HGBL 10-K & 10-Q changes, risk factors and insider trading

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are including the following cautionary statements identifying important factors that could significantly and adversely affect the Company and cause actual results to differ materially from those projected in forward looking statements made by, or on behalf of, the Company. The risks and uncertainties described below should be considered carefully, and with all the other information contained in this Report, in evaluating the Company and its business. You should carefully consider and evaluate these risk factors, as any of them could materially and adversely affect our business, financial condition and results of operations, which, in turn, can adversely affect the price of our securities. It is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete statement of all our potential risks or uncertainties. Some statements in the “Business” section and elsewhere in this Annual Report on Form 10-K are “forward-looking statements” and are qualified by the cautionary language regarding such statements. See “Forward-Looking Information” above.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent errors and fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

The obligations of being a public company in the United States place additional demands on our management and require significant expenditures, including costs resulting from public company reporting obligations under the Exchange Act; the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act and the Dodd Frank Wall Street Reform and Consumer Protection Act; and the listing requirements for Nasdaq. Our management and other personnel devote a substantial amount of time to ensure that we comply with these requirements. Moreover, despite reforms made possible by the Jumpstart Our Business Startups Act of 2012 and the 2015 Fixing America’s Surface Transportation Act, theThe reporting requirements, rules, and regulations willmay increase our legal and financial compliance costs and willmay make some activities more time-consuming and costly, particularly if we were no longer to qualify as a smaller reporting company. Any changes that we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all.

At December 31, 2024,2025, we had working capital of $18.5$18.1 million, as compared to working capital of $11.6$18.5 million at December 31, 2023,2024, ana increasedecrease of $6.9$0.4 million.

Our current assets increased to $33.6 million at December 31, 2025 compared to $33.1 million at December 31, 2024 compared to $26.3 million at December 31, 2023.2024. The change in our current assets of $6.8$0.5 million is primarily due to aan decreaseincrease in the current portion of notes receivable of $3.2$1.1 million, inventory of $0.6 million and accounts receivable of $0.4$0.3 million, offset by increasesdecreases in cash and cash equivalents of $9.5$1.2 million, inventory of $0.3 million,million and other current assets of $0.6$0.3 million.

Our current liabilities decreasedincreased to $15.5 million at December 31, 2025 as compared to $14.6 million at December 31, 2024 as compared to $14.7 million at December 31, 2023.2024. The decreaseincrease of $0.1$0.9 million is primarily due to aan decreaseincrease in accounts payable and accrued liabilities of $1.2$1.1 million and other current liabilities of $0.4 million, offset by decreases in the current portion of third party debt of $1.3$0.4 million,million offset by an increase inand payables to sellers of $2.4$0.1 million.

Our indebtedness consists of a promissory notenote, dateda Augustbusiness 23,loan 2021agreement and commercial security agreement (collectively, the “Mortgage Loan Agreement”) with C3bank, National Association (the “ALT NoteLender”), issuedthat inprovides thefor amounta of $2.0$4.1 million asterm partloan of (the aggregate purchase price paid to acquire certain assets and liabilities of American Laboratory Trading“Mortgage”) and any amounts borrowed under the promissory note, business loan agreement, commercial security agreement and pledge agreement (the “2021 Credit Facility”) with C3bank,the National Association,Lender, for a $10.0 million revolving line of credit.

On December 27, 2024, the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Fifth Modification Agreement”), by and between the Company and C3the Bank.Lender. The Fifth Modification Agreement modifiesmodified and reaffirmsreaffirmed the 2021 Credit Facility to, among other things, extend the maturity date,date to June 27, 2026, modify the applicable interest rate, and further modify the loan covenants. The maturity date was modified to June 27, 2026. We are permitted to use the proceeds of the loan2021 Credit Facility solely for our business operations. As of December 31, 2024,2025, we had no outstanding balance on the 2021 Credit Facility.

During 2024,2025, our primary source of cash was the cash on hand, paymentscash receivedprovided by operating activities, principal repayments on notes receivable of $11.0$6.5 millionmillion, and $7.7proceeds millionfrom the Mortgage of cash$4.1 provided by our operating activities.million. Cash disbursements during 2024the year ended December 31, 2025 consisted primarily of investment in our new San Diego facility for $8.5 million, investments in notes receivable of $5.7$5.9 million, repurchaseand repurchases of our common stock under our Repurchase Program of approximately$2.6 $2.2 million, repayments on our ALT Note of $0.5 million, repayments on our Term Loan of $6.3 million (as discussed further under Note 11 – Debt), payment of operating expenses, and settlement of auction liabilities.million.

Cash flows from operating activities. Cash provided by operating activities was $7.7$6.1 million during 20242025 as compared to $13.0$7.7 million during 2023.2024. The approximate $5.3$1.6 million decrease was primarily attributable to a decrease of $6.3$0.6 million in net income adjusted for noncash items during 20242025 as compared to 2023,2024 offsetand bya an increasedecrease in operating assets and liabilities of $1.0 million during 20242025 as compared to 2023.2024.

Cash flows from investing activities. Cash providedused byin investing activities during 20242025 was $10.9$9.4 million, as compared to cash usedprovided inby investing activities of $15.9$10.9 million during 2023.2024.

Cash flows from financing activities. Cash usedprovided inby financing activities was $9.1$2.0 million during 2024,2025, as compared to cash providedused byin financing activities of $2.5$9.1 million during 2023.2024.

Cash usedprovided inby financing activities in 2024 of $9.1 million2025 was primarily attributable to $6.3$4.1 million in repaymentsproceeds tofrom our Term LoanMortgage (as discussed further under Note 11 – Debt) and $1.1 million in proceeds from secured borrowing related to the machinery and equipment lessor arrangement (as discussed further under Note 5 - Lessor Arrangements), $0.5offset by cash used in financing activities of $0.4 million in repayments to our ALT Note,Note asand wellapproximately as$2.6 repurchasemillion in repurchases of our common stock under our Repurchase Program of approximately $2.2 million.Program.

Cash providedused byin financing activities in 2023 of $2.5 million2024 was primarily attributable to $13.0 million in proceeds from draws on our 2021 Credit Facility and Term Loan, offset by $8.9 million in repayments to our 2021 Credit Facility, $0.7$6.3 million in repayments to our Term Loan,Loan (as discussed further under Note 11 – Debt), $0.5 million in repayments to our ALT Note, as well as repurchase of our common stock under our Repurchase Program of approximately $0.4$2.2 million.

Our CODM evaluates the performance of our reportable segments based primarily on gross profit and operating incomeincome. andThe CODM routinely receives internal reports that analyze operatingthese incomemetrics for the reporting segments. The CODM is not routinely provided detailed information regarding significant operating expenses by segment, and such information is not considered critical for allocating resources or assessing the performance of each segment. Our operating expenses are comprised mainly of fixed and variable compensation, marketing, outside services such as audit, legal and information technology, occupancy, and other regulatory costs incurred as a public entity. Additionally, earnings from equity method investments related to significant transactions involving real estate, machinery and equipment in the Company's Auction and Liquidation segment and Joint Venture lending activity related to the Company's Specialty Lending segment are significant in the computation of segment operating income and reported separately as shown in the table below.

[2] All financing arrangements are originated with Corporate and other. Management may determine from time to time that interest incurred from financing arrangements are directly attributable to a specific segment. As a result, interest incurred may be charged to the segment and included in that segment’s profit or loss as a charge to operating expense. In 2024,2025, the total amount ofno interest was allocated to the Specialty Lending segment (HGC) from Corporate and other was approximately $0.3 million,other, as compared to the total amount of interest allocated to HGC from Corporate and other in 20232024 of approximately $0.5$0.3 million.

Selling, general and administrative expense – Selling, general and administrative expense was $24.3$25.0 million in 20242025 as compared to $26.0$24.3 million in 2023,2024, aan decreaseincrease of $1.8$0.7 million or 7%.approximately As3%, comparedwhich toincluded 2023 there was a decrease in selling, generallegal and administrativeprofessional expensefees duringassociated 2024 primarilywith due todiligence decreased compensation expense as a resultefforts of lowerapproximately performance$0.4 in certain operational segments.million.

InOn NovemberDecember 14, 2023, the FASB issued ASU 2023-07,2023-09, "SegmentIncome ReportingTaxes (Topic 280740): Improvements to ReportableIncome SegmentTax Disclosures" ("ASU 2023-072023-09"), which, among other updates,which requires enhanced annual disclosures aboutwith significant segment expenses regularly providedrespect to the chiefrate operatingreconciliation decisionand maker,income astaxes wellpaid as the aggregate amount of other segment items included in the reported measure of segment profit or loss.information. ASU 2023-072023-09 is effective for fiscal years beginning after December 15, 2023,2024, with adoption permitted on a prospective basis. We adopted this standard for the year ended December 31, 2025 and forapplied interimthe periodsnew withindisclosure fiscalrequirements yearsprospectively. beginningSee afterNote December13 15,Income 2024, and requires retrospective adoption. The adoption of ASU 2023-07 resultedTaxes in additionalthe disclosuresaccompanying fornotes ourto segment results, which are included in Note 17 of ourthe consolidated financial statements.statements for further detail.

All services and asset sales revenue from contracts with customers consists of three of our reportable segments: Auction and Liquidation, Refurbishment & Resale, and Brokerage segments. Generally, revenue is recognized at the point in time in which the performance obligation has been satisfied and full consideration is received. The exception to recognition at this point in time occurs when certain contracts provide for advance payments recognized over a period of time. Services revenue recognized over a period of time is not material in comparison to total revenues (less thanapproximately 1% of total revenues for the year ended December 31, 20242025), 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 our “contract liability”. As of December 31, 2024,2025, 20232024 and 2022,2023, the deferred revenue balance was approximately $0.6$0.9 million, $0.5$0.6 million and $0.4$0.5 million, respectively, and is recorded within accountsother payable and accruedcurrent liabilities on the consolidated balance sheet. The deferred revenue balance is primarily related to customer deposits on asset sales within our Refurbishment & Resale segment. We record receivables in certain situations based on timing of payments for Auction and Liquidation transactions held at the end of the reporting period; however, revenue is generally recognized in the period that we satisfy the performance obligation and cash is collected. We do not record a “contract asset” for partially satisfied performance obligations.

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

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

Pursuant to the terms of existing credit agreements, our largest borrower was required to collect on underlying charged off and nonperforming consumer loan portfolios and remit a required minimum monthly payment to us.the Company. However, this borrower became unable to make the required minimum monthly payments beginning in June 2024 and therefore is in default. While in default, thisThis borrower continues to collect on the underlying charged off and nonperforming consumer loan portfolios but mustand remit all such net collections to usthe Company and senior lenders. These remittances of net collectionsWe have not met the amount of the required minimum monthly payments since June of 2024. We determined that (1) it is not probable that the projected cash flows expected from the borrower’s collection efforts on the underlying charged off or nonperforming receivable portfolio will be sufficient to satisfy all of the outstanding principal balance and contractual interest payments, and (2) it is not probable that the borrower will be able to meet the minimum required principal and interest payments through other operational cash flows. We do not expect to realize any return with respect to these loans in 2025, and whether we will realize any return with respect to these loans is uncertain. AsWhile we continue to work closely with the borrower and its senior lenders in an effort to mitigate the default in an efficient and effective manner, the impacted loans have beenwere placed in nonaccrual status beginning in June 2024. In addition, there was a balance of $1.5 million from our share of other loans within our affiliated Jointjoint Venturesventures that are impacted by the default with our largestthis borrower and have beenwere placed in nonaccrual status as ofin June 2024. Our share of payments received from thisthe borrower,nonaccrual loans, including interest, will be applied against the outstanding loan balance. As of December 31, 2024,2025, the amortized cost basis of loans in nonaccrual status was $23.5$23.9 million, of which $5.3$4.9 million is recorded within notes receivable and $18.2$19.0 million is recorded within equity method investments. There were no loans in nonaccrual status as of December 31, 2023.

Upon adoption of ASC 326 on January 1, 2023, we evaluated the receivable balances held by our affiliated Joint Ventures and recorded an adjustment to reduce earnings from equity method investments by our share of the allowance for credit losses recorded on the Joint Ventures’ books of $0.2 million. Similar to notes receivable, the loans held by the Joint Ventures are evaluated on a quarterly basis to determine if an adjustment to the allowance for credit losses is needed. As of December 31, 2024,2025, the SCALE rate increased to 1.3767% from 1.3644% as of December 31, 2024, and the credit loss rate specific to equity method investments was 4.5%. The increase over the SCALE rate was due to both the above mentioned risks withpresented theby a concentrated balance with a single borrower and declining collections industry-wide. As of both December 31, 20242025 and December 31, 2023,2024, we have recorded anthe allowance for credit losses relatedrecorded toagainst itsour equity method investments ofbalance was $1.0 million and $0.9 million, respectively.million.

We recognize deferred tax assets and liabilities for temporary differences between the tax basis of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. We periodically assess the recoverability of our deferred tax assets, which have been generated by a history of net operating and net capital losses, and determine the necessity for a valuation allowance that will reduce deferred tax assets to the amount expected to be realized. We evaluate which portion of the deferred tax assets, if any, will more likely than not be realized by offsetting future taxable income, taking into consideration any limitations that may exist on our use of our net operating and net capital loss carryforwards.carry In 2023, we recorded a reduction to the valuation allowance of $2.2 million resulting in a net deferred tax asset balance of approximately $9.1 million as we believed that it was more likely than not that a significant portion of our net operating loss carryforwards will be utilized.forwards. In 2024, we increased the valuation allowance by $1.3 million, resulting in a net deferred tax asset balance of approximately $6.0 million. The change to the valuation allowance was primarily due to the application of our nonaccrual loan policy, which resulted in a decrease to our estimates related to the utilization of net operating loss carryforwardscarry forwards in 2025. For further discussion of our income taxes, see Note 13 to our consolidated financial statements.

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., a FlordaFlorida Corporation ("HG") (together with its consolidated subsidiaries, “we”, “us”, “our” or the “Company”,) and the related notes thereto for the three and six month periods ended MarchJune 31,30, 2026 and 2025, 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, 2025, filed with the Securities and Exchange Commission (“SEC”) on March 12, 2026 (the “Form 10-K”).

The organization chart below outlines our basic domestic corporate structure as of MarchJune 31,30, 2026.

Differentiated business model. We believe we have diversified business lines serving the financial and industrial asset liquidation market. We have multiple revenue streams including our consumer and commercial loan brokerages, principal based auction services, refurbishment and resale, and advisory services and secured lendingfinancing services.on laboratory equipment sales. 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.

Our Financial Assets Division provides services to issuers of consumer and commercial 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.

ThroughAs of June 30, 2026, through HGC, we provide specialty financing solutions to investors in charged-off and nonperforming asset portfolios. Since the inception of HGC in 2019, we have issued $160.7$161.0 million in total loans to investors by both self- funded loans and in partnership with senior lenders. Our portion of the total loans funded since inception is $74.3$74.5 million. Our income from secured lending consists of upfront fees, interest income, monthly monitoring fees and backend profit share. As of MarchJune 31,30, 2026, our net balance related to investments in loans to buyers of charged-off and nonperforming receivable portfolios was $26.3$3.9 million, of which $8.1 million is classified as notes receivable on our condensed consolidated balance sheet. On July 30, 2026, the Board authorized a strategic plan to wind down the Company’s Specialty Lending segment beginning in the third quarter of 2026. Refer to Note 16 - Subsequent Events, and $18.2the millionCompany’s isCurrent classifiedReport ason equityForm method8-K, investments.filed with the SEC on July 31, 2026, for additional information.

The critical accounting policies used in the preparation of our audited consolidated financial statements are discussed in our Form 10-K. Other than stated above, there were no material changes to these policies during the threesix months ended MarchJune 31,30, 2026.

We had working capital of $11.6$9.4 million and $18.1 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively.

Our current assets as of MarchJune 31,30, 2026 decreased to $23.8$23.0 million compared to $33.6 million as of December 31, 2025. This change was primarily due to a decrease in cash of $8.9$7.3 million, as further discussed below, a decrease in the current portion of notes receivable of $3.7 million primarily due to an increased allowance for credit losses, and a decrease in inventory of $0.4 million, partially offset by an increase in accounts receivable of $0.6 million.

Our current liabilities as of MarchJune 31,30, 2026 decreased to $12.2$13.6 million compared to $15.5 million as of December 31, 2025. The most significant changes were a decrease of $2.0$0.6 million in payables to sellers due to the timing of certain asset liquidation settlements and a decrease of $1.4$1.0 million in accounts payable and accrued liabilities.

During the threesix months ended MarchJune 31,30, 2026, our primary source of cash was cash on hand and principal repayments on outstanding loans. Cash disbursements during the threesix months ended MarchJune 31,30, 2026 consisted primarily of approximately $8.5 million cash paid for the acquisition of substantially all of the assets of The Debt Exchange, Inc., investments in notes receivable, repurchases of our common stock, and capital expenditures related to improvements to our new building.

We believe we can fund our operations and our debt service obligations for 12 months from the date of filing this quarterly report and beyond through a combination of working capital, cash flows from our on-going operations and accessing financing from oura existingfuture linecredit facility, currently being negotiated with C3bank and expected to be executed in the third quarter of credit.2026.

Our indebtedness consists of a promissory note, a business loan agreement and commercial security agreement (collectively, the “Mortgage Loan Agreement”) with C3bank, National Association, that provides for a $4.1 million term loan (the “Mortgage”) and any amounts borrowed under our 2021 Credit Facility..

On February 6, 2025 we entered into the Mortgage Loan Agreement with C3bank, National Association (the “Lender”). The Mortgage Loan Agreement provides for the Mortgage which we used to purchase real property and the building located at 6130 Nancy Ridge Drive in San Diego, California on February 11, 2025. This property is used as the Company’s corporate headquarters and as a warehouse and office space for the operations of Heritage Global Partners, Inc., our subsidiary that operates our Auction and Liquidation segment. As of MarchJune 31,30, 2026, we had an outstanding balance of $4.1 million on the Mortgage.

On December 27, 2024, the Company entered into a Loan Modification Agreement and Reaffirmation of Loan (the “Sixth Modification Agreement”), by and between the Company and the Lender. The Sixth Modification Agreement modifies and reaffirms the 2021 Credit Facility to, among other things, extend the maturity date to June 27, 2026, modify the applicable interest rate, and further modify the loan covenants. We are permitted to use the proceeds of the loan solely for our business operations. As of March 31, 2026, we had no outstanding balance on the 2021 Credit Facility.

As of MarchJune 31,30, 2026 and December 31, 2025, we had stockholders’ equity of $67.8$51.9 million and $67.0 million, respectively.

We determine our future capital and operating requirements based upon our current and projected operating performance and contractual commitments. We expect to be able to finance our future operations through a combination of working capital, future net cash flows from operating activities and oura 2021new Creditcredit Facility.facility with C3bank, which we expect to be in place prior to the end of the third quarter of 2026. Our contractual requirements are limited to the outstanding debt and lease commitments with related and unrelated parties. Capital requirements are generally limited to our purchases of surplus and distressed assets and our investment activity under our Specialty Lending segment. We believe that our current capital resources,resources including available borrowing capacity from our 2021 Credit Facility isare sufficient for these requirements. In the event additional capital is needed, we believe we can obtain additional debt financing through capital partners.

Cash and cash equivalents as of MarchJune 31,30, 2026 were $11.6$13.2 million as compared to $20.5 million as of December 31, 2025, a decrease of approximately $8.9$7.3 million. The total cash amount reflected on our balance sheet represents the total cash and cash equivalents held on account. Cash amounts owed to our clients are identified as payables to sellers within current liabilities. We view cash net of payables to sellers as available for operations or investment purposes. As of MarchJune 31,30, 2026,2026 payables to sellers was $5.3$6.7 million, resulting in a net cash available balance of $6.2$6.5 million compared to available cash of $13.2 million as of December 31, 2025.

Cash Flows From Operating Activities

Cash used in operating activitiesoperations was $2.7$1.1 million during the threesix months ended MarchJune 31,30, 2026 as compared to cash provided by operating activitiesoperations of $2.6$4.5 million during the same period in 2025. The approximate $5.3$5.6 million change was primarily attributable to a decrease of $1.9 million in net income adjusted for noncash items and a decrease in operating assets and liabilities of $4.1$3.6 million and a decrease of $1.2 million in net income adjusted for noncash items during the threesix months ended MarchJune 31,30, 2026 as compared to the same period in 2025.

The changes in operating assets and liabilities during the threesix months ended MarchJune 31,30, 2026 as compared to the same period in 2025 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 Flows From Investing Activities

Cash used in investing activities during the threesix months ended MarchJune 31,30, 2026 was $5.4$5.2 million compared to cash used in investing activities of $9.5$8.6 million during the same period in 2025.

Cash used in investing activities during the threesix months ended MarchJune 31,30, 2026 consisted primarily of the purchase price paid for the acquisition of substantially all of the assets of The Debt Exchange, Inc. of $8.5 million, the purchase of property and equipment of $0.6$0.8 million, and investments in notes receivable of $1.0$2.0 million. Cash used in investing activities during the threesix months ended MarchJune 31,30, 2026 was offset by payments received on notes receivable of $1.9$3.1 million, return of investment and cash distributions received from equity method investments of $2.1$2.2 millionmillion, and return of investment in participating interest of $0.6$0.7 million.

Cash used in investing activities during the threesix months ended MarchJune 31,30, 2025 consisted primarily of purchase of property and equipment of $7.4$7.6 million, investments in notes receivable of $1.3$3.0 million, investment in equity method investments of $1.6 million and an investment in a participating interest of $1.6 million. Cash used in investing activities during the threesix months ended MarchJune 31,30, 2025 was offset by payments received on notes receivable of $1.6$3.9 million and return of investment and cash distributions received from equity method investments of $0.8$1.3 million.

Cash Flows From Financing Activities

Cash used in financing activities was approximately $0.9$1.0 million during the threesix months ended MarchJune 31,30, 2026 compared to cash provided by financing activities of $3.9$2.2 million during the threesix months ended MarchJune 31,30, 2025. Financing activities during the threesix months ended MarchJune 31,30, 2026 consisted primarily of repayments of secured borrowing of $0.7$0.8 million and $0.3 million in repurchases of our common stockstock. of $0.1 million. Cash provided by financingFinancing activities during the threesix months ended MarchJune 31,30, 2025 consisted primarily of $4.1 million in proceeds from our Mortgage and $1.1 million of proceeds from secured borrowing, partially offset by $1.0$2.6 million in repurchases of our common stock.

The following table sets out the Company’s condensed consolidated results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025 (in thousands).

We report segment information based on the “management” approach. The management approach designates the internal reporting used by the Chief Operating Decision Maker (CODM), which was determined to be Ross Dove, CEO, for making decisions and assessing performance as the source of our reportable segments. We manage our business primarily on differentiated revenue streams for services offered. Our reportable segments consist of the Auction and Liquidation segment, Refurbishment & Resale segment, Consumer Loans segment, Commercial Loans segment,segment and Specialty Lending segment. The Auction and Liquidation segment, through HGP, operates as a global full-service auction, appraisal and asset advisory firm, including the acquisition of turnkey manufacturing facilities and used industrial machinery and equipment. The Refurbishment & Resale segment, through ALT, acquires, refurbishes and supplies specialized laboratory equipment. The Consumer Loan segment, through NLEX, brokers charged-off receivables in the U.S. and Canada on behalf of financial institutions. The Commercial Loans segment, through DebtX provides loan sale advisement and valuation services. The Specialty Lending segment, through HGC, provides specialty financing solutions to investors in charged-off and nonperforming asset portfolios.

The following tabletables setsset forth certain financial information for the Company's reportable segments for the three monthsmonth periods ended MarchJune 31,30, 2026 and 2025 (in thousands):

[1] Within the Company’s Industrial Asset division, management allocates gross profit resulting from certain auctions from Auctions and Liquidation (HGP) to Refurbishment & Resale (ALT). From time to time, ALT may source and refer an auction project to HGP or directly sell lab equipment inventory through the auction channel. In these instances, the profits relating to these transactions are allocated to ALT rather than accounted for under the segment profit or loss of HGP. During the three months ended MarchJune 31,30, 2026, the total amount of gross profit allocated to ALT from HGP was not material, as compared to the total amount of gross profit allocated to ALT during the same period of 2025 of approximately $0.4 million. During the six months ended June 30, 2026, the total amount of gross profit allocated to ALT from HGP was approximately $0.1 million, as compared to the total amount of gross profit allocated to ALT during the same period of 2025 of approximately $0.3$0.6 million.

[2] All financing arrangements are originated with Corporate and other. Management may determine from time to time that interest incurred from financing arrangements are directly attributable to a specific segment. As a result, interest incurred may be charged to the segment and included in that segment’s profit or loss as a charge to operating expense. No interest expense has been allocated to operating segments during the three or six months ended MarchJune 31,30, 2026 or March 31,and 2025.

Three-Month Period Ended MarchJune 31,30, 2026 Compared to Three-Month Period Ended MarchJune 31,30, 2025

Revenues and cost of revenues – Revenues were $12.7$12.3 million during the three months ended MarchJune 31,30, 2026 compared to $13.5$14.3 million during the same period in 2024.2025. Costs of services revenue and asset sales were $4.4$3.9 million during the three months ended MarchJune 31,30, 2026 compared to $5.4$5.9 million during the three months ended MarchJune 31,30, 2025. The gross profit of these items was $8.3 million during the three months ended MarchJune 31,30, 2026 compared to $8.0$8.4 million during the same period in 2025, ana increasedecrease of approximately $0.3$0.1 million, or approximately 4%.1%. The increasedecrease in gross profit duringin the threesecond monthsquarter ended March 31,of 2026 compared to the threesecond monthsquarter ended March 31,of 2025 is primarily due to a decrease in gross profit generated by our consumer loans segment and normal changes in the timing and magnitude of transactions, inoffset addition toby the inclusion of gross profit from DebtX beginning in the first quarter of 2026.

Selling, general and administrative expense – Selling, general and administrative expense was $7.6$10.8 million during the three months ended MarchJune 31,30, 2026 compared to $6.5$6.1 million during the same period in 2025.

Significant components of selling, general and administrative expense for the three months ended MarchJune 31,30, 2026 and 2025 are shown below (in thousands):

Selling, general and administrative expense during the three months ended MarchJune 31,30, 2026 increased by approximately $1.1$4.7 million compared to the selling, general and administrative expense during same period of 2025. The increase in selling, general and administrative expense during the three months ended MarchJune 31,30, 2026 was primarily due to the increased allowance for credit losses on notes receivable and the acquisition of substantially all of the assets of The Debt Exchange, Inc.

Depreciation and amortization expense – Depreciation and amortization expense was approximately $0.2 million andduring the three month period ended June 30, 2026 compared to $0.1 million during the three month periodsperiod ended MarchJune 31,30, 2026 and 2025, respectively.2025.