pursuant to this Pledge Agreement, Lender has received a pledge of the one hundred percent (100%) membership or other equity interests in the Pledged Entities. Pledgor has good title to the Collateral, free and clear of all pledges, liens, mortgages, hypothecations, security interests, charges, options or other encumbrances whatsoever, except the lien and security interest created by this Pledge Agreement. The Pledged Interests are not and will not be subject to any contractual restriction upon the transfer thereof (except for any such restrictions contained herein). The organizational chart attached as Exhibit A to that certain Confirmation Statement and Control Agreement delivered to Lender by Pledgor on the date hereof (a form of which is attached hereto as Exhibit D) is true, correct and complete, and accurately reflects the ownership interest of Pledgors in the Pledged Entities, as of the date hereof.

(g)Principal Place of Business. Pledgor’s principal place of business is as set forth in the introductory paragraph of this Pledge Agreement.

(h)Valid Security Interest. This Pledge Agreement creates a valid security interest in the Collateral, securing the Secured Obligations, and upon the filing in the appropriate filing offices of the financing statements to be filed in accordance with this Pledge Agreement and the delivery and possession of the security certificates, if any, which evidence the Pledged Interests along with Assignment of Interest executed in blank, such security interests will be perfected, first priority security interests, and all filings and other actions necessary to perfect such security interests will have been duly taken.

(i)Authorization. Upon delivery of the certificated Pledged Interests, if any, to Lender pursuant to this Pledge Agreement hereof, Pledgor authorizes Lender to store, deposit and safeguard the Collateral. Any obligation of Lender for the reasonable care of the Collateral in Lender’s possession shall be limited to the same degree of care which Lender uses for similar property pledged to Lender by other Persons.

(j)Delivery. Pledgor has delivered to Lender a true, correct and complete copy of the Pledged Entities’ Charter Documents, as in effect on the date hereof.

5. Covenants of Pledgor. Pledgor covenants that:

(a)No Transfer. Except as otherwise expressly permitted under the Loan Agreement, Pledgor has not and will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral or any interest therein, (ii) create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any Collateral, or any interest therein, or any proceeds thereof, except for the security interest provided for by this Pledge Agreement, or (iii) vote to enable, or take any other action to permit, the Pledged Entities to issue any membership or other equity interests, or to issue any other securities convertible into or granting the right to purchase or exchange for any membership or other equity interests in Borrower.

(b)No Waiver, Amendment, Etc. Pledgor shall not directly or indirectly, without the prior written consent of Lender, attempt to waive, alter, amend, modify or supplement

any provision of the Charter Documents in any manner that would reasonably be expected to result in a material adverse effect on the Collateral. Pledgor agrees that all rights to do any and all of the foregoing have been collaterally assigned to Lender, but Pledgor agrees that, upon request from Lender from time to time, Pledgor shall do any of the foregoing or shall join Lender in doing so or shall confirm the right of Lender to do so and shall execute such instruments and undertake such actions as Lender may reasonably request in connection therewith.

(c)Settlement and Release. Pledgor shall not make any election, compromise, adjustment or settlement in respect of any of the Collateral.

(d)Preservation of Collateral. Lender may, in its discretion, for the account and expense of Pledgor pay any amount or do any act required of Pledgor hereunder or reasonably requested by Lender to preserve, protect, maintain or enforce the Secured Obligations, the Collateral or the security interests granted herein, provided Pledgor has failed to pay such amount or take such action within ten (10) days after written demand by Lender. Any such payment shall be deemed an advance by Lender to Pledgor and shall be payable by such Pledgor within ten (10) days after written demand together with interest thereon at the Default Rate from the date expended by Lender until paid.

(e)Warranty of Title. Pledgor shall warrant and defend the right, title and interest of Lender in and to the Collateral and the proceeds thereof against the claims and demands of all persons whomsoever other than Lender pursuant to this Pledge Agreement. Any interest, securities, Lien or option with respect to the Pledged Interests issued in violation of this Pledge Agreement shall be void ab initio.

(f)Files and Records. Pledgor shall maintain, at its principal office, and, upon reasonable request, make available to Lender the originals, or copies in any case where the originals have been delivered to Lender of the instruments, documents, policies and agreements constituting the Collateral (to the extent not held by Lender) and related documents and instruments, and all files, surveys, certificates, correspondence, appraisals, computer programs, tapes, discs, cards, accounting records and other information and data relating to the Collateral.

(g)Litigation. Pledgor shall promptly give to Lender notice of all pending legal or arbitration proceedings, and of all proceedings pending by or before any governmental or regulatory authority or agency or, if Pledgor obtains knowledge of such threat, threatened, against Pledgor or the Pledged Entities or which relates to the Collateral which, if adversely determined, would materially adversely affect Pledgor’s or Pledged Entities’ condition (financial or otherwise) or business or the Collateral.

(h)Existence, Etc. Pledgor shall and shall cause Pledged Entities to preserve and maintain its existence and all of its material rights, privileges and franchises. Pledgor shall comply and cause Pledged Entities to comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities; and pay and discharge or cause Pledged Entities to pay or discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of their property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings.

(i) Charter Documents. Pledgor shall, at its expense:

(i)perform and observe all the terms and provisions of the Charter Documents to be performed or observed by it, maintain the Charter Documents in full force and effect, enforce the Charter Documents in accordance with their respective terms, and to take all such action to such end relating to the Charter Documents as may be from time to time reasonably requested by Lender; and

(ii)furnish to Lender reasonably promptly upon receipt thereof copies of all notices, requests and other documents received by Pledgor under or pursuant to the Charter Documents, and from time to time furnish to Lender such information and reports regarding the Collateral as Lender may reasonably request.

(j) Principal Place of Business and State of Organization. Pledgor will not change Pledgor’s principal place of business or state of organization/formation unless Pledgor has previously notified Lender thereof not less than thirty (30) days prior thereto and taken such action as may be requested by Lender in its reasonable discretion to cause the security interest of Lender in the Collateral to be continuously perfected.

(k) Acknowledgements of Parties. If Pledgor shall, as a result of its ownership of the Pledged Interests, become entitled to receive or shall receive any new or additional membership or stock certificate (including, without limitation, any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights, whether in addition to, in substitution of, as a conversion of, or in exchange for any shares of the Pledged Interests, or otherwise in respect thereof, Pledgor shall accept the same as Lender’s agent, hold the same in trust for Lender and promptly deliver the same forthwith to Lender in the exact form received, duly endorsed by Pledgor to Lender, if required, together with an undated regular membership interest power covering such certificate duly executed in blank and with, if Lender so requests, signature guaranteed, to be held by Lender hereunder as additional security for the obligations. Until the obligations are indefeasibly paid and performed in full, any sums paid to Pledgor upon or in respect of the Pledged Interests upon the liquidation or dissolution of the Pledged Entities shall be paid over to Lender to be held by it hereunder as additional security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Interests or any property shall be distributed upon or with respect to the Pledged Interests pursuant to the recapitalization or reclassification of the capital of Borrower or pursuant to the reorganization thereof, the property so distributed shall be delivered to Lender to be held by it, subject to the terms hereof, as additional security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Interests shall be received by Pledgor, Pledgor shall, until such money or property is paid or delivered to Lender, hold such money or property in trust for Lender, segregated from other funds of Pledgor, as additional security for the Obligations.

6.Reserved

7.Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 2 hereof, Pledgor hereby agrees with Lender as follows:

(a) Delivery and Other Perfection. Pledgor shall:

(i)if any of the above-described Collateral required to be pledged by Pledgor under Section 2(a) hereof is received by Pledgor, forthwith either (x) transfer and deliver to Lender such Collateral so received by Pledgor (together with the certificates (if any) for any such Collateral, including assignments duly endorsed in blank) all of which thereafter shall be held by Lender, pursuant to the terms of this Pledge Agreement, as part of the Collateral or (y) take such other action as Lender shall deem reasonably necessary or appropriate to duly file on record the security interest created hereunder in such Collateral referred to in said Section 2(a);

(ii)give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the reasonable judgment of Lender) to create, preserve, perfect or validate the security interest granted pursuant hereto or to enable Lender to exercise and enforce its rights hereunder with respect to such pledge and security interest, including, without limitation, causing any or all of the Collateral to be transferred of record into the name of Lender or its nominee; and

(iii)permit representatives of Lender, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of Lender to be present at Pledgor’s place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications received by Pledgor with respect to the Collateral, all in such manner as Lender may reasonably require.

(b) Preservation of Rights. Except in accordance with applicable law, Lender shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral.

(i)Pledgor shall not and shall not have the right to directly or indirectly, without the prior written consent of Lender, attempt to waive, alter, amend, modify, supplement or change in any manner that would be reasonably expected to result in a material adverse effect on the Collateral, Lender’s rights therein, or release, subordinate, terminate or cancel in whole or in part, or give any consent under, any of the instruments, documents, policies or agreements constituting the Collateral or exercise any of the rights, options or interests of Pledgor as party, holder, mortgagee or beneficiary thereunder except as otherwise expressly permitted under the Loan Agreement or hereunder. Pledgor agrees that all rights to do any and all of the foregoing have been collaterally assigned to and may be exercised by Lender but Pledgor agrees that, upon reasonable request from Lender from time to time, Pledgor shall do any of the foregoing or shall join Lender in doing so or shall confirm the right of Lender to do so and shall execute such instruments and undertake such actions as Lender may reasonably request in connection therewith. Pledgor shall not make any election, compromise, adjustment or

settlement in respect of any of the Collateral. Notwithstanding anything herein to the contrary, so long as no Event of Default shall have occurred and be continuing, Pledgor shall have the right to exercise all of Pledgor’s rights under the Charter Documents to which it is a party for all purposes not inconsistent with any of the terms of this Pledge Agreement, the Note, the Loan Agreement or any other Loan Document, provided that Pledgor agrees that it will not take any action in any manner that is inconsistent with the terms of this Pledge Agreement, the Note, the Loan Agreement or any other Loan Document.

(ii)Anything to the contrary notwithstanding, (i) Pledgor shall remain liable under the Charter Documents to perform all of its duties and obligations thereunder to the same extent as if this Pledge Agreement had not been executed, (ii) the exercise by Lender of any of the rights hereunder shall not release Pledgor from any of its duties or obligations under the Charter Documents, and (iii) Lender shall have no obligation or liability for Pledgor’s actions or omissions under the Charter Documents by reason of this Pledge Agreement, nor shall Lender be obligated to perform any of the obligations or duties of Pledgor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

(d) Events of Default, Etc. During any period in which an Event of Default has occurred and is continuing:

(i)Lender shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Uniform Commercial Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if Lender were the sole and absolute owner thereof (and Pledgor agrees to take all such action as may be appropriate to give effect to such right);

(ii)Lender in its discretion may, in its name or in the name of Pledgor or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so;

(iii)Lender may, at its option, apply all or any part of the Collateral in accordance with Section 7(f) hereof;

(iv)Lender may, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of Lender or any of its agents, sell, assign or otherwise dispose of all or any part of such Collateral, at such place or places as Lender deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and

cannot be waived) and Lender or anyone else may be the purchaser, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of Pledgor, any such demand, notice or right and equity being hereby expressly waived and released. Unless prohibited by applicable law, Lender may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned;

(v)Lender may exercise all membership or stockholder rights,
powers and privileges to the same extent as Pledgor is entitled to exercise such rights, powers and privileges;

(vi)Lender may, in connection with a sale of all or any of the Pledged Interests, without any further action of any party, cause any purchaser or transferee of all or any part of any Pledged Interests to be admitted as a new member or owner of the Pledged Entities to the extent of such Pledged Interests, and cause Pledgor to withdraw as a member or owner of the Pledged Entities to the extent such Pledged Interests are sold or transferred, and complete by inserting the Effective Date (as defined therein) and the name of the assignee thereunder and deliver to such assignee the Assignment of Interest executed and delivered by Pledgor and, if appropriate, cause one or more amended or restated certificates of limited partnership, certificates of limited liability company or articles of incorporation to be filed with respect to the Pledged Entities;

(vii)Lender may exercise any and all rights and remedies of Pledgor under or in connection with the Charter Documents or otherwise in respect of the Collateral, including, without limitation, any and all rights of Pledgor to demand or otherwise require payment of any amount under, or performance of any provisions of, the Charter Documents; and

(viii)all payments received, directly or indirectly, by Pledgor under or in connection with the Charter Documents or otherwise in respect of the Collateral shall be received in trust for the benefit of Lender, shall be segregated from other funds of Pledgor and shall be forthwith paid over to Lender in the same form as so received (with any necessary endorsement).

The proceeds of any collection, sale or other disposition under this Section 7(d) shall be applied by Lender pursuant to Section 7(f) hereof.

Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, Lender may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to Lender than those obtainable through a public sale without such

restrictions, and, notwithstanding such circumstances, Pledgor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Lender shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the issuer thereof to register it for public sale.

(e)Private Sale. Lender shall not incur any liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 7(d) hereof conducted in a commercially reasonable manner. Pledgor hereby waives any claims against Lender arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if Lender accepts the first offer received and does not offer the Collateral to more than one offeree.

(f)Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by Lender under this Section 7, shall be applied by Lender:

First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of Lender (including the fees and expenses of its counsel), and all third party costs and expenses made or incurred by Lender in connection therewith;

Next, to the payment in full of the secured obligations; and

Finally, to the payment to Pledgor, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining.

As used in this Section 7, “proceeds” of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of Pledgor or any issuer of or obligor on any of the Collateral.

(g)Attorney-in-Fact. Without limiting any rights or powers granted by this Pledge Agreement to Lender, Lender is hereby appointed the attorney-in-fact of Pledgor for the purpose of, upon the occurrence and during the continuance of an Event of Default, carrying out the provisions of this Section 7 and taking any action and executing any instruments which Lender may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as Lender shall be entitled under this Section 7 to make collections in respect of the Collateral, Lender shall have the right and power to receive, endorse and collect all checks made payable to the order of Pledgor representing any payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same.

(h)Confirmation Statement; Control Agreement. To better assure the perfection of the security interest of Lender in the Pledged Interests, concurrently with the execution and delivery of this Pledge Agreement, Pledgor shall send written instructions in the form of Exhibit C hereto to the Pledged Entities, and shall cause Pledged Entities to, and Pledged

Entities shall, deliver to Lender the Confirmation Statement and Control Agreement in the form of Exhibit D hereto pursuant to which Pledged Entities will confirm that it has registered the pledge effected by this Pledge Agreement on its books and agrees, upon the occurrence and during the continuation of an Event of Default, to comply with the instructions of Lender in respect of the Pledged Interests without further consent of Pledgor or any other person. Notwithstanding anything in this paragraph, neither the written instructions nor the Confirmation Statement and Control Agreement shall be construed as expanding the rights of Lender to give instructions with respect to the Collateral beyond such rights set forth in this Pledge Agreement.

8.Termination. This Pledge Agreement shall survive the exercise of remedies following an Event of Default under the Loan Agreement or the other Related Documents, and shall remain in full force and effect until all Secured Obligations and other sums due under the Loan Agreement and the other Related Documents have been indefeasibly paid in full to Lender. Upon the indefeasible payment and performance in full of all secured obligations under the Loan Agreement to Lender, this Pledge Agreement shall terminate, and Lender shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of Pledgor. Lender’s obligation to so assign, transfer and deliver shall survive the termination of this Agreement.

9.Miscellaneous.

(a)No Waiver. No failure on the part of Lender or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by Lender or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided herein are cumulative and are not exclusive of any remedies provided by law.

(b)Governing Law. The governing law provisions of the Loan Agreement shall apply mutatis mutandis to this Pledge Agreement and are hereby incorporated by reference into this Pledge Agreement to the same extent and with the same force as if fully set forth herein.

(c)Notices. All notices, demands, requests, consents, approvals or other communications required, permitted or desired to be given hereunder shall be given to Pledgor at the address for Borrower and in accordance with the notice provision of the Loan Agreement.

(d)Waivers, etc. The terms of this Pledge Agreement may be waived, altered or amended only by an instrument in writing duly executed by Pledgor and Lender. Any such amendment or waiver shall be binding upon Lender and Pledgor.

(e)Successors and Assigns. This Pledge Agreement shall be binding upon the successors and assigns of Pledgor and inure to the benefit of the successors and assigns of Lender (provided, however, that Pledgor shall not assign or transfer its rights hereunder without the prior written consent of Lender). Without limiting the foregoing, Lender may at any time and from time to time without the consent of Pledgor, assign or otherwise transfer all or any portion of its rights and remedies under this Pledge Agreement to any other person or entity, either

separately or together with other property of Pledgor for such purposes in connection with a transfer of Lender’s interest in the Loan. Without limiting the foregoing, in connection with any assignment of the Loan in accordance with the Loan Agreement, Lender may assign or otherwise transfer all of its rights and remedies under this Pledge Agreement to the assignee and such assignee shall thereupon become vested with all of the rights and obligations in respect thereof granted to Lender herein or otherwise. Each representation and agreement made by Pledgor in this Pledge Agreement shall be deemed to run to Lender, and each reference in this Pledge Agreement to Lender shall be deemed to refer to Lender and each of their successors and assigns.

(f)No Liability on Part of Lender. Lender, by its acceptance of this Pledge Agreement, the Collateral and any payments on account thereof, shall not be deemed to have assumed or to have become liable for any of the obligations or liabilities of Pledgor. Lender shall not have any duty to collect any sums due in respect of any of the Collateral in its possession or control, or to enforce, protect or preserve any rights pertaining thereto, and Lender shall not be liable for failure to collect or realize upon the Collateral, or any part thereof, or for any delay in so doing, nor shall Lender be under any obligation to take any action whatsoever with regard thereto. Lender shall, if requested by the payor of any revenue payment, give receipts for any payments received by Lender on account of the Collateral.

(g)Expenses, Indemnification.

(i)Pledgor agrees to pay or reimburse Lender for paying: (A) all reasonable out of pocket expenses of Lender (including, without limitation, the reasonable fees and expenses of counsel to Lender), in connection with (1) the negotiation, preparation, execution and delivery of this Pledge Agreement and (2) any amendment, modification or waiver of any of the terms of this Pledge Agreement requested or initiated by Pledgor; (B) all costs and expenses of Lender (including reasonable counsel’s fees) in connection with any enforcement or collection proceedings resulting from an Event of Default; and (C) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Pledge Agreement, or any other document referred to herein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by this Pledge Agreement or any document referred to herein.

(ii)Pledgor hereby agrees to indemnify Lender and its directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any claim of any Person (A) relating to or arising out of the acts or omissions of Pledgor under this Pledge Agreement or, after Lender has exercised any rights in accordance herewith, the Charter Documents (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified), or (B) resulting from the ownership of or security interests in any Collateral, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages

or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified).

(h)Further Assurances. Pledgor agrees that, from time to time upon the written request of Lender, Pledgor will execute and deliver such further documents and do such other acts and things as Lender may reasonably request in order fully to affect the purposes of this Pledge Agreement.

(i)Delay Not a Waiver. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege.

(j)Counterparts. This Pledge Agreement may be executed by facsimile or other electronic means, and in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Pledge Agreement by signing any such counterpart.

(k)Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of Lender in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

(l)Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Pledge Agreement and shall be considered prima facie evidence of the facts and documents referred to therein.

()Gender; Number. As used in this Pledge Agreement, the masculine, feminine or neuter gender shall be deemed to include the others, and the singular shall include the plural (and vice versa), whenever the context so requires.

(m)Reserved.

(n)Incorporation by Reference. To the extent that any provisions or defined terms contained in any other Loan Document (including, without limitation, the Loan Agreement) are used herein or incorporated herein by reference, and such other Loan Document is terminated or otherwise satisfied prior to the termination of this Pledge Agreement, then, for the avoidance of doubt, such provisions and/or defined terms shall survive until the satisfaction of the Obligations without regard to the fact that the Loan Document originally containing the same has been otherwise terminated or satisfied.

10. Third Party Waivers.

(a)Rights of Lender. Pledgor authorizes the Lender to perform any or all of the following acts at any time in its sole discretion, all without notice to Pledgor, without affecting Pledgor’s obligations under this Pledge Agreement or any other Related Documents and without affecting the liens and encumbrances against the Collateral in favor of the Lender:

(i)Lender may take and hold security for the secured obligations, accept additional or substituted security, and subordinate, exchange, enforce, waive, release, compromise, fail to perfect and sell or otherwise dispose of any such security;

(ii)Upon the occurrence and during the continuance of an Event of Default, Lender may direct the order and manner of any sale of all or any part of any security now or later to be held for the secured obligations, and Lender (or its nominees or designees) may also bid at any such sale;

(iii)Lender may apply any payments or recoveries from Pledgor, any Pledgor Affiliate or any other source, and any proceeds of any security, to the secured obligations in such manner, order and priority as the Lender may elect;

(iv)Lender may release Pledgor or any other Person from its liability for the secured obligations or any part thereof;

(v)Lender may substitute, add or release any one or more guarantors, pledgors or endorsers; and

(vi)In addition to the secured obligations, Lender may extend other credit to Pledgor or any Pledgor Affiliate, and may take and hold security for the credit so extended, all without affecting Pledgor’s liability hereunder or under the other Related Documents and without affecting the liens and encumbrances against the Collateral hereunder or under the other Related Documents.

(b)Absolute Obligations. Pledgor expressly agrees that until all secured obligations are paid and performed in full and each and every term, covenant and condition of this Pledge Agreement and the other Related Documents is fully satisfied and performed, Pledgor shall not be released of its obligations, waivers and agreements set forth herein or in any other Loan Document nor shall the validity, enforceability or priority of the liens and encumbrances against the Collateral in favor of the Lender be affected in any manner by or because of:

(i)Any act or event which might otherwise discharge, reduce, limit or modify any Pledgor’s obligations hereunder or under the other Related Documents or the liens and encumbrances against the Collateral in favor of Lender, other than payment in full of the secured obligations;

(ii)Any waiver, extension, modification, forbearance, delay or other act or omission of Lender or any failure to proceed promptly or otherwise as against Pledgor or any other Person or any security;

(iii)Any action, omission or circumstance which might increase the likelihood that Lender might enforce the rights granted under this Pledge Agreement or under the other Related Documents or which might affect the rights or remedies of Pledgor as against any other Person; or

(iv)Any dealings occurring at any time between Pledgor or any of its Affiliates and Lender, whether relating to the secured obligations or otherwise.

Pledgor hereby expressly waives and surrenders any defense to the performance of the obligations under this Pledge Agreement and under all other Related Documents or to the enforcement of the liens and encumbrances against the Collateral in favor of Lender based upon any of the foregoing acts, omissions, agreements, waivers or matters described in this subsection (other than the defense that payment has been made). It is the purpose and intent of this Pledge Agreement that the obligations of Pledgor under this Pledge Agreement and under all other Related Documents shall be absolute and unconditional under any and all circumstances.

(c)Pledgor’s Waivers. Pledgor waives:

(i)Any right it may have to require Lender to proceed against Pledgor or any other Person, proceed against or exhaust any security held from Pledgor or any Person, or pursue any other remedy in Lender’s power to pursue until the indefeasible payment of the Loan in full;

(ii)Any defense based on any claim that Pledgor’s obligations exceed or are more burdensome than those of Pledgor or any other Person;

(iii)Any defense: (A) based on any legal disability of any other Person, (B) based on any release, discharge, modification, impairment or limitation of the liability of any other Person to the Lender from any cause, whether consented to by the Lender or arising by operation of law, (C) arising out of or able to be asserted as a result of any case, action or proceeding before any governmental authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of any other Person or any of their affiliates, or any general assignment for the benefit of creditors, composition, marshaling of assets for creditors or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in each case as undertaken under any U.S. Federal or State law (each of the foregoing described in this clause (C) being referred to herein as an “Insolvency Proceeding”); or (D) arising from any rejection or disaffirmance of the Obligations, or any part thereof, or any security held therefor, in any such Insolvency Proceeding;

(iv)Any defense based on any action taken or omitted by Lender in any Insolvency Proceeding involving any other Person, including any election to have Lender’s claim allowed as being secured, partially secured or unsecured, any extension of credit by Lender to any other Person in any Insolvency Proceeding, and the taking and holding by Lender of any security for any such extension of credit;

(v)Except as otherwise provided herein, all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of intention to accelerate, notices of acceleration, notices of acceptance of this Pledge Agreement or any other Loan Document and of the existence, creation, or incurring of new or additional indebtedness, and demands and notices of every kind; and

(vi)Any defense based on or arising out of any defense that Pledgor or any of its affiliates may have to the payment or performance of the Secured Obligations, other than the defense of payment of the Secured Obligations.

(d)Waiver of Subrogation and Other Rights.

(i)Upon the occurrence and during the continuance of any Event of Default, in its sole discretion, without prior notice to or consent of Pledgor, Lender may elect to: (A) foreclose against any collateral for the Secured Obligations, (B) accept a transfer of any such collateral for the Secured Obligations in lieu of foreclosure, (C) compromise or adjust the Secured Obligations or any part thereof or make any other accommodation with Pledgor or any other Person, or (D) exercise any other remedy against Pledgor or any other Person or any collateral for the Secured Obligations. No such action by Lender shall release or limit Lender’s rights hereunder or under the other Related Documents, even if the effect of the action is to deprive Pledgor of any subrogation rights, rights of indemnity, or other rights to collect reimbursement from any other Person for any sums paid to Lender, whether contractual or arising by operation of law or otherwise. Pledgor expressly agrees that under no circumstances shall Pledgor be deemed to have any right, title, interest or claim in or to any Collateral to be held by Lender or any third party after any foreclosure or transfer in lieu of foreclosure of the Collateral.

Regardless of whether Pledgor may have made any payments to Lender, until repayment in full of all of the Secured Obligations, Pledgor waives: (A) upon the occurrence and during the continuance of an Event of Default all rights of subrogation, all rights of indemnity, and any other rights to collect reimbursement from any other Person on account of the Collateral encumbered by this Pledge Agreement, whether contractual or arising by operation of law (including the United States Bankruptcy Code or any successor or similar statute) or otherwise; (B) all rights to enforce any remedy that Lender may have against any Person granting collateral for the Secured Obligations; and (C) all rights to participate in any Collateral now or later to be held by Lender.

[BALANCE OF PAGE INTENTIONALLY BLANK;
SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, Pledgor has executed this Pledge Agreement as of the day and year first above written.

PLEDGOR:

HERITAGE GLOBAL INC.
a Florida corporation

By: ___/s/ James Sklar___
Name: James Sklar

Title: Executive Vice President, General
Counsel and Secretary

[SIGNATURES CONTINUE ON NEXT PAGE]

[Signature Page to Pledge and Security Agreement]

ACCEPTED BY LENDER:

C3BANK,

a national banking association

By: __/s/Andrew Meitzen___
Name: Andrew Meitzen
Title: SVP/Chief Credit & Risk Officer

[Signature Page to Pledge and Security Agreement]

CONSENT OF PLEDGED ENTITIES
(Pledge and Security Agreement)

Pledged Entities hereby (a) acknowledge receipt of a copy of the executed Pledge Agreement to which this Consent of Pledged Entities is attached, (b) consents to the Pledge Agreement, (c) agrees to comply with the terms and provisions thereof, (d) agrees not to do anything or cause, permit or suffer anything to be done which is prohibited by, or contrary to, the terms of the Pledge Agreement, and (e) agrees to register on its books and records Lender’s security interest in the Pledged Interests as provided in the Pledge Agreement.

Without limiting the foregoing (and notwithstanding anything to the contrary in any charter document of Pledged Entities), from and after the date hereof, Borrower agrees:

(a)to deliver directly to Lender any and all instruments and/or certificates evidencing any right, option or warrant, and all new, additional or substituted securities issued to, or to be received by, Pledgor by virtue of its ownership of the Pledged Interests issued by Pledged Entities or upon exercise by Pledgor of any option, warrant or right attached to such Pledged Interests;

(b)to recognize Lender’s or any other successful bidder’s automatic right to become a member or stockholder of Pledged Entities following a sale of the Pledged Interests in accordance with Section 7(d) of the Pledge Agreement, which admission shall be automatic upon the conclusion of a disposition pursuant to the Uniform Commercial Code and shall not require any further action on the part of Pledged Entities or any other person; and

(c)in the event of a sale of the Pledged Interests in accordance with Section 7(d) of the Pledge Agreement, Pledged Entities will, upon Lender’s request and at Pledgor’s expense: (i) provide Lender with such other information in Borrower’s possession and financial projections as may be necessary or, in Lender’s reasonable opinion, advisable to enable Lender to effect the sale of the Pledged Interests; and (ii) do or cause to be done all such other acts and things as may be reasonably necessary to make the sale of the Pledged Interests or any part thereof valid and binding and in compliance with applicable law.

Pledged Entities further acknowledges and agrees that it shall do all of the foregoing without any further notice from or consent or agreement of Pledgor.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, Pledged Entities have executed this Consent as of the date

first set forth above.

PLEDGED ENTITIES:

HERITAGE GLOBAL PARTNERS, INC.

A California corporation

By: /s/ James Sklar

Name: James Sklar

Title: Executive Vice President, General Counsel and Secretary

HERITAGE GLOBAL, LLC

A Delaware limited liability company

By: /s/ James Sklar

Name: James Sklar

Title: Executive Vice President, General Counsel and Secretary

EQUITY PARTNERS HG, LLC

A Delaware limited liability company

By: /s/ James Sklar

Name: James Sklar

Title: Executive Vice President, General Counsel and Secretary

HERITAGE GLOBAL CAPITAL, LLC

A Delaware limited liability company

By: /s/ James Sklar

Name: James Sklar

Title: Executive Vice President, General Counsel and Secretary

NATIONAL LOAN EXCHANGE, INC.

An Illinois limited liability company

By: /s/ David Ludwig

Name: David Ludwig

Title: President

[Signature Page to Consent of Borrower to Pledge and Security Agreement]

Exhibit 10.6

May 5, 2021

C3bank, National Association

Arlington Office

3727 Arlington Ave.

Riverside, CA 92506

Attn: Andrew Meitzen, SVP/Chief Risk Officer

Dear Andrew:

Reference is made to that certain (i) Business Loan Agreement of even date hereof by and between Heritage Global Inc., a Florida corporation ("Borrower") and C3bank, National Association ("Lender") (as the same heretofore may have been or hereafter may be amended, restated, supplemented, extended, renewed, replaced or otherwise modified from time to time, herein referred to as the "Loan Agreement"; capitalized terms used but not defined herein shall have the same meanings as in the Loan Agreement), (ii) Promissory Note of even date hereof, made by Borrower and payable to the order of Lender in the maximum principal amount of Ten Million and No/100 Dollars ($10,000,000.00) (as the same heretofore may have been or hereafter may be amended, restated, supplemented, extended, renewed, replaced or otherwise modified from time to time, herein referred to as the "Note"), (iii) Commercial Security Agreement of even date hereof by and among Borrower, Heritage Global Partners Inc., a California corporation ("HGP"), Heritage Global LLC, a Delaware limited liability company ("HG"), Equity Partners HG LLC, a Delaware limited liability company ("EPHG"), National Loan Exchange, an Illinois company ("NLEX"), Heritage Global Capital LLC, a Delaware limited liability company ("HGC", together with HGP, HG, EPHG and NLEX, each a "Grantor" and collectively, the "Grantors") and Lender (as the same heretofore may have been or hereafter may be amended, restated, supplemented, extended, renewed, replaced or otherwise modified from time to time, herein referred to as the "Security Agreement"), and (iv) Pledge and Security Agreement of even date hereof by and between Borrower and Lender (as the same heretofore may have been or hereafter may be amended, restated, supplemented, extended, renewed, replaced or otherwise modified from time to time, herein referred to as the "Pledge Agreement"; together with the Loan Agreement, the Note, the Security Agreement, and the other Related Documents, the "Loan Documents").

In connection with the growth and development of its business, Borrower anticipates that special purpose entities that are wholly owned by HGC (each such entity an "SPV") will enter and have entered into financing arrangements with unrelated third-parties (each such transaction, an "SPV Financing"), pursuant to which SPVs have borrowed and will borrow funds from such third-parties (each, a "Third-Party Lender"), and use the proceeds of such loans to finance the acquisition of portfolios of charged-off consumer debt by customers of HGC and its affiliates (each, a "Customer"). In connection with the foregoing, the SPVs have entered into and will enter into one or more senior credit facilities with Third-Party Lenders and have secured and will secure such by the assets of the SPVs, including without limitation the deposit accounts and accounts receivables of such SPV; HGC will fund a portion of each SPV Financing; SPVs will

loan funds to Customers secured by portfolios of charged-off consumer debt; and HGC and/or SPVs will provide collection, collateral management, and related services to Third-Party Lenders in connection with SPV Financings. Additionally, an SPV entered into a receivables purchase agreement with a Third-Party Lender, in which (i) the SPV originates a loan to a borrower, (ii) then the SPV sells the loan and assigns all underlying collateral to the Third-Party Lender, (iii) then the Third-Party Lender hires HGC to service the loan, (iv) then HGC services the loan and distributes the proceeds to the Third-Party Lender, the SPV and HGC pursuant to the waterfall described in the receivable purchase agreement. Pursuant to such agreement HGC may not cease to own one hundred percent of the equity interest in the SPV.

Notwithstanding anything to the contrary set forth in the Loan Documents, Borrower and Lender agree, (i) no SPV shall be considered a subsidiary or affiliate of Borrower for the purpose of or under the terms of any Loan Document, (ii) no SPV shall be subject to the terms and conditions of the Loan Documents, (iii) Borrower and its affiliates shall not be deemed in breach of any of the representations, warranties, covenants, terms, or conditions set forth in the Loan Documents solely as a result of the execution, consummation or performance of any SPV Financing, (iv) neither HGC’s equity interest in the SPVs nor any assets owned by any SPV shall be Collateral under the Loan Documents (for the avoidance of doubt, (A) this does not amend the pledge by Borrower of its equity interest in HGC pursuant to the terms of the Pledge Agreement, and (B) all assets of HGC other than its equity interest in the SPVs shall continue to be Collateral under the Loan Documents), (v) HGC may provide “bad boy” type guarantees in connection with SPV Financings substantially similar to those set forth on Exhibit A but may not guaranty other obligations to Third-Party Lenders without the prior written consent of Lender, such consent not to be unreasonably withheld, conditioned or delayed (for avoidance of doubt, Borrower shall not be permitted to guaranty in any manner any SPV Financing without the prior written consent of Lender), and (vi) any cash reserve covenant related to an SPV Financing shall be required to be held at HGC and not at any SPV.

In addition, notwithstanding anything to the contrary set forth in the Loan Documents, Borrower and Lender agree that NLEX may continue to maintain bank accounts with other banking institutions, provided that not less than once each month any excess funds in such accounts are transferred to a demand deposit account maintained by Borrower with C3 Bank.

This letter shall constitute a Related Document for all purposes.

[SIGNATURES FOLLOW]

Please confirm your agreement with the foregoing by signing in the space hereinafter provided.

Regards,

HERITAGE GLOBAL INC.

By: /s/ James Sklar

Name: James Sklar

Its: Executive Vice President, General Counsel and Secretary

ACCEPTED AND AGREED:

C3BANK, NATIONAL ASSOCIATION

By: /s/ Andrew Meitzen

Name: Andrew Meitzen

Title: SVP/Chief Credit & Risk Officer

Exhibit 31.1

OFFICER’S CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ross Dove, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Heritage Global Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2021

By:

/s/ Ross Dove

Ross Dove

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

OFFICER’S CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian J. Cobb, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Heritage Global Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2021

By:

/s/ Brian J. Cobb

Brian J. Cobb

Vice President of Finance and Controller

(Principal Financial Officer)

Exhibit 32.1

HERITAGE GLOBAL INC.

OFFICER’S CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)

The undersigned Ross Dove, duly appointed and incumbent officer of Heritage Global Inc., a Florida corporation (the “Corporation”), in connection with the Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), does hereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge:

1.	The Report is in full compliance with reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

May 13, 2021

/s/ Ross Dove

Ross Dove

Chief Executive Officer

(Principal Executive Officer)

Exhibit 32.2

HERITAGE GLOBAL INC.

OFFICER’S CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. 1350)

The undersigned Brian J. Cobb, duly appointed and incumbent officer of Heritage Global Inc., a Florida corporation (the “Corporation”), in connection with the Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), does hereby represent, warrant and certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended, that, to the best of his knowledge:

1.	The Report is in full compliance with reporting requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

May 13, 2021

/s/ Brian J. Cobb

Brian J. Cobb

Vice President of Finance and Controller

(Principal Financial Officer)