UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q
(Mark One)
ý(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 20192020


OR
o☐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 0-51813
 
LIQUIDITY SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware52-2209244
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
6931 Arlington Road, Suite 200, Bethesda, MD


20814
(Address of Principal Executive Offices)(Zip Code)
 
(202) 467-6868
(Registrant’s Telephone Number, Including Area Code) 
 
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)


Securities registered to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.001 par valueLQDTNasdaq
 
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 ý☒ No o☐
 
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 ý☒ No o☐







Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☒
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company x
Emerging growth company o
☐
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. o☐


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


The number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of July 30, 2019August 3, 2020 was 33,651,086. 34,045,094.







INDEX
 
Page
PART I. FINANCIAL INFORMATION
Page
PART I. FINANCIAL INFORMATION
Item 1.
3
3
4
5
6
7
8
Item 2.
2622
Item 3.
3733
Item 4.
3734
PART II. OTHER INFORMATION
Item 1.
3935
Item 1A.
3935
3935

Item 6.
4036
4137



2
Table of Contents
PART I—FINANCIAL INFORMATION


Item 1. Financial Statements.
Liquidity Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, Except Par Value)

June 30, 2019
September 30, 2018June 30, 2020September 30, 2019
(Unaudited) (Unaudited)
Assets 

 
Assets  
Current assets: 

 
Current assets:  
Cash and cash equivalents$36,414

$58,448
Cash and cash equivalents$72,729  $36,497  
Short-term investments30,000
 20,000
Short-term investments—  30,000  
Accounts receivable, net of allowance for doubtful accounts of $347 and $337 at June 30, 2019 and September 30, 2018, respectively5,742

4,870
Accounts receivable, net of allowance for doubtful accounts of $357 and $291Accounts receivable, net of allowance for doubtful accounts of $357 and $2915,159  6,704  
Inventory, net8,891

10,122
Inventory, net7,415  5,843  
Prepaid taxes and tax refund receivable1,673

1,727
Prepaid taxes and tax refund receivable3,081  2,531  
Prepaid expenses and other current assets8,129

7,816
Prepaid expenses and other current assets6,546  8,350  
Total current assets90,849

102,983
Total current assets94,930  89,925  
Property and equipment, net of accumulated depreciation of $13,254 and $11,078 at June 30, 2019 and September 30, 2018, respectively18,589

16,610
Property and equipment, net of accumulated depreciation of $13,678 and $10,566Property and equipment, net of accumulated depreciation of $13,678 and $10,56618,500  18,846  
Operating lease assetsOperating lease assets9,263  —  
Intangible assets, net6,377

7,366
Intangible assets, net5,086  6,043  
Goodwill59,685

59,819
Goodwill59,587  59,467  
Deferred tax assets869

930
Deferred tax assets821  866  
Other assets14,299

14,124
Other assets10,677  12,136  
Total assets$190,668

$201,832
Total assets$198,864  $187,283  
Liabilities and stockholders’ equity 

 
Liabilities and stockholders’ equity  
Current liabilities: 

 
Current liabilities:  
Accounts payable$13,289

$13,859
Accounts payable$29,002  $15,051  
Accrued expenses and other current liabilities24,390

21,373
Accrued expenses and other current liabilities17,757  28,794  
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities4,127  —  
Distributions payable1,827

2,128
Distributions payable—  1,675  
Deferred revenue3,185
 2,142
Deferred revenue3,025  3,049  
Payables to sellers24,840

28,969
Payables to sellers26,325  20,253  
Total current liabilities67,531

68,471
Total current liabilities80,236  68,822  
Operating lease liabilitiesOperating lease liabilities5,908  —  
Deferred taxes and other long-term liabilities2,024

3,707
Deferred taxes and other long-term liabilities2,482  2,286  
Total liabilities69,555

72,178
Total liabilities88,626  71,108  
Commitments and contingencies (Note 12)0

0
Commitments and contingencies (Note 11)Commitments and contingencies (Note 11)00
Stockholders’ equity: 

 
Stockholders’ equity:  
Common stock, $0.001 par value; 120,000,000 shares authorized; 33,498,078 shares issued and outstanding at June 30, 2019; 32,774,118 shares issued and outstanding at September 30, 201833

33
Common stock, $0.001 par value; 120,000,000 shares authorized; 34,021,773 shares issued and outstanding at June 30, 2020; 33,687,115 shares issued and outstanding at September 30, 2019Common stock, $0.001 par value; 120,000,000 shares authorized; 34,021,773 shares issued and outstanding at June 30, 2020; 33,687,115 shares issued and outstanding at September 30, 201934  34  
Additional paid-in capital241,361

236,115
Additional paid-in capital246,016  242,686  
Accumulated other comprehensive loss(6,933)
(6,449)Accumulated other comprehensive loss(8,019) (7,973) 
Accumulated deficit(113,348)
(100,045)Accumulated deficit(127,793) (118,572) 
Total stockholders’ equity121,113

129,654
Total stockholders’ equity110,238  116,175  
Total liabilities and stockholders’ equity$190,668

$201,832
Total liabilities and stockholders’ equity$198,864  $187,283  
 
See accompanying notes to the unaudited consolidated financial statements.



3
Table of Contents
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)





 Three Months Ended June 30, Nine Months Ended June 30,
 2019
2018 2019 2018
 (Unaudited)
Revenue$36,388

$32,080
 $109,478
 $115,464
Fee revenue20,494

18,489
 58,257
 56,345
Total revenue56,882

50,569
 167,735
 171,809
Costs and expenses from operations: 

 
  
  
Cost of goods sold (exclusive of depreciation and amortization)25,337

19,489
 75,100
 75,847
Seller distributions2,994

3,936
 8,393
 11,107
Technology and operations12,145

13,663
 38,098
 47,718
Sales and marketing8,771

8,386
 26,887
 24,921
General and administrative8,959

6,847
 26,217
 22,056
Depreciation and amortization1,206

1,020
 3,575
 3,375
Other operating expenses2,031

452
 3,586
 2,222
Total costs and expenses61,443

53,793
 181,856
 187,246
Loss from operations(4,561)
(3,224) (14,121) (15,437)
Interest and other income, net(454)
(131) (1,224) (1,041)
Loss before provision (benefit) for income taxes(4,107)
(3,093) (12,897) (14,396)
Provision (benefit) for income taxes542

612
 1,136
 (3,824)
Net loss$(4,649)
$(3,705) $(14,033) $(10,572)
Basic and diluted loss per common share$(0.14)
$(0.12) $(0.43) $(0.33)
Basic and diluted weighted average shares outstanding33,164,750

32,104,368
 32,986,040
 31,984,222

 Three Months Ended June 30,Nine Months Ended June 30,
 2020201920202019
(Unaudited)
Revenue$30,442  $36,388  $95,994  $109,478  
Fee revenue17,280  20,494  54,056  58,257  
Total revenue47,722  56,882  150,050  167,735  
Costs and expenses from operations:   
Cost of goods sold (excludes depreciation and amortization)22,494  25,337  73,289  75,100  
Seller distributions—  2,994  —  8,393  
Technology and operations9,515  12,145  32,342  38,098  
Sales and marketing7,412  8,771  27,126  26,887  
General and administrative6,217  8,959  21,321  26,217  
Depreciation and amortization1,567  1,206  4,716  3,575  
Other operating expenses319  2,031  500  3,586  
Total costs and expenses47,524  61,443  159,294  181,856  
Income (loss) from operations198  (4,561) (9,244) (14,121) 
Interest and other income, net(224) (454) (733) (1,224) 
Income (loss) before provision for income taxes422  (4,107) (8,511) (12,897) 
Provision for income taxes209  542  710  1,136  
Net income (loss)$213  $(4,649) $(9,221) $(14,033) 
Basic income (loss) per common share$0.01  $(0.14) $(0.27) $(0.43) 
Diluted income (loss) per common share$0.01  $(0.14) $(0.27) $(0.43) 
Basic weighted average shares outstanding33,695,936  33,164,750  33,621,740  32,986,040  
Diluted weighted average shares outstanding33,815,332  33,164,750  33,621,740  32,986,040  
 
See accompanying notes to the unaudited consolidated financial statements.

4
Table of Contents
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive LossIncome (Loss)
(Dollars in Thousands)





 Three Months Ended June 30, Nine Months Ended June 30,
 2019 2018 2019 2018
 (Unaudited)
Net loss$(4,649) $(3,705) $(14,033) $(10,572)
Other comprehensive income (loss): 
  
    
Foreign currency translation(255) (748) (484) (764)
Other comprehensive income (loss)(255) (748) (484) (764)
Comprehensive loss$(4,904) $(4,453) $(14,517) $(11,336)

 Three Months Ended June 30,Nine Months Ended June 30,
 2020201920202019
(Unaudited)
Net income (loss)$213  $(4,649) $(9,221) $(14,033) 
Other comprehensive income (loss):    
Foreign currency translation424  (255) (46) (484) 
Other comprehensive income (loss)424  (255) (46) (484) 
Comprehensive income (loss)$637  $(4,904) $(9,267) $(14,517) 
 
See accompanying notes to the unaudited consolidated financial statements.




5
Table of Contents
Liquidity Services, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
(Dollars In Thousands)











 Common Stock        
 Shares Amount 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 Total
 (Unaudited)
Balance at September 30, 201832,774,118
 $33
 $236,115
 $(6,449) $(100,045) $129,654
Cumulative adjustment related to adoption of ASC 606 (Note 2)—
 —
 —
 —
 730
 730
Net loss—
 —
 —
 —
 (5,022) (5,022)
Exercise of common stock options and vesting of restricted stock            409,060
 —
 8
 —
 —
 8
Compensation expense from grants of common stock options and restricted stock—
 —
 1,556
 —
 —
 1,556
Foreign currency translation—
 —
 —
 (427) —
 (427)
Balance at December 31, 201833,183,178
 $33
 $237,679
 $(6,876) $(104,337) $126,499
Net loss—
 —
 —
 —
 (4,362) (4,362)
Exercise of common stock options, grants of restricted stock awards, and vesting of restricted stock units           197,642
 —
 116
 —
 —
 116
Compensation expense from grants of common stock options and restricted stock—
 —
 2,011
 —
 —
 2,011
Forfeiture of restricted stock awards(33,163) —
 —
 —
 —
 —
Foreign currency translation and other—
 —
 —
 198
 3
 201
Balance at March 31, 201933,347,657
 $33
 $239,806
 $(6,678) $(108,696) $124,465
Net loss—
 —
 —
 —
 (4,649) (4,649)
Exercise of common stock options, grants of restricted stock awards, and vesting of restricted stock units           150,421
 —
 5
 —
 —
 5
Compensation expense from grants of common stock options and restricted stock—
 —
 1,550
 —
 —
 1,550
Foreign currency translation and other—
 —
 —
 (255) (3) (258)
Balance at June 30, 201933,498,078
 $33
 $241,361
 $(6,933) $(113,348) $121,113
 Common Stock
 SharesAmountAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Loss		Accumulated
Deficit		Total
(Unaudited)
Balance at September 30, 201933,687,115  $34  $242,686  $(7,973) $(118,572) $116,175  
Net loss—  —  —  —  (5,196) (5,196) 
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units            283,164  —  2  —  —  2  
Taxes paid associated with net settlement of stock compensation awards(67,688) —  (498) —  —  (498) 
Forfeitures of restricted stock awards(15,000) —  —  —  —  —  
Stock compensation expense—  —  1,121  —  —  1,121  
Foreign currency translation—  —  —  833  —  833  
Balance at December 31, 201933,887,591  34  243,311  (7,140) (123,768) 112,437  
Net loss—  —  —  —  (4,238) (4,238) 
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units111,272  —  32  —  —  32  
Taxes paid associated with net settlement of stock compensation awards(10,065) —  (60) —  —  (60) 
Stock compensation expense—  —  1,244  —  —  1,244  
Foreign currency translation—  —  —  (1,303) —  (1,303) 
Balance at March 31, 202033,988,798  34  244,527  (8,443) (128,006) 108,112  
Net income—  —  —  —  213  213  
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units34,185  —  1  —  —  1  
Taxes paid associated with net settlement of stock compensation awards(1,210) —  (6) —  —  (6) 
Stock compensation expense—  —  1,494  —  —  1,494  
Foreign currency translation—  —  —  424  —  424  
Balance at June 30, 202034,021,773  $34  $246,016  $(8,019) $(127,793) $110,238  




See accompanying notes to the unaudited consolidated financial statements.

6
Table of Contents
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars In Thousands)




Nine Months Ended June 30, Nine Months Ended June 30,
2019
2018 20202019
(Unaudited)
(Unaudited)
Operating activities 

 
Operating activities  
Net loss$(14,033)
$(10,572)Net loss$(9,221) $(14,033) 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: 

 
Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation and amortization3,575

3,375
Depreciation and amortization4,716  3,575  
Stock compensation expense5,138

4,134
Stock compensation expense3,785  5,138  
Provision for inventory allowance—

2,092
Provision for doubtful accounts184

191
Provision for doubtful accounts131  184  
Deferred tax provision (benefit)81

(4,814)
Gain on disposal of property and equipment20
 (489)
Change in fair value of financial instruments—

90
Deferred tax provisionDeferred tax provision228  81  
Loss (gain) on disposal of property and equipmentLoss (gain) on disposal of property and equipment(29) 20  
Change in fair value of earnout liability2,300
 —
Change in fair value of earnout liability200  2,300  
Changes in operating assets and liabilities: 

 
Changes in operating assets and liabilities:  
Accounts receivable(1,056)
5,551
Accounts receivable1,415  (1,056) 
Inventory1,231

5,847
Inventory(1,572) 1,231  
Prepaid and deferred taxes47

197
Prepaid and deferred taxes(551) 47  
Prepaid expenses and other assets244

1,938
Prepaid expenses and other assets942  244  
Operating lease assets and liabilitiesOperating lease assets and liabilities(165) —  
Accounts payable(570)
3,165
Accounts payable13,951  (570) 
Accrued expenses and other current liabilities(777)
(12,149)Accrued expenses and other current liabilities(9,525) (777) 
Distributions payable(301)
(842)Distributions payable(1,675) (301) 
Deferred revenue1,043
 —
Deferred revenue(23) 1,043  
Payables to sellers(4,129)
4,542
Payables to sellers6,072  (4,129) 
Other liabilities(222)
(664)Other liabilities522  (222) 
Net cash (used in) provided by operating activities(7,225)
1,592
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities9,201  (7,225) 
Investing activities 

 
Investing activities  
Increase in intangibles(20)
(23)Increase in intangibles(53) (20) 
Purchases of property and equipment, including capitalized software(4,784)
(2,697)Purchases of property and equipment, including capitalized software(3,608) (4,784) 
Proceeds from sales of property and equipment112
 828
Proceeds from sales of property and equipment47  112  
Proceeds from promissory noteProceeds from promissory note2,553  —  
Purchases of short-term investments(50,000) (10,000)Purchases of short-term investments(25,000) (50,000) 
Maturities of short-term investments40,000
 —
Maturities of short-term investments55,000  40,000  
Net cash used in investing activities(14,692)
(11,892)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities28,939  (14,692) 
Financing activities 

 
Financing activities  
Proceeds from exercise of common stock options129

12
Net cash provided by financing activities129

12
Payments of the principal portion of finance lease liabilitiesPayments of the principal portion of finance lease liabilities(26) —  
Taxes paid associated with net settlement of stock compensation awardsTaxes paid associated with net settlement of stock compensation awards(564) —  
Proceeds from exercise of stock optionsProceeds from exercise of stock options36  129  
Payment of earnout liability related to business acquisitionPayment of earnout liability related to business acquisition(1,200) —  
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(1,754) 129  
Effect of exchange rate differences on cash and cash equivalents(246)
(649)Effect of exchange rate differences on cash and cash equivalents(154) (246) 
Net (decrease) increase in cash and cash equivalents(22,034)
(10,937)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents36,232  (22,034) 
Cash and cash equivalents at beginning of period58,448

94,348
Cash and cash equivalents at beginning of period36,497  58,448  
Cash and cash equivalents at end of period$36,414

$83,411
Cash and cash equivalents at end of period$72,729  $36,414  
Supplemental disclosure of cash flow information 

 
Supplemental disclosure of cash flow information  
Cash paid for income taxes, net$872

$800
Cash paid for income taxes, net$203  $872  


See accompanying notes to the unaudited consolidated financial statements.


7
Table of Contents
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements



1.Organization

1.Organization

Liquidity Services, Inc. (the Company) operates a network of ecommerce marketplaces that enable Buyersbuyers and Sellerssellers to transact in an efficient, automated environment offering overover 500 product categories. The Company’s marketplaces provide professional Buyersbuyers access to a global, organized supply of new, surplussurplus and scrap assets presented with digital images and other relevant product information. Additionally, the Company enables corporate and government Sellerssellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation and sale of surplus assets. The Company provides a broad range of fully-managed service offerings thatCompany's services include program management, valuation, asset management, reconciliation, returns process management, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, Buyerbuyer support, compliance and risk mitigation, as well as self-directed service offerings.tools for its sellers. The Company organizes the products on its marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. TheCurrently, the Company’s marketplaces are: www.liquidation.com, www.direct.liquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, www.go-dove.com, and www.auctiondeals.com.www.go-dove.com. The Company also operates a global search engine for listing used machinery and equipment for sale at www.machinio.com. The Company has four4 reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals and Machinio. See Note 1312 in the Notes to the Consolidated Financial Statements for Segment Information.

On July 10, 2018, the Company acquired 100% of Machinio Corp. (Machinio), a privately-owned company based in Chicago, Illinois, with a second office in Berlin, Germany. Machinio operates a global online platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors. The consideration paid to the sellers was $16.7 million in net cash, equity consideration of $2.0 million, and contingent consideration payable in 2020 in an amount up to $5.0 million.


The Company's operations are subject to certain risks and uncertainties, many of which are associated with technology-oriented companies, including, but not limited to, the Company's dependence on use of the Internet,Internet; the effect of general business and economic trends, including the extent and duration of the COVID-19 pandemic; the Company's susceptibility to rapid technological change,change; actual and potential competition by entities with greater financial and other resources,resources; and the potential for the commercial Sellerssellers from which the Company derives a significant portion of its inventory to change the way they conduct their disposition of surplus assets or to otherwise terminate or not renew their contracts with the Company.


2.
Summary of Significant Accounting Policies

2.Summary of Significant Accounting Policies

Unaudited Interim Financial Information
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal, recurring adjustments considered necessary for a fair presentation, have been included. The information disclosed in the notes to the consolidated financial statements for these periods is unaudited. Operating results for the three and nine months ended June 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending September 30, 20192020 or for any future period. 


Revenue RecognitionUse of Estimates


InThe preparation of financial statements in conformity with accounting principles generally accepted in the Consolidated Statements of Operations, revenue fromUnited States requires management to make estimates and assumptions that affect amounts in the resale of inventory thatconsolidated financial statements and accompanying notes. For the three and nine months ended June 30, 2020, these estimates required the Company purchases from Sellers is recognized within Revenue. Commission fees fromto make assumptions about the saleextent and duration of inventory thatthe COVID-19 pandemic and its impacts on the Company's results of operations. As there remains uncertainty associated with the COVID-19 pandemic, the Company sells on a consignment basis and other non-consignment fee revenue, which is made up of subscription fee and service revenuewill continue to update its assumptions as conditions change. Actual results could differ significantly from the Surplus Contract (defined below) in the prior year, is recognized within Fee Revenue.those estimates.


Leases

The Company adopted the Financial Accounting Standard Board's (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers842, Leases (ASC 606) 842) effective October 1, 2018.2019. As a result of adopting ASC 606,842, there have been significant changes to the Company's revenue recognitionlease accounting policy from the policy disclosed in Note 2-Summary of Significant Accounting Policesdisclosures in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018.2019. These changes are described below.


The Company determines if an arrangement is a lease upon inception. A contract is or contains a lease if the contract provides the right to control the use of an identified asset for a period of time.

Lease assets and liabilities are recognized at the lease commencement date at an amount equal to the present value of the lease payments to be made over the lease term. The lease payments represent the combination of lease and nonlease components. The discount rate used to determine the present value is the Company’s incremental borrowing rate for a duration that is
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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)






The Company recognizes revenue when orconsistent with the lease term, as performance obligations are satisfied and control is transferred to the customer. Revenue is recognizedrates implicit in the amount that reflectsCompany’s leases are generally not determinable. The Company’s incremental borrowing rate is estimated using publicly-available information for companies with comparable financial profiles, adjusted for the considerationimpact of collateralization. The lease term includes the impacts of options to whichextend or terminate the Company expects to be entitled.

Revenue is also evaluated to determine whether the Company should report the gross proceeds as revenue, when the Company acts as the principal in the arrangement, or the Company should report its revenue on a net basis, when the Company acts as an agent. Specifically, when other parties are involved in providing goods or services to a customer, the Company must determine whether the nature of its promise is a performance obligation to provide the specified goods or services itself, or to arrange for another party to provide them. The Company evaluates the following factors to determinelease only if it is acting asreasonably certain that the option will be exercised.

Lease expense related to operating lease assets and liabilities is recognized on a principal: (1) whetherstraight-line basis over the Companylease term. Lease expense related to finance lease assets is primarily responsible for fulfillingrecognized on a straight-line basis over the promise to provideshorter of the asset or assets; (2) whether the Company has inventory riskuseful life of the asset or the lease term, while lease expense related to finance lease liabilities is recognized using the interest method. Lease-related payments not included in the determination of the lease assets before theyand liabilities, such as variable lease payments, are transferredexpensed as incurred.

Lease assets and liabilities are not recognized when the lease term is 12 months or less, however, short-term lease expense is still recognized on a straight-line basis over the lease term.

Balances related to the Buyer;Company's finance leases are included with Other assets (finance lease assets), Accrued expenses and (3) whetherother liabilities (current portion of finance lease liabilities), and Deferred taxes and other long-term liabilities (non-current portion of finance lease liabilities).

Lease assets are assessed for impairment in accordance with the Company has discretion in establishing the priceCompany’s accounting policy for the asset orimpairment of long-lived assets.

The Company enters into contracts with Buyers and Sellers. The Company has master agreements with some Sellers pertaining to the sale of a flow of surplus assets over the term of the master agreement, however; a contract for accounting purposes exists when the Company agrees to sell a specific asset or assets. When acting as a principal (a “purchase” arrangement), the Company purchases an asset or assets from a Seller and then the Company seeks to sell the asset or assets to a Buyer. The Company recognizes as Revenue the gross proceeds from the sale, including Buyer's premiums. In purchase arrangements, the contract with the Seller is not a contract in the scope of the revenue recognition guidance; rather, it is a purchase of inventory. When the Company is acting as an agent (a “consignment” arrangement), its performance obligation is to arrange for the Seller to sell an asset or assets to the Buyer directly. The Company recognizes Fee Revenue based on the sales commissions that are paid to the Company by the Sellers for utilizing the Company's services; in this situation, sales commissions represent a percentage of the gross proceeds from the sale that the Seller pays to the Company upon completion of the transaction.

In both purchase and consignment contracts, the Company sometimes provides distinct services to the Seller, such as returns management or refurbishment of assets. These services are distinct because the Seller could benefit from the services separately from the asset sale, and as such they are treated as separate performance obligations. Some services provided to Sellers are not distinct, like providing access to the Company’s e-commerce marketplaces or promoting the asset or assets for sale, because they could not benefit the Seller separately from the sale of the asset or assets.

The consideration received from Buyers and Sellers includes (1) Buyer’s premiums, (2) Seller’s commissions, and (3) fees for services, including reimbursed expenses. Consideration is variable based on units, final auction prices, or other factors, until the Buyer’s purchase of the asset or assets is complete, or the service has been provided. Recognition of variable consideration that is based on the results of auctions or purchases by Buyers is constrained until those transactions have been finalized. The Company estimates and recognizes amounts related to sales returns, discounts or rebates promised to customers, and reimbursed expenses. The total transaction price is allocated to each distinct performance obligation and revenue is recognized when or as the performance obligation is satisfied. Variable consideration is allocated to individual performance obligations when the variable consideration is related to satisfying that performance obligation and consistent with the allocation objective. The Company's revenue is generally recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers and PayPal, an Internet-based payment system, as methods of payments. Goods are generally not shipped before payment is received. For certain transactions, payment is due upon invoice and the payment terms vary depending on the business segment.

The Company collects and remits sales taxes on merchandise that it purchases and sells and has elected the practical expedient to report such amounts under the net method in its Consolidated Statements of Operations. The Company also provides shipping and handling services in some arrangements and has elected the practical expedient to treat those activities as a fulfillment cost. If the Company is acting as a principal for the combined obligation, amounts received from customers for shipping are recognized as Revenue, and amounts paid for shipping are recognized as costs of goods sold. If the Company is acting as an agent for the combined obligation, shipping revenue and costs will be netted and recognized within costs of goods sold.

The Company’s performance obligations are satisfied when control of the asset is transferred to the Buyer or when the service is completed. The Company determines when control has transferred by evaluating the following five indicators: (1) whether the Company has a present right to payment for the asset or assets; (2) whether the Buyer has legal title to the asset; (3) whether the Buyer has physical possession of the asset or assets; (4) whether the Buyer has the significant risks and rewards of ownership; and (5) whether the Buyer has accepted the asset or assets.

For the Company's Machinio business segment, the performance obligation is satisfied over time as the Company provides the sales listing services over the term of the subscription. At June 30, 2019, the Machinio business segment had a remaining

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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)



performance obligation of $3.2 million; the Company expects to recognize the substantial majority of that amount as Fee Revenue over the next 12 months.

Cost of Goods Sold

Cost of goods sold includes the costs of purchasing and transporting property for auction, credit card transaction fees and shipping and handling costs. The Company purchases the majority of its inventory at a percentage of the vendor's last retail price under certain commercial contracts within its RSCG segment, and at specifically negotiated prices within its CAG segment. Title for the inventory passes to the Company at the time of purchase and the Company bears the risks and rewards of ownership. The Company does not have title to assets sold on behalf of its commercial or government Sellers when it receives only sales commission revenue and, as such, recognizes no inventory or the corresponding cost of goods sold from inventory purchases associated with those sales.


Contract Assets and Liabilities


Contract assets reflect an estimate of expenses that will be reimbursed upon settlement with a Seller.seller. The contract asset balance was $0.7$0.5 million as of June 30, 2020 and $0.3 million as of October 1, 2018 and $0.4 million as of JuneSeptember 30, 2019 and is included in the line item Prepaid expenses and other current assets on the consolidated balance sheets.Consolidated Balance Sheets.


Contract liabilities reflect obligations to provide services for which the Company has already received consideration, and generally arise from up-front payments received in connection with Machinio's subscription services. The contract liability balance was $2.1$3.0 million as of October 1, 2018,June 30, 2020 and $3.2$3.0 million as of JuneSeptember 30, 2019, and is included in the line item Deferred revenue on the consolidated balance sheets.Consolidated Balance Sheets. Of the October 1, 2018September 30, 2019 contract liability balance, $1.9$2.8 million was earned as Fee Revenuerevenue during the nine months ended June 30, 2019.2020.

The $3.0 million contract liability balance as of June 30, 2020 also represents the Company's remaining performance obligations related to contracts with customers that are one year or greater in duration. The Company expects to recognize the substantial majority of that amount as Fee revenue over the next 12 months.

Contract Costs


Contract costs relate to sales commissions paid on consignmentsubscription contracts that are capitalized. Contract costs are amortized over the expected life of the customer contract. The contract cost balance was $0.1$0.6 million as of October 1, 2018June 30, 2020 and $0.4$0.5 million as of JuneSeptember 30, 2019 and is included in the line item Prepaid expenses and other current assets and Other assets on the consolidated balance sheet.Consolidated Balance Sheet. Amortization expense was immaterial during the three and nine months ended June 30, 2020 and 2019.


Other Assets - Promissory Note


On September 30, 2015, the Company sold certain assets related to its Jacobs Trading business to Tanager Acquisitions, LLC (Tanager). In connection with the disposition, Tanager assumed certain liabilities related to the Jacobs Trading business. Tanager issued a $12.3 million five-year interest-bearing promissory note to the Company.

On October 10, 2019, the Company entered into a Forbearance Agreement and Amendment to Note, Security Agreement and Guaranty Agreement (the "Forbearance Agreement") with Tanager (now known as Jacobs Trading, LLC) and certain of its affiliates (collectively, "JTC"). In exchange for additional collateral, security, and a higher interest rate, the Company granted JTC a new repayment schedule that requires quarterly payments to be made from August 2020 to August 2023. Upon execution of the Forbearance Agreement, JTC repaid $2.5 million in principal, payments due annually on each September 30.plus $0.4 million in accrued interest. JTC had the opportunity to prepay the full amount remaining before May 15, 2020 at a $0.5 million discount. Of the $12.3 million $4.0owed to the Company, $6.6 million has been repaid as of June 30, 2019.2020.

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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


The Company considered the terms of the Forbearance Agreement and the cash flows expected to be received from JTC under the new repayment schedule in concluding that it remains probable that the Company will collect the amounts due to the Company as of June 30, 2020 and that no impairment loss has been incurred. Of the remaining $8.3$5.7 million $6.3outstanding at June 30, 2020, $4.2 million is recorded on the consolidated balance sheet in Other assets, and $2.0$1.5 million is recorded in Prepaid expenses and other current assets, as of June 30, 2019 based on the scheduled repayment dates.


Risk Associated with Certain Concentrations

The Company does not perform credit evaluations for the majority of its Buyers.buyers. However, most sales are recorded subsequent to payment authorization being received. As a result, the Company is not subject to significant collection risk, as most goods are not shipped before payment is received.


For consignment sales transactions, funds are typically collected from Buyersbuyers and are held by the Company on the Sellers' behalf. The funds are includedsellers' behalf in Cash and cash equivalents inPayables to sellers on the Consolidated Balance Sheets. The Company releases the funds, to the Seller, less the Company's commission and other fees due, to the seller through Accounts payable after the Buyerbuyer has accepted the goods or within 30 days, depending on the state where the Buyerbuyer and Sellerseller conduct business. The amount of cash held on behalf of Sellers is recorded within Payables to sellers on the consolidated balance sheets.


Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash in banks over FDIC limits, certificates of deposit, accounts receivable, and accounts receivable.the promissory note. The Company deposits its cash with financial institutions that the Company considers to be of high credit quality.


The Company's RSCG segment has vendor contracts with Amazon.com, Inc. under which the RSCG segment acquires and sells commercial merchandise. Transactions under these contracts represented 60.4% and 41.6% of consolidated Cost of goods sold for the three months ended June 30, 2020 and 2019, respectively, and 54.5% and 43.9% of consolidated Cost of goods sold for the nine months ended June 30, 2020 and 2019, respectively.

During the three and nine months ended June 30, 2019, the Company had one1 material vendor contract with the Department of Defense (DoD) under which itits CAG segment acquired, managed and sold government property: the Scrap Contract. Revenue from the saleContract, which concluded on September 30, 2019. Sales of property

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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)



acquired under the Scrap Contract accounted for 8.2% and 12.1%7.8% of the Company's consolidated revenuerevenues for the three months ended June 30, 2019 and 2018, respectively, and for 7.8% and 10.0% of the Company's consolidated revenue for the nine months ended June 30, 2019 and 2018, respectively. This contract is included within the Company's CAG segment. On June 10, 2019, the DoD informed the Company that the option periods in the Scrap Contract would not be exercised and instructed the Company to commence the phase-out period as of that date. The Scrap Contract will conclude on September 30, 2019. See Note 3, Significant Contracts, for information related to the Company's prior significant Surplus Contact with the DoD, which was wound down in fiscal 2018.

Additionally, the Company has a vendor contract with Amazon.com, Inc. under which the Company acquires and sells commercial merchandise. Transactions under this contract represented 41.6% and 41.0% of cost of goods sold for the three months ended June 30, 2019 and 2018, respectively, and 43.9% and 28.5% of cost of goods sold for the nine months ended June 30, 2019 and 2018, respectively. This contract is included within the Company's RSCG segment.

Earnings per Share
The Company calculates net income (loss) per share in accordance with FASB Topic 260 Earnings Per Share (ASC 260). Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock units. Diluted net income (loss) per share reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options and unvested restricted stock units. The dilutive effect of unexercised stock options and unvested restricted stock units was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options and the amount of compensation cost for future service not yet recognized by the Company are assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock units are not included in the computation of diluted net income (loss) per share when they are antidilutive.
For the three and nine months ended June 30, 2019, respectively.

Earnings per Share
For the three months ended June 30, 2020, diluted weighted average common shares outstanding contains 119,396 shares representing the dilutive impact of stock options, RSUs and 2018,RSAs. 3,841,385 stock options, RSUs and RSAs were excluded from the computation of diluted weighted average common shares outstanding as they were anti-dilutive. For the nine months ended June 30, 2020 and the three and nine months ended June 30, 2019, basic and diluted weighted average common shares were the same because the Company operated at a net loss in both periods, causing any inclusion of potentially dilutive securities in the computation of diluted net income would have been(loss) per share to be anti-dilutive. See Note 7 for the amounts of outstanding stock options, restricted stock awards and restricted stock units that could potentially dilute net income (loss) per share in the future.


Recent Accounting Pronouncements
 
Accounting Standards Adopted


On October 1, 2018,2019, the Company adopted ASC 606842 using the modified retrospective transition method. Prior periods have not been restated. To perform the adoption, the Company elected several practical expedients, including the package of practical expedients to not reassess prior conclusions on whether a contract is or contains a lease, lease classification, and initial direct costs. The Company appliedalso elected to combine both the new revenue standardlease and non-lease components as a single component to all contracts that werebe accounted for as a lease, to not completed asrecognize lease assets or liabilities for leases with initial lease terms of October 1, 2018 on a modified retrospective basis12 months or less, and to not use hindsight when determining the lease term.

Upon adoption, the Company recognized the cumulative effect$11.3 million of initially applying the new revenue standard as anoperating lease assets and $12.2 million of operating lease liabilities. The Company does not have significant finance lease assets and liabilities. No cumulative-effect adjustment to opening retained earnings was required. No material impacts were noted on the opening balanceConsolidated Statements of retained earnings. The comparative period information has not been restated and continuesOperations or Consolidated Statements of Cash Flows. Refer to be reported underNote 3 for additional details on the accounting standards in effect for those periods.Company’s leases.

The cumulative effect of the changes made to the consolidated October 1, 2018 balance sheet for the adoption of ASC 606 was as follows (in thousands):

10
  Balance at September 30, 2018 Adjustment due to adoption of ASC 606 Balance as adjusted at October 1, 2018
Prepaid expenses and other current assets $7,816
 $671
 $8,487
Other assets $14,124
 $59
 $14,183
Retained earnings $(100,045) $730
 $(99,315)








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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)





The impact of adopting ASC 606 on the Company’s consolidated statement of operations and the consolidated balance sheet for the period ended June 30, 2019 was as follows (in thousands):

  Three months ended June 30, 2019 Nine months ended June 30, 2019
  As reported Balance without adoption of ASC 606 
Effect of change Higher/(lower)
 As reported Balance without adoption of ASC 606 
Effect of change Higher/(lower)
Consolidated statement of operations:            
Fee revenue $20,494
 $20,801
 $(307) $58,257
 $58,558
 $(301)

  June 30, 2019
  As reported Balance without adoption of ASC 606 
Effect of change Higher/(lower)
Consolidated balance sheet:      
Prepaid expenses and other current assets $8,129
 $7,603
 $526
Other assets $14,299
 $14,026
 $273
Accumulated deficit $(113,348) $(112,549) $(799)


In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting. ASU 2017-09 provides guidance about which changes to terms or conditions of share-based payment awards require the application of modification accounting in Topic 718, Compensation - Stock Compensation. The ASU was adopted onOn October 1, 2018 and2019, the Company will applyadopted ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. As the guidance in ASU 2017-09 on a prospective basis to its award modifications. The adoption of this ASU has notCompany had a material impact on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the cost of the benefits in the income statement. Under this standard, employers will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Employers will present the other components of the net periodic benefit cost separatelyno stranded tax effects resulting from the line item(s) that includesTax Cuts and Jobs Act enacted on December 22, 2017, no election to reclassify stranded tax effects from Accumulated other comprehensive to Retained earnings was made.

The Company also adopted the service cost and outside of any subtotal of operating income, if one is presented. The adoption offollowing ASU 2017-07 on October 1, 2018, using2018-07, Improvements to Nonemployee Share-based Payment Accounting, during the retrospective method, did not have a material impact on the Company's consolidated financial statements. As a result of adopting this standard $84 thousand and $265 thousand for three and nine months ended June 30, 2018, respectively, were reclassified in the consolidated statement of operations from General and administrative, a component of loss from operations, to Interest and other income, net, which is outside of loss from operations.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The ASU was adopted on October 1, 2018 and the Company will apply the guidance on a prospective basis when entering into acquisitions of assets or businesses. The adoption of this ASU has not had a material impact on the Company's consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. The ASU requires companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period the sale or transfer occurs. The exception to recognizing the income tax effects of intercompany sales or transfers of assets remains in place for intercompany inventory sales and transfers. The adoption of the ASU on October 1, 20182020. It did not have a materialsignificant impact on the Company’s consolidated statement of operations.financial statements or the related footnote disclosures.

In 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments and ASU 2016-18, Restricted Cash. These ASUs clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows and requires that the statement of cash flows explain the change during the period in the total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. These standards were adopted on October 1, 2018 on a retrospective basis and there was no impact on the Company's consolidated statement of cash flows.

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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)




Accounting Standards Not Yet Adopted


In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), or ASC 326. ASC 326, including all amendments and related guidance, was designed to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASC 326 will require estimation of expected credit losses using a methodology that takes into consideration a broad range of reasonable and supportable information. The guidance will be effective for the Company beginning on October 1, 2023 and will be applied on a modified-retrospective basis, with any cumulative-effect adjustment recorded to retained earnings on the adoption date. The Company is in the process of evaluating the impact ASC 326 will have on its consolidated financial statements and expects to estimate credit losses on its financial assets such as its Accounts receivable, Short-term investments, and promissory note. While the Company has not experienced significant credit losses historically, the materiality of the impact of adoption will depend on events and conditions as of the date of adoption, which cannot be determined conclusively at this time.

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement with the requirement for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU will become effective for the Company beginning October 1, 2020. The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.


In August 2018,December 2019, the FASB issued ASU 2018-14, Disclosure Framework - Changes2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 seeks to improve the consistent application of and simplify the guidance for the accounting for income taxes. The ASU removes certain exceptions to the Disclosure Requirements for Defined Benefit Plans. The ASUgeneral principals in ASC 740, Income Taxes, and clarifies and amends theother existing accounting standard for defined benefit plans by removing, modifying, and adding certain disclosures, and will become effective for the Company beginning October 1, 2021 with early adoption permitted. The Company has evaluated the potential impact of this ASU on its Defined Benefit Pension Plan disclosures. The primary impact of this ASU relates to the disclosure of significant gains and losses resulting from changes in the benefit obligation or plan assets during the period. If significant changes are noted, and they result from changes that are not otherwise apparent from the other required disclosures (e.g. changes resulting from discount rates are already required to be disclosed), the Company will provide qualitative explanations for those changes. The Company plans to early adopt this ASU in its annual financial statements for the year-ended September 30, 2019.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements. The ASU amends the existing accounting standard for fair value measurement by removing, modifying, and adding certain disclosures, and will become effective for the Company beginning October 1, 2020 with early adoption permitted. The Company has evaluated the potential impact of this ASU on its Fair Value Measurement disclosures. The primary impact of this ASU is a clarification that the measurement uncertainty disclosure related to Level 3 inputs is intended to communicate information about such uncertainty as of the reporting date, rather than sensitivity to potential future changes in those inputs. The Company plans to early adopt this ASU in its annual financial statements for the year-ended September 30, 2019.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-based Payment Accounting. The ASU amends the existing accounting standards for share-based payments to nonemployees, and applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in its own operation by issuing share-based payment awards. Additionally, the ASU clarifies that Topic 718 does not apply to share-based payments used to effectively provide financing to the issuer or awards granted in conjunction with selling goods or services to customers as part of a contract accounted under ASC 606.guidance. The ASU will become effective for the Company beginning October 1, 2019. As of June 30, 2019, the only nonemployees that have received awards are the nonemployee members of the Company's Board of Directors. However, as these awards represent compensation solely for their roles as Directors, the Directors are considered to be employees under Topic 718. As a result, no impact is expected from the adoption of this ASU.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU allows entities to elect to classify from accumulated other comprehensive income (loss) to retained earnings stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act") enacted on December 22, 2017. An entity that does not elect to reclassify the income tax effects of the Tax Act shall disclose in the period of adoption a statement that the election was not made. The ASU will become effective for the Company beginning on October 1, 2019.2021. The Company is currently evaluating whether it will elect to reclassify the income tax effectseffect that the adoption of the Tax Act from accumulated other comprehensive income to retained earnings.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The ASU requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity is required to recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity is required to consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance will become effective for the Company beginning on October 1, 2020. The Company plans to early adopt this ASU and apply it to the Company's annual impairment assessment to be performed inmay have on its fiscal fourth quarter of 2019. An impact of adoption will only be noted to the extent that the annual impairment assessment results in a reporting unit whose carrying amount exceeds its fair value.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), or ASC 326. ASC 326, including all amendments and related guidance, was designed to provideconsolidated financial statement users with more

statements.
13
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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)






useful information about3. Leases

The Company has operating leases for its corporate offices, warehouses, vehicles and equipment. The operating leases have remaining terms of up to 5.2 years. Some of the expected credit losses on financial instruments and other commitmentsleases have options to extend credit. ASC 326 will require estimationor terminate the leases. The exercise of expected credit losses using a methodology that takes into consideration a broad range of reasonable and supportable information.such options is generally at the Company’s discretion. The guidance will be effective for the Company beginning on October 1, 2020, and will be applied on a modified-retrospective basis, withlease agreements do not contain any cumulative-effect adjustment recorded to retained earnings on the adoption date.significant residual value guarantees or restrictive covenants. The Company is inalso subleases excess corporate office space. The Company's finance leases and related balances are not significant.

The components of lease expense are:
(in thousands)Three months ended June 30, 2020Nine months ended June 30, 2020
Finance lease – lease asset amortization$16  $53  
Finance lease – interest on lease liabilities6  18  
Operating lease cost1,310  3,990  
Short-term lease cost48  92  
Variable lease cost (1)
371  1,122  
Sublease income(61) (200) 
Total net lease cost$1,690  $5,075  
(1)Variable lease costs primarily relate to the process of evaluating the impact ASC 326 will have on its consolidated financial statements and expectsCompany's election to estimate credit losses on its financial assetscombine non-lease components such as common area maintenance, insurance and taxes related to its Accounts Receivable, Short-term Investments,real estate leases. To a lesser extent, the Company's equipment leases have variable costs associated with usage and Promissory Note. While the Company has not experienced significant credit losses historically, the materialitysubsequent changes to costs based upon an index.

Maturities of the impact of adoption will depend on eventslease liabilities are:

June 30, 2020
(in thousands)Operating LeasesFinance Leases
Remainder of 2020$1,261  $14  
20214,020  56  
20222,634  55  
20231,886  56  
2024911  56  
Thereafter361  105  
Total lease payments (1)
$11,073  $342  
Less: imputed interest (2)
(1,038) (67) 
Total lease liabilities$10,035  $275  

(1)The weighted average remaining lease term is 3.1 years for operating leases and conditions as of the date of adoption, which cannot be determined conclusively at this time.6.1 years for finance leases.

(2)The weighted average discount rate is 6.4% for operating leases and 7.5% for finance leases.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), or ASC 842. ASC 842, including all amendments and related guidance, will change the way the Company recognizes its leased assets. It will require organizations that lease assets—referred to as "lessees"—to recognize on the balance sheet the assets and liabilities representing the rights and obligations created by those leases. ASC 842 will also require
Supplemental disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The guidance will be effectiveflow information related to leases are:

(in thousands)Nine Months Ended
June 30, 2020
Cash paid for amounts included in operating lease liabilities$3,642 
Cash paid for amounts included in finance lease liabilities26 
Non-cash: lease liabilities arising from new operating lease assets obtained (1)
12,188 
Non-cash: lease liabilities arising from new finance lease assets obtained10 
Non-cash: adjustments to lease assets and liabilities1,592 
(1)Amount includes $12.2 million of lease liabilities recognized upon the Company beginning on October 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into, after either the adoption date or the beginning of the earliest comparative period presented in the financial statements. The Company is in the process of aggregating its worldwide lease portfolio, and has identified a software solution to use in its adoption of ASC 842 and for its subsequent lease accounting requirements. In its adoption of ASU 842, the Company will not adjust its comparative periods. In addition, the Company will elect to use the package of practical expedients offered by ASC 842, which will permit the Company to not reassess whether a contract is or contains a lease, lease classification, or initial direct costs. The Company will not apply hindsight when determining the lease term. For all of its asset classes, the Company will account for both lease and nonlease components as a single component and account for it as a lease, and the Company will not recognize right-of-use assets or lease liabilities for its short-term leases. The Company will use incremental borrowing rates that are consistent with the lease term determined at the lease's commencement. The adoption of ASC 842 will result in the recognition of right-of-use assets and lease liabilities on the Company's consolidated balance sheets, and will require the Company to make quantitative and qualitative disclosures about its leases. Additional impacts, which may be material, may be identified as the Company completes its adoption process.

3.
Significant Contracts
Historically, the Company had two material vendor contracts with the DoD: the Scrap Contract and the Surplus Contract.
Under the Scrap Contract, the Company is the remarketer of all DoD non-electronic scrap turned into the Defense Logistics Agency (DLA) available for sale within the United States, Puerto Rico, and Guam.
The current Scrap Contract was awarded to the Company in April 2016. The Scrap Contract has a 36-month base term that commenced in the first quarter of fiscal year 2017, with two 12-month extension options exercisable by the DLA. The Company pays a revenue-sharing payment to the DLA under this contract equal to 64.5% of the gross resale proceeds of the scrap property, and the Company bears all of the costs for the sorting, merchandising and sale of the property. On June 10,October 1, 2019 the DoD informed the Company that the option periods in the Scrap Contract would not be exercised and instructed the Company to commence the phase-out period as of that date. The Scrap Contract will conclude on September 30, 2019.

Revenue from the Scrap Contract accounted for 8.2% and 12.1% of the Company's consolidated revenue for the three months ended June 30, 2019 and 2018, respectively, and 7.8% and 10.0% of the Company's consolidated revenue for the nine months ended June 30, 2019 and 2018, respectively.

The Surplus Contract was a competitive-bid contract under which the Company acquired, managed and sold usable DoD surplus personal property turned into the DLA. Surplus property generally consisted of items determined by the DoD to be no longer needed and not claimed for reuse by any federal agency, such as electronics, industrial equipment, office supplies, scientific and medical equipment, aircraft parts, clothing and textiles. The Surplus Contract required the Company to purchase all usable surplus property offered to the Company by the DoD at 4.35% of the DoD's original acquisition value.

On October 11, 2017, the DLA published a Request for Technical Proposal (RFTP) and draft Invitation for Bid (IFB) for the sale of surplus, useable non-rolling stock property. The RFTP and IFB related to the DLA’s award of two new term surplus contracts. On December 5, 2017, the DLA determined that the Company was not the high bidder for either of the two contracts. The Company made its final inventory purchase under the Surplus Contract during December 2017, and as of June 30, 2018, had completed its wind-down of operations under the Surplus Contract.


(see Note 2).
14
12
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)





Revenue from the Surplus Contract accounted for zero and 0.2% of the Company's consolidated revenue for the three months ended June 30, 2019 and 2018, respectively, and zero and 16.2% of the Company's consolidated revenue for the nine months ended June 30, 2019 and 2018, respectively.

4. Goodwill
 
The goodwill of acquired companies is primarily related to the acquisition of an experienced and knowledgeable workforce. The following table presents changes in the carrying amount of goodwill by reportable segment:
Goodwill (in thousands) CAG GovDeals Machinio Total
Balance at September 30, 2017 $21,657
 $23,731
 $—
 $45,388
Business acquisition —
 —
 14,558
 14,558
Translation adjustments (127) —
 —
 (127)
Balance at September 30, 2018 $21,530
 $23,731
 $14,558
 $59,819
Translation adjustments (134) —
 —
 (134)
Balance at June 30, 2019 $21,396
 $23,731
 $14,558
 $59,685
(in thousands)CAGGovDealsMachinioTotal
Balance at September 30, 2018$21,530  $23,731  $14,558  $59,819  
Translation adjustments(352) —  —  (352) 
Balance at September 30, 2019$21,178  $23,731  $14,558  $59,467  
Translation adjustments120  —  —  120  
Balance at June 30, 2020$21,298  $23,731  $14,558  $59,587  


Goodwill is tested for impairment at the beginning of the fourth quarter and during interim periods whenever events or circumstances indicate that the carrying value may not be recoverable.

During the three months ended March 31, 2020, the Company identified factors associated with the COVID-19 pandemic that indicated that an interim goodwill impairment test was necessary. These factors included a deterioration of macroeconomic conditions, near-term declines in the Company's results of operations as a result of "shelter-in-place" orders and other related measures, and a decline in the Company's market capitalization.

For the interim goodwill impairment test, the Company performed a fair-value based test for all reporting units with goodwill balances. The fair value of each reporting unit was determined using a discounted cash flow (DCF) analysis. The DCF analysis relied on significant assumptions and judgments about the forecasted future cash flows over the five-year projection period, including revenues, gross profit margins, operating expenses, income taxes, capital expenditures, working capital, and an estimate of the impact and duration of COVID-19 on those factors. These forecasts of future cash flows represent the Company's best estimate using information that is currently available. However, given the uncertainty associated with the COVID-19 pandemic, including its extent and duration, actual results could differ significantly from those estimates. The DCF analysis also used included significant assumptions and judgments about long-term growth rates and discount rates.

The fair value of the GovDeals reporting unit is substantially in excess of its carrying value. The fair value of the CAG and Machinio reporting units exceeded their carrying values by 21% and 12%, respectively, as of March 31, 2020. NaN impairment charge was recorded as a result of the interim goodwill impairment test.

The Company has continued to evaluate the impact of the COVID-19 pandemic on the recoverability of its goodwill. As there have been favorable developments in the factors that indicated a goodwill impairment test was necessary in the previous quarter, the Company did not identify any indicators of impairment that required performing a step one evaluationan additional interim goodwill impairment test during the ninethree months ended June 30, 2019.2020.


5. Intangible Assets
 
The components of identifiable intangible assets as of June 30, 2019 and September 30, 2018 are as follows:  
 June 30, 2020September 30, 2019
  June 30, 2019 September 30, 2018
Useful
Life
(in years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
(dollars in thousands)
(dollars in thousands)(dollars in thousands)Useful
Life
(in years)		Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount		Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount
Contract intangibles6 $3,100
 $(516) $2,584
 $3,100
 $(129) $2,971
Contract intangibles6$3,100  $(1,033) $2,067  $3,100  $(646) $2,454  
Technology5 2,700
 (540) 2,160
 2,700
 (135) 2,565
Technology52,700  (1,080) 1,620  2,700  (675) 2,025  
Patent and trademarks3 - 10 2,346
 (713) 1,633
 2,269
 (439) 1,830
Patent and trademarks7 - 102,322  (923) 1,399  2,276  (712) 1,564  
Total intangible assets  $8,146
 $(1,769) $6,377
 $8,069
 $(703) $7,366
Total intangible assets $8,122  $(3,036) $5,086  $8,076  $(2,033) $6,043  
 
Future expected amortization of intangible assets at June 30, 2019 is as follows: 
13
  
Future
Amortization
Years ending September 30, (in thousands)
Remaining three months of 2019 $336
2020 1,342
2021 1,334
2022 1,321
2023 1,177
2024 and thereafter 867
Total $6,377
Intangible assets amortization expense was $336 thousand and $20 thousand for the three months ended June 30, 2019 and 2018, and $1.01 million and $100 thousand for the nine months ended June 30, 2019 and 2018, respectively. 



15
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)





6.Income Taxes

The remaining intangible assets balance at June 30, 2020 is expected to be amortized as follows: 
On December 22, 2017, the Tax Act
(in thousands)Expected Amortization Expense
Years ending September 30,
Remainder of 2020$335  
20211,336  
20221,327  
20231,183  
2024645  
2025 and thereafter260  
Total$5,086  
Intangible asset amortization expense was signed into law. The Tax Act reduced the corporate tax rate from 35% to 21%. During the three months ending December 31, 2017, the Company revised its estimated annual effective tax rate to reflect this change in the statutory rate. The rate change was administratively effective at the beginning of the Company's 2018 fiscal year, using a blended rate of 24.5%. At September 30, 2018, the Company had not yet completed its accounting$0.3 million and $0.3 million for the tax effects of the Tax Act; however, the Company recorded a provisional benefit of $10.7 million in 2018 for the remeasurement of its deferred tax balance and recognition of the realizability of its deferred tax assets. During the three months ended December 31, 2018, the Company completed its accountingJune 30, 2020 and 2019, respectively and $1.0 million and $1.0 million for the tax effects of the Tax Act and determined no change to the amount recorded in fiscal year 2018 was required.

The international provisions of the Tax Act establish a territorial tax system and subject certain foreign earnings on which U.S. tax is currently deferred to a one-time transition tax. During the three months ended December 31, 2018, the Company completed its analysis of foreign earnings and profits and determined that no one-time transition tax was due. As a result, the Company has not recorded any amount in its financial statements for fiscal year 2018 or the nine months ended June 30, 2020 and 2019, for such transition tax.respectively.

The Tax Act subjects a U.S. shareholder to a minimum tax on “global intangible low-taxed income” (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, statesfactors associated with the COVID-19 pandemic discussed in Note 4 also indicated that an entity can makeinterim long-lived asset impairment test was necessary during the three months ended March 31, 2020. For each asset group, the Company performed an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI inundiscounted cash flow analysis that relies on significant assumptions and judgments surrounding the forecasts of future years or provide forcash flows over each asset group's projection period. These forecasts of future cash flows represent the tax expense related to GILTI resultingCompany's best estimate using information that is currently available. However, given the significant uncertainty associated with the COVID-19 pandemic, including its extent and duration, actual results could differ significantly from those items inestimates.

For each asset group, the yearundiscounted cash flows exceeded the tax is incurred. asset group's carrying value as of March 31, 2020. NaN impairment charge was recorded as a result of the interim long-lived asset impairment test.

The Company has electedcontinued to recognizeevaluate the resulting taximpact of the COVID-19 pandemic on GILTI as an expensethe recoverability of its long-lived assets. As there have been favorable developments in the periodfactors that indicated a long-lived asset impairment test was necessary in the tax is incurred.previous quarter, the Company did not identify any indicators of impairment that required an additional long-lived asset impairment test during the three months ended June 30, 2020.

6. Income Taxes

The Company’s interim effective income tax rate is based on management’s best current estimate of the Company's expected annual effective income tax rate. The Company recorded a pre-tax loss in the first nine months of fiscal year 20192020 and its corresponding effective tax rate is (7.9)% before discrete items(8.4%) compared to (8.8%) for the first nine months of $0.1 million relatedfiscal year 2019. The change in the effective tax rate for the nine months ended June 30, 2020 as compared to the same period in the prior yea
r was primarily due to state and foreign taxes. taxes.Tax expense in the nine months ended June 30, 20192020 is due to state and foreign taxes paid. The effective tax rate differed from the statutory federal rate of 21% primarily as a result of the valuation allowance charge on current year losses and the impact of foreign, state, and local income taxes and permanent tax adjustments.


The Company applies the authoritative guidance related to uncertainty in income taxes. ASC Topic 740, Income Taxes, states that a benefit from anidentified no new uncertain tax position may be recognized when it is more likely than not thatpositions during the position will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of technical merits. During the threenine months ended June 30, 2019, the Company recorded a $0.1 million tax charge for unrecognized tax benefits related to foreign tax exposures. The Company’s policy is to recognize interest and penalties in the period in which they occur in the income tax provision.2020. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the United Kingdom. As of June 30, 2019,2020, none of the Company's federal or state income tax returns are under examination.examination, however, we remain subject to examination for certain of our foreign income tax returns. The statute of limitations for U.S. federal income tax returns for years prior to fiscal 20152017 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal 20152017 may be adjusted upon examination by tax authorities if they are utilized.

















7.Stockholders’ Equity

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies affected by the COVID-19 pandemic and their employees. Based on our preliminary analysis of the CARES Act, we do not expect a significant impact to our consolidated financial statements.
16
14
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


7. Stockholders’ Equity

The changes in stockholders’ equity for the prior year comparable period is as follows:

 Common Stock
(dollars in thousands)SharesAmountAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Loss		Accumulated
Deficit		Total
Balance at September 30, 201832,774,118  $33  $236,115  $(6,449) $(100,045) $129,654  
Cumulative adjustment related to the adoption of ASC 606—  —  —  —  730  730  
Net loss—  —  —  —  (5,022) (5,022) 
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units          409,060  —  8  —  —  8  
Stock compensation expense—  —  1,556  —  —  1,556  
Foreign currency translation—  —  —  (427) —  (427) 
Balance at December 31, 201833,183,178  $33  $237,679  $(6,876) $(104,337) $126,499  
Net loss—  —  —  —  (4,362) (4,362) 
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units197,642  —  116  —  —  116  
Stock compensation expense—  —  2,011  —  —  2,011  
Forfeitures of restricted stock awards(33,163) —  —  —  —  —  
Foreign currency translation and other—  —  —  198  3  201  
Balance at March 31, 201933,347,657  $33  $239,806  $(6,678) $(108,696) $124,465  
Net loss—  —  —  —  (4,649) (4,649) 
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units150,421  —  5  —  —  5  
Stock compensation expense—  —  1,550  —  —  1,550  
Foreign currency translation and other—  —  —  (255) (3) (258) 
Balance at June 30, 201933,498,078  $33  $241,361  $(6,933) $(113,348) $121,113  

Stock Compensation Incentive Plans

During the quarter ended March 31, 2020, the Company's shareholders approved an amendment and restatement to its Second Amended and Restated 2006 Omnibus Long-Term Incentive Plan (the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan) to increase the number of shares of common stock reserved for issuance from 16,300,000 to 19,100,000.

Stock Compensation Expense

Stock-based compensation expense was $3.8 million for the nine months ended June 30, 2020, which included $3.9 million of expense related to equity-classified stock options and RSUs & RSAs (restricted stock units and awards) and a $0.1 million benefit related to liability-classified SARs (cash-settled stock appreciation rights).

15
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)





Stock Options and RSUs & RSAs


The changes in stockholders’ equity for the prior year comparable period is as follows (in thousands):following table presents stock option and RSUs & RSAs grant activity:


Nine Months Ended
June 30, 2020
Stock Options granted:
Options containing only service conditions:415,719 
Weighted average exercise price$6.82 
Weighted average grant date fair value$2.72 
Options containing performance or market conditions:402,800 
Weighted average exercise price$6.82 
Weighted average grant date fair value$2.62 
RSUs & RSAs granted:
RSUs & RSAs containing only service conditions:310,493 
Weighted average grant date fair value$5.92 
RSUs & RSAs containing performance or market conditions:173,600 
Weighted average grant date fair value$4.49 
 Common Stock        
 Shares Amount 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 Total
Balance at September 30, 201731,503,349
 $29
 $227,264
 $(6,431) $(88,226) $132,636
Cumulative adjustment related to adoption of ASU 2016-09—
 —
 100
 —
 (207) (107)
Net loss—
 —
 —
 —
 (1,212) (1,212)
Exercise of common stock options and vesting of restricted stock            386,330
 —
 —
 —
 —
 —
Compensation expense from grants of common stock options and restricted stock—
 —
 1,262
 —
 —
 1,262
Foreign currency translation and other—
 —
 —
 (51) (6) (57)
Balance at December 31, 201731,889,679
 $29
 $228,626
 $(6,482) $(89,651) $132,522
Net loss—
 —
 —
 —
 (5,655) (5,655)
Exercise of common stock options and vesting of restricted stock            103,398
 —
 12
 —
 —
 12
Compensation expense from grants of common stock options and restricted stock—
 —
 1,212
 —
 —
 1,212
Foreign currency translation and other—
 —
 —
 34
 12
 46
Balance at March 31, 201831,993,077
 $29
 $229,850
 $(6,448) $(95,294) $128,137
Net loss—
 —
 —
 —
 (3,705) (3,705)
Exercise of common stock options and vesting of restricted stock            116,654
 —
 —
 —
 —
 —
Compensation expense from grants of common stock options and restricted stock—
 —
 1,477
 —
 —
 1,477
Foreign currency translation and other—
 —
 —
 (747) 159
 (588)
Balance at June 30, 201832,109,731
 $29
 $231,327
 $(7,195) $(98,840) $125,321

2006 Omnibus Long-Term Incentive Plan

Under the 2006 Omnibus Long-Term Incentive Plan, as amended (the 2006 Plan), 13,000,000 shares of common stock were available for issuance as of September 30, 2016. On February 23, 2017, at the Company's annual meeting of stockholders, the stockholders approved amendments to the 2006 Plan to increase the number of shares available for issuance under the 2006 Plan by 3,300,000, to a total of 16,300,000 shares. The 2006 Plan has a fungible share pool so that awards other than options or stock appreciation rights granted are counted as 1.5 shares from the shares reserved for issuance.


The maximum numberstock options and RSUs & RSAs containing only service conditions will vest over a four year service period. The stock options and RSUs & RSAs containing performance conditions will vest upon the achievement of shares subjectspecified financial targets of the Company or its business units. The stock options and RSUs & RSAs containing market conditions will vest upon the achievement of specified increases in the Company’s share price. Vesting is measured the first day of each fiscal quarter over the four-year terms of the awards, starting with the first fiscal quarter after the first anniversary of the grant date, based upon the trailing 20-days average of the Company’s share price.

The range of assumptions used to determine the fair value of stock options or stock appreciation rights that can be awarded undercontaining only service conditions using the 2006 Plan to any person is 1,000,000 per year. The maximum number of shares that can be awarded under the 2006 Plan to any person, other than pursuant to an option or stock appreciation right, is 700,000 per year.

Stock-based Compensation Expense

Stock-based compensation expense was $5.14 million forBlack-Scholes option-pricing model during the nine months ended June 30, 2019, which included $5.12 million related2020 include a dividend yield of 0.0%, expected volatility rates of 46.5% to 51.0%, risk-free interest rates of 0.5% to 1.5%, and expected terms of 4.6 to 7.4 years.

The range of assumptions used to determine the fair value of stock options and restrictedRSUs & RSAs containing market conditions using Monte Carlo simulations during the nine months ended June 30, 2020 include a dividend yield of 0.0%, expected volatility rates of 46.7% to 51.2%, risk-free interest rates of 1.5% to 1.7%, and expected holding period (% of remaining term for stock options only) of 30.7% to 100%.

SARs

During the six months ended June 30, 2020, the Company did 0t issue any SARs, 225,267 SARs were exercised requiring the Company to make cash payments of $0.6 million, and $20 thousand related40,355 SARs were canceled. As of June 30, 2020, 167,960 SARs were outstanding.

Share Repurchase Program

The Company did 0t repurchase shares during the nine months ended June 30, 2020 or 2019. As of June 30, 2020, the Company has $10.1 million of remaining authorization to cash-settled stock appreciation rights.repurchase shares under its share repurchase program.







Stock Options and Restricted Stock


17
16
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)





8. Fair Value Measurement

The following table presents the number of stock options and shares of restricted stock granted to employees under the Company's 2006 Plan and the grant date fair value of those stock awards for the periods presented:

 Three Months Ended June 30, Nine Months Ended June 30,
 2019 2018 2019 2018
Stock options:       
Time-based70,100
 —
 563,066
 233,346
Weighted average grant date fair value$2.87
 $—
 $2.71
 $2.00
        
Market-based and performance-based70,100
 —
 551,250
 318,780
Weighted average grant date fair value$2.87
 $—
 $2.69
 $1.59
        
Restricted stock:       
Time-based48,400
 20,000
 250,128
 271,221
Weighted average grant date fair value$6.58
 $6.50
 $6.72
 $6.64
        
Market-based and performance-based48,400
 —
 178,600
 246,340
Weighted average grant date fair value$4.56
 $—
 $5.36
 $6.53

Stock options and restricted stock generally vest over four years. The market-based options and restricted stock units issued in fiscal year 2019 will vest in installments based on the total shareholder return of the Company's common stock over a four-year performance period. The performance-based restricted stock awards will vest in installments based on achievement of certain annual revenue and adjusted EBITDA targets through calendar year 2021, in each case, subject to each recipient's continued employment with the Company.

In determining the fair value for stock options, volatility rates over the last three years have ranged from 49.71% to 54.93%, the dividend rate has been 0%, and risk-free interest rates have ranged from 1.65% to 2.78%.

Cash-Settled Stock Appreciation Rights

The Company issues cash-settled stock appreciation rights to non-executives with restrictions that lapse upon either the passage of time (service vesting), achievement of performance targets (performance vesting), achievement of market conditions (market vesting) or some combination of these conditions. The stock appreciation rights that include only service vesting conditions generally vest over a period of one- to four-years conditioned on continued employment for the incentive period. For performance vesting, stock appreciation rights generally vest and pay out on the achievement of financial metrics over a four-year period conditioned on continued employment for the incentive period. Cash-settled stock appreciation rights are recorded as liability awards.

The Company did not issue any cash-settled stock appreciation rights during the three months ended June 30, 2019. During the nine months ended June 30, 2019, the Company issued 95,000 cash-settled stock appreciation rights at an exercise price of $6.11. During the three months ended June 30, 2019, 7,954 cash-settled stock appreciation rights were exercised and 15,273 cash-settled stock appreciation rights were canceled. During the nine months ended June 30, 2019, 109,124 cash-settled stock appreciation rights were exercised and 403,321 cash-settled stock appreciation rights were canceled. As of June 30, 2019, 516,760 cash-settled stock appreciation rights were outstanding.

During the comparable three- and nine-month period in fiscal year 2018, the Company did not issue any cash-settled stock appreciation rights. During the three months ended June 30, 2018, 4,082 cash-settled stock appreciation rights were exercised and 85,756 cash-settled stock appreciation rights were canceled. During the nine months ended June 30, 2018, 87,084 cash-settled stock appreciation rights were exercised and 358,660 cash-settled stock appreciation rights were canceled. As of June 30, 2018, 1,007,889 cash-settled stock appreciation rights were outstanding.

Share Repurchase Program

18
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)




The Company is authorized to repurchase issued and outstanding shares of its common stock under a share repurchase program approved by the Company's Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The repurchase program may be discontinued or suspended at any time and will be funded using available cash. The Company's Board of Directors reviews the share repurchase program from time to time, with the last such review occurring in May 2016. The Company did not repurchase shares under this program during the nine months ended June 30, 2019 or 2018. As of June 30, 2019, the Company has $10.1 million of remaining authorization to repurchase shares under this program.


8.Fair Value Measurement

The Company measures and records in the accompanying consolidated financial statements certain assets and liabilities at fair value on a recurring basis. Authoritative guidance issued by the FASB establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:
 
Level 1Quoted market prices in active markets for identical assets or liabilities;
Level 2Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3: Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.
 
During the year ended September 30, 2018, and as a result of the acquisition of Machinio, the Company recorded contingent consideration which iswas measured at fair value (Level 3) at June. At September 30, 2019, and September 30, 2018. Thethe Company estimated the fair value of the contingent consideration using a Monte Carlo simulation. The simulation estimated Machinio's adjusted EBITDA over the calendar year 2019 earn-out period using a market-based volatility factor and market interest rates resulting in an average EBITDA. A present value factor was applied based on the expected settlement date of the contingent consideration. The liability for this consideration is included in Accrued expenses and other current liabilities in the consolidated balance sheets as ofAt June 30, 2020, the calendar year 2019 earn-out period was complete and the liability has been paid in Deferred taxes and other long-term liabilities as of September 30, 2018, as the earn-out is expected to settle prior to the end of the third quarter of fiscal 2020.full.


The changes in the earn-out liability and financial assets measured at fair value using Level 3 inputs to determine fair value for the nine months ended June 30, 20192020 are as follows (in thousands):follows:


(in thousands)Contingent Consideration
Balance at September 30, 2019$4,800 
Change in fair value200 
Settlement(5,000)
Balance at June 30, 2020$— 
 Contingent Consideration
  
Balance at September 30, 2018$1,300
Settlements—
Change in fair value

2,300
Balance at June 30, 2019$3,600


The increase in the fair value of the earn-out liability is primarily due to an increase in Machinio's estimatedfull attainment of its actual adjusted EBITDA over the earn out period, which was the result of Machinio's realized EBITDAtarget for the six months ended June 30,calendar year 2019 exceeding the previous estimate. Secondary factorsearn-out period. The expense for the increasechange in fair value relate to the present value factor, which was impacted by the shorter period remaining until the earn out payment date, as well as a change in market conditions that reduced interest rates and the weighted average cost of capital.





During the nine months ended June 30, 2018, the Company had financial assets measured at fair value (Level 3) that represented the value of rights the Company held from its participation in certain principal transactions in the Company's commercial business. The Company no longer held these assets at September 30, 2018.

19
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)




 Financial Instruments
  
Balance at September 30, 2017$491
Settlements(401)
Change in fair value

(90)
Balance at June 30, 2018$—

When valuing its Level 3 liability, management’s estimation of fair value is based on the best information available in the circumstances and may incorporate management's own assumptions around market demand which could involve a level of judgment, taking into consideration a combination of internal and external factors. Changes in the fair value of the Company's Level 3 assets and liabilities are recordedincluded in Other operating expenses in the consolidated statementsConsolidated Statements of operations.Operations. The earn-out liability was paid in full during the three months ended March 31, 2020.


The Company also hashad short-term investments of $30 million and $20$30.0 million at JuneSeptember 30, 2019 and September 30, 2018, respectively, in certificates of deposit with maturities of six months or less, and interest rates between 2.5%1.97% and 2.6%2.50%. The Company has $30.0 million of money market funds considered cash equivalents at June 30, 2020. These assets were measured at fair value at June 30, 20192020 and September 30, 20182019 and were classifiedclassified as Level 1 assets within the fair value hierarchy.


The Company’s financial assets and liabilities not measured at fair value are cash and cash equivalents (which includes cash and commercial paper with original maturities of less than 90 days), accounts receivable, a promissory note and accounts payable. The Company believes the carrying values of these instruments approximate fair value.


At June 30, 20192020 and September 30, 2018,2019, the Company did not have any assets or liabilities measured at fair value on a non-recurring basis.



9.Defined Benefit Pension Plan
9.
Defined Benefit Pension Plan


Certain employees of Liquidity Services UK Limited (GoIndustry), which the Company acquired in July 2012, are covered by the Henry Butcher Pension Fund and Life Assurance Scheme (HB Pension Fund)(the Scheme), a qualified defined benefit pension plan. The Company guarantees GoIndustry's performance on all present and future obligations to make payments to the Scheme for up to a maximum of £10 million British pounds. The Scheme was closed to new members on January 1, 2002.

The net periodic benefit recognized for the three and nine months ended June 30, 2019 and 2018 included the following components:


17
 Three Months Ended June 30, Nine Months Ended June 30,
Qualified Defined Benefit Pension Plan2019 2018 2019 2018
 (dollars in thousands)
Service cost$—
 $—
 $—
 $—
Interest cost136
 158
 446
 493
Expected return on plan assets(222) (242) (695) (750)
Settlement cost—
 —
 —
 (8)
Total net periodic (benefit)$(86) $(84) $(249) $(265)

As a result of the adoption of ASU 2017-07, the components of net periodic benefit other than the service cost component are recorded in Interest and other income, net in the consolidated statements of operations.







20
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)





The net periodic benefit, other than service costs, is recognized within Interest other income, net in the Consolidated Statements of Operations, and for the three and nine months ended June 30, 2020 and 2019 included the following components:

 Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2020201920202019
Service cost$—  $—  $—  $—  
Interest cost119  136  336  $446  
Expected return on plan assets(192) (222) (595) (695) 
Amortization of prior service cost5  —  15  —  
Total net periodic (benefit)$(68) $(86) $(244) $(249) 

10. GuaranteesBusiness Realignment Expenses
Business realignment expenses are associated with management changes, exiting certain businesses, or other cost saving actions and are recorded as a component of Other operating expenses on the Consolidated Statements of Operations.
DuringFor the second quarter of 2015, the Company issued a guarantee to GoIndustrythree and the Trustees of the HB Pension Fund. Under the arrangement, the Company irrevocably and unconditionally (a) guaranteesnine ended June 30, 2020, business realignment expenses were incurred related to the Trustees punctual performance by GoIndustryelimination of all its Guaranteed Obligations, defined as all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severallycertain positions in any capacity whatsoever) of the Company to make paymentsresponse to the HB Pension Fund up to a maximum of 10 million British pounds, (b) undertakes with the Trustees that, whenever GoIndustry does not pay any amount when due in respect of its Guaranteed Obligations, it must immediately on demand by the Trustees pay that amount as if it were the principal obligor; and (c) indemnifies the Trustees as an independent and primary obligation immediately on demand against any cost, charge, expense, loss or liability suffered or incurred by the Trustees if any payment obligation guaranteed by it is or becomes unenforceable, invalid or illegal; the amount of the cost, charge, expense, loss or liability under this indemnity will be equal to the amount the Trustees would otherwise have been entitled to recover on the basis of a guarantee. The guarantee is a continuing guarantee that will extend to the ultimate balance of all sums payable by the Company in respect of its Guaranteed Obligations. As of June 30, 2019 and September 30, 2018, the Company's plan was in an overfunded status as the plan's assets exceeded the plan liabilities. The funded status of the HB Pension Fund as of September 30, 2018, was disclosed in Note 13, Defined Benefit Pension Plan, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K forCOVID-19 pandemic.
For the year ended September 30, 2018.

11. Business Realignment Expenses
In April 2019, the Company performedbusiness realignment expenses were incurred related to: management changes associated with a strategic reorganization that consolidated itsof the Company's go-to-market strategy for self-directed and fully-managed market place services, to capitalize on growth opportunities. As a result, the Company incurred restructuring costsconclusion of $1.1 million for employee severance and benefit costs, which were paid during the three months ended June 30, 2019.
In June 2019, as a result Scrap Contract, commencing the phase-out period that will conclude on September 30, 2019, the Company incurred restructuring costs of $0.2 million for employee termination and benefit costs during the three months ended June 30, 2019, which are expected to be paid during the fourth quarter of fiscal 2019 and the first quarter of fiscal 2020.other cost saving actions.
During the fourth quarter of fiscal year 2017 the Company began to restructure its CAG business, resulting in severance costs incurred and the closure of several offices and legal entities in Europe and Asia for total restructuring costs of $1.0 million. The Company continued to implement its CAG cost cutting initiatives from the year ended September 30, 2018. As discussed in Note 3, Significant Contracts, the Company was not the high bidderBusiness realignment expenses were as follows for the new surplus contracts, and completed winding down its operations under the Surplus Contract during the year ended September 30, 2018. As a result, the Company recognized an additional $1.7 million of restructuring costs in fiscal 2018. During the nine months ended June 30, 2018 the Company recorded $1.5 million in restructuring costs, $1.0 million of which related to severance and occupancy costs in connection with the wind-down of the Surplus Contract. The remaining restructuring balance at June 30, 2019 of $0.3 million in occupancy related charges is expected to be paid by fiscal 2020.periods presented:
During fiscal year 2017, the Company reorganized its IronDirect business. As a result, the Company recorded $1.1 million of restructuring charges during the year ended September 30, 2018. The Company continued its reorganization of the IronDirect business during the three months ended December 31, 2018 and ultimately decided to exit the business, resulting in severance costs of $0.2 million recognized during the three months ended December 31, 2018. The Company fully exited the IronDirect business and wound down its operations during January 2019. The severance costs were paid during the three months ended March 31, 2019.
Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2020201920202019
Employee severance and benefit costs:
GovDeals$25  $—  $25  $—  
RSCG64  —  64  —  
CAG67  248  67  248  
Corporate & Other172  1,125  172  1,295  
Total employee severance and benefit costs$328  $1,373  $328  $1,543  
Occupancy and other costs:
CAG—  —  —  51  
Corporate & Other—  —  —  134  
Total occupancy and other costs—  —  —  185  
Total business realignment expenses$328  $1,373  $328  $1,728  
In June 2017, the Company entered into an agreement to sub-lease office space at 6931 Arlington Road, Bethesda, Maryland. On the sub-lease commencement date, the Company relocated its headquarters from 1920 L Street NW, Washington DC, to the Bethesda location and recognized a $2.0 million cease-use charge in its consolidated statements of operations at September 30, 2017. At September 30, 2018, the remaining cease-use accrual was $0.8 million. During the nine months ended June 30, 2019, the Company paid down the cease-use charge by $0.7 million. The remaining balance of $0.1 million is expected to be paid during fiscal 2019. This activity is presented under occupancy cost in the table below.
During the nine months ended June 30, 2018, the Company recognized $0.5 million in severance cost primarily related to the restructuring of its Corporate Information Technology department. This cost is recorded within the Corporate & Other line item below.




21
18
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)





Business realignment expenses were as follows for the periods presented (in thousands):
 Three Months Ended June 30, Nine Months Ended June 30,
 2019 2018 2019 2018
        
Employee severance and benefit costs:       
CAG$248
 $20
 $248
 $900
Corporate & Other1,125
 (12) 1,295
 463
Total employee severance and benefit costs1,373
 8
 1,543
 1,363
        
Occupancy and other costs:       
CAG—
 241
 51
 675
Corporate & Other—
 —
 134
 35
Total occupancy and other costs—
 241
 185
 710
Total business realignment expenses$1,373
 $249
 $1,728
 $2,073
Business realignment expenses per the table above are recorded in Other operating expenses in the consolidated statements of operations.
The table below sets forth the significant components of and activity in the liability for business realignment initiatives, during the periods presented, on a segment and consolidated basis:
(in thousands)Liability Balance at September 30, 2018Business
Realignment
Expenses		Cash
Payments		Liability Balance at September 30, 2019Adoption of ASC 842Business
Realignment
Expenses		Cash
Payments		Liability Balance at June 30, 2020
Employee severance and benefit costs:
GovDeals$—  $—  $—  $—  $—  $25  $(15) $10  
RCSG—  —  —  —  —  64  (52) 12  
CAG89  443  (118) 414  —  67  (435) 46  
Corporate & Other21  1,537  (1,320) 238  —  172  (343) 67  
Total employee severance and benefit costs$110  $1,980  $(1,438) $652  $—  $328  $(845) $135  
Occupancy and other costs:
CAG459  51  (341) 169  (169) —  —  —  
Corporate & Other807  134  (941) —  —  —  —  —  
Total occupancy and other costs$1,266  $185  $(1,282) $169  $(169) $—  $—  $—  
Total business realignment$1,376  $2,165  $(2,720) $821  $(169) $328  $(845) $135  

(in thousands) 
Liability
Balance at
September 30,
2017
 
Business
Realignment
Expenses
 
Cash
Payments
 
Liability
Balance at
September 30,
2018
 
Business
Realignment
Expenses
 
Cash
Payments
 
Liability
Balance at
June 30,
2019
Employee severance and benefit costs:              
CAG $793
 $979
 $(1,683) $89
 $248
 $(89) $248
Corporate & Other 399
 472
 (850) 21
 1,295
 (1,316) $—
Total employee severance and benefit costs $1,192
 $1,451
 $(2,533) $110
 $1,543
 $(1,405) $248
Occupancy and other costs:              
CAG —
 739
 (280) 459
 51
 (307) $203
Corporate & Other 1,988
 (248) (933) 807
 134
 (843) $98
Total occupancy and other costs $1,988
 $491
 $(1,213) $1,266
 $185
 $(1,150) $301
Total business realignment $3,180
 $1,942
 $(3,746) $1,376
 $1,728
 $(2,555) $549


12.11.Legal Proceedings and Other Contingencies
 
The Company reserves for contingent liabilities based on ASC 450, Contingencies, when it determines that a liability is probable and reasonably estimable. From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the business. During the three months ended June 30, 2019, the Company determined that it was probable that a liability would result from a sales tax audit performed by the State of California. The liability was estimated at $0.6 million, including interest and penalties, and is recorded as a component of Accrued expenses and other current liabilities in the consolidated balance sheets. There are no other claims or actions pending or threatened against the Company that, if adversely determined, would in the Company's management's judgment have a material adverse effect on the Company.


During the three months ended December 31, 2019, the Company paid its $0.6 million liability resulting from a sales tax audit performed by the State of California.









22
19
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)





13.12.Segment Information


The Company provides results in four4 reportable operating segments: GovDeals, RSCG, CAG RSCG and Machinio. The GovDeals, CAG, RSCG and Machinio segments constituted over 99%Descriptions of the Company's revenue during the nine months ended June 30, 2019. Each reportable segment offers separately branded marketplaces to enable Sellers to achieve their respective channel marketing objectives to reach Buyers. Across its segments, the Company offers its Sellers two primary transaction models, as well as a suite of services, and its revenues vary depending upon the models employed and the level of service required. A description of theour reportable segments is provided below:are as follows:


•The GovDeals reportable segment provides self-directed service offeringssolutions in which Sellerssellers list their own assets, and it consists of marketplaces that enable local and state government entities including city, county and state agencies, as well as commercialquasi-governmental businesses located in the United States and Canada to sell surplus and salvage assets. GovDeals also offers a suite of marketing services to Sellers. This segmentsellers that includes asset sales and marketing. Through the Company's GovDeals.com and AuctionDeals.com marketplaces.

The CAG reportable segment provides fully-managed offeringsend of fiscal 2019, GovDeals provided self-directed service solutions to Sellers and consists of marketplaces that enable federal government agencies, as well as commercial businesses to sell surplus, salvage, and scrap assets. CAG also offers a suiteas part of services that includes marketing services, surplus management and asset valuation. Commercial Sellers are located in the United States, Europe, Australia and Asia. This segment includes the Company's Network International, GoIndustry DoveBid, and Government Liquidation marketplaces. Sales of assets procured through our Surplus Contract, which wound down during 2018, and our Scrap Contract, which will conclude on September 30, 2019, are conducted through the Government LiquidationAuction Deals marketplace.


•The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell surplus and salvage consumer goods and retail capital assets. RSCG also offers a suite of services that includes returns management, asset recovery, and ecommercee-commerce services. This segment includes the Company's Liquidation.com, Liquidation.com DIRECT, and Secondipity marketplaces.


•The CAG reportable segment provides full-service solutions to sellers and it consists of marketplaces that enable commercial businesses to sell surplus, salvage, and scrap assets. CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. Commercial sellers are located in the United States, Europe, Australia and Asia. This segment includes the Company's Network International and GoIndustry DoveBid marketplaces and, beginning in fiscal 2020, self-directed service solutions for commercial businesses within a unified marketplace previously referred to as Auction Deals. Prior to the conclusion of the Scrap Contract (see Note 2), CAG sold scrap assets from the DoD on its Government Liquidation marketplace.

•The Machinio reportable segment operates a global online platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors. Machinio was acquired by the Company in July 2018.


We also report results of Corporate & Other, includedwhich for the IronDirectnine months ended June 30, 2019 includes a previously existing operating segment that wasdid not individually significant asmeet the quantitative thresholds to be a reportable operating segment, until January 2019, when theIronDirect. The Company exited the IronDirect business and fully wound down its operations. IronDirect offered Buyers access to construction equipment, parts and services through a single ecommerce marketplace.in January 2019.


Decisions concerning the allocation of the Company’s resources are made by the Company’s Chief Operating Decision Maker ("CODM")(CODM), which is the Company's Chief Executive Officer, with oversight by the Board of Directors.Officer. The Company reports segment information based on the internal performance measures used by the CODM to assess the performance of each operating segment in a given period. In connection with that assessment, the CODM uses segment gross profit to evaluate the performance of each segment. Segment grossGross profit is calculated as total revenue less cost of goods sold (exclusive of depreciation and amortization) and Sellerseller distributions.


The amount of our revenue that came from sales outside of the United States for the three months ended June 30, 2019 and 2018 was 13.6% and 11.1%, respectively, and 14.9% and 12.2% for the nine months ended June 30, 2019 and 2018, respectively.












23
20
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)





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


Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2020201920202019
GovDeals:
Revenue$—  $—  $—  $—  
Fee revenue6,021  9,280  21,858  24,635  
Total revenue6,021  9,280  21,858  24,635  
Gross profit$5,637  $8,560  $20,361  $22,663  
RSCG:
Revenue$29,454  $27,011  $89,857  $82,904  
Fee revenue4,099  4,250  11,650  11,846  
Total revenue33,553  31,261  101,507  94,750  
Gross profit$12,022  $10,874  $34,721  $32,710  
CAG:
Revenue$988  $9,377  $6,137  $26,105  
Fee revenue5,384  5,513  15,216  17,951  
Total revenue6,372  14,890  21,353  44,056  
Gross profit$5,892  $7,759  $16,628  $25,255  
Machinio:
Revenue$—  $—  $—  $—  
Fee revenue1,776  1,451  5,332  3,816  
Total revenue1,776  1,451  5,332  3,816  
Gross Profit$1,677  $1,358  $5,051  $3,501  
Corporate & Other:
Revenue$—  $—  $—  $469  
Fee revenue—  —  —  9  
Total revenue—  —  —  478  
Gross profit$—  $—  $—  $113  
Consolidated:
Revenue$30,442  $36,388  $95,994  $109,478  
Fee revenue17,280  20,494  54,056  58,257  
Total revenue47,722  56,882  150,050  167,735  
Gross profit$25,228  $28,551  $76,761  $84,242  
  Three Months Ended June 30, Nine Months Ended June 30,
  2019 2018 2019 2018
GovDeals:       
 Revenue$—
 $—
 $—
 $—
 Fee revenue9,280
 8,421
 24,635
 22,554
 Total revenue9,280
 8,421
 24,635
 22,554
 Gross profit$8,560
 $7,795
 $22,663
 $20,927
         
CAG:       
 Revenue$9,377
 $8,341
 $26,105
 $49,164
 Fee revenue5,513
 6,670
 17,951
 23,066
 Total revenue14,890
 15,011
 44,056
 72,230
 Gross profit$7,759
 $9,911
 $25,255
 $39,973
         
RSCG:       
 Revenue$27,011
 $22,952
 $82,904
 $63,027
 Fee revenue4,250
 3,391
 11,846
 10,715
 Total revenue31,261
 26,343
 94,750
 73,742
 Gross profit$10,874
 $9,305
 $32,710
 $24,649
         
Machinio:       
 Revenue$—
 $—
 $—
 $—
 Fee revenue1,451
 —
 3,816
 —
 Total revenue1,451
 —
 3,816
 —
 Gross Profit$1,358
 $—
 $3,501
 $—
         
Corporate & Other:       
 Revenue$—
 $787
 $469
 $3,273
 Fee revenue—
 7
 9
 10
 Total revenue—
 794
 478
 3,283
 Gross profit$—
 $133
 $113
 $(694)
         
Consolidated:       
 Revenue$36,388
 $32,080
 $109,478
 $115,464
 Fee revenue20,494
 18,489
 58,257
 56,345
 Total revenue56,882
 50,569
 167,735
 171,809
 Gross profit$28,551
 $27,144
 $84,242
 $84,855













24
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)




The following table presents a reconciliation of gross profit used in the reportable segments as well as Corporate & Other andto the Company's consolidated results (in thousands):results:
Three Months Ended June 30,Nine Months Ended June 30,
(in thousands)2020201920202019
Reconciliation:
Gross profit$25,228  $28,551  $76,761  $84,242  
Operating expenses24,711  31,081  85,505  94,777  
Other operating expenses319  2,031  500  3,586  
Interest and other income, net(224) (454) (733) (1,224) 
Income (loss) before provision for income taxes$422  $(4,107) $(8,511) $(12,897) 

The percent of our revenues that came from transactions conducted outside of the United States for the three months ended June 30, 2020 and 2019 was 11.2% and 13.6%, respectively and the percent of our revenues that came from transactions conducted outside of the United States for the nine months ended June 30, 2020 and 2019 was 12.5% and 14.9%, respectively.
21
  Three Months Ended June 30, Nine Months Ended June 30,
  2019 2018 2019 2018
Reconciliation:       
 Gross profit$28,551
 $27,144
 $84,242
 $84,855
 Operating expenses31,081
 29,916
 94,777
 98,070
 Other operating expenses2,031
 452
 3,586
 2,222
 Interest and other income, net(454) (131) (1,224) (1,041)
 Provision (benefit) for income taxes542
 612
 1,136
 (3,824)
 Net loss$(4,649) $(3,705) $(14,033) $(10,572)





Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD-LOOKING STATEMENTS
 
This document contains forward-looking statements. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include but are not limited to the factors set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, 20182019 and subsequent filings with the Securities and Exchange Commission (SEC). You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements.
 
All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this document and are expressly qualified in their entirety by the cautionary statements included in this document. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events.
 
The following discussion should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this document.
 
Overview
About us. We manage, value, and sell inventory and equipment for business and government clients by operating
The Company operates a network of ecommercee-commerce marketplaces that enable Buyersbuyers and Sellerssellers to transact in an efficient, automated environment offering over 500 product categories. OurThe Company’s marketplaces provide professional Buyersbuyers access to a global, organized supply of new, surplus, and scrap assets presented with digital images and other relevant product information. Additionally, we enablethe Company enables its corporate and government Sellerssellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation, and sale of surplus assets. Our broad range of fully-managed service offeringsThe Company's services include program management, valuation, asset management, reconciliation, returns process management, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, Buyerbuyer support, and compliance and risk mitigation, as well as self-directed service offerings. We organizetools for its sellers. The Company organizes the products on ourits marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. Our network ofCurrently, the Company’s marketplaces includes:are: www.liquidation.com, www.direct.liquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, www.go-dove.com, and www.auctiondeals.com.www.go-dove.com. We also operate a global search engine for listing used machinery and equipment for sale at www.machinio.com. We haveThe Company has over 12,000 Sellers,14,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government agencies.

Impacts of the COVID-19 Pandemic

The Company has been closely monitoring the COVID-19 pandemic. In April, the Company experienced the largest impacts on its operations, resulting from the actions taken by governments and private sector entities to limit the spread of COVID-19 that included restrictions on economic activity, including business closures, limitations on the operations of business activity, and significant prioritization of essential business functions. However, relative to April, we saw increases in GMV and revenues in May and June as businesses and governments re-opened from government ordered closures which, combined with cost control measures, generated positive net income for the three months ended June 30, 2020. However, the likelihood, magnitude and timing of business developments across our segments are difficult to predict given the current economic uncertainty, unknown timing and overall impact of the global pandemic. As a result, prior trends in the Company's results of operations may not be applicable throughout the duration of the COVID-19 pandemic.

In the longer term, we continue to be highly focused on creating efficiencies and benefits for our sellers and our buyers by focusing on the platform services and support that will deliver optimal liquidity in the reverse supply chain and further enable our growth through an asset light, low-touch marketplace solution. As e-commerce penetration continues to grow substantially for both consumers and B2B, our online platform and cloud-based solutions should become even more relevant and necessary for the evolving global economy.

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Evolving Response to COVID-19 Pandemic

Last quarter we announced several safety measures and temporary cost control measures to protect both our employees and our business during the COVID-19 global pandemic. While we are still strictly abiding by all social distancing and safety measures in keeping the current health-expert recommendations, the hard work and performance of the Company has enabled us to review and loosen some of our cost control measures including:

•restoring full pay and providing back pay for all salary reductions for our current workforce;
•bringing a portion of furloughed employees back to full-time status, mainly in our sales department;
•resuming technology and marketing investments over the next quarter.

Our Marketplace Transactions

We believe our ability to create liquid marketplaces for surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces.marketplaces. During the twelve months endedended June 30, 2019,2020, the approximate number of registered Buyersbuyers increased from 3,275,0003,627,000 to 3,627,000,3,719,000, or 10.7%2.5%.


On July 10, 2018, we acquired 100% of Machinio Corp. (Machinio), a privately-owned company based in Chicago, Illinois, with a second office in Berlin, Germany. Machinio operates a global online platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors.

LiquidityOne Strategic Initiative. Subsequent to June 30, 2019, we deployed our new core e-commerce technology platform, which combined with our reorganization announced last quarter, marks the completion of our LiquidityOne strategic initiative. We continue to focus on our marketing technology stack to support our consolidated marketplace launch.

With this deployment and new organization in place, we have unified our marketing, customer service, sales and operations teams. Our completed LiquidityOne strategic initiative empowers the continuous improvement of our e-commerce technology platform and our marketing and data analytic capabilities going forward. This includes the integration of a data driven product


recommendation engine, omni-channel behavioral marketing and predictive analytics. Additionally, we are now able to provide a unified set of common services ranging from self-directed to fully-managed services.

The retail supply transaction volume, which has a unique set of services, remains part of our future integration plans.

Our revenue.  Substantially all of our revenue is earned through the following transaction models:
 
Purchase model.  Under our purchase transaction model, we recognize revenue within the Revenue line item on the Consolidated Statements of Operations from the resale of inventory that we purchasepurchased from Sellers.sellers. We consider these Sellerssellers to be our vendors. We pay our vendorssellers either a fixed amount or a portion of the net or gross proceeds received from our completed sales based on the value we receive from the sale, in some cases, after deducting a required return to us that we have negotiated with the Seller.seller. Because we are the primary obligor and take general and physical inventory risks and credit risk under thisprincipal in purchase transaction model sales, we recognize as revenue the sale price paid by the Buyerbuyer upon completion of a transaction. The proceeds paid by Buyersbuyers also include transaction fees, referred to as Buyerbuyer premiums. Revenue fromFor the three and nine months ended June 30, 2020, our purchase transaction model accounted for 64.0%22.1% and 65.3%22.4% of our GMV, and 63.8% and 64.0% of our total revenue forrevenues, respectively. For the three and nine months ended June 30, 2019, our purchase transaction model accounted for 21.8% and 22.5% of our GMV, and 64.0% and 65.3% of our total revenues, respectively. These amounts includeincluded sales of commercial merchandise sourced from vendor contracts with Amazon.com, Inc. by our RSCG segment. The commercial merchandise we purchased under these contracts represented 60.4% and 54.5% of consolidated Costs of goods sold for three and nine months ended June 30, 2020 and 41.6% and 43.9% of consolidated Costs of goods sold for three and nine months ended June 30, 2019. For the three and nine months ended June 30, 2019, purchase model revenues also included revenue earned from the sale of property obtained under the Scrap Contract, which concluded on September 30, 2019, and accounted for 8.2% and 7.8% of our total revenue, for the three and nine months ended June 30, 2019, respectively. The price we paid the Defense Logistics Agency (DLA) for the property purchased under the Scrap Contract is based on a revenue share model. One of our key operating metrics is gross merchandise volume ("GMV") an operating measure which we define as the total sales value of all merchandise sold by us or our Sellers through our marketplaces and other channels during a given period of time. The merchandise sold under our purchase transaction model accounted for 21.8% and 22.5% of our GMV for the three and nine months ended June 30, 2019, respectively.


Consignment model — fee revenue.  Under our consignment transaction model, we enable our Sellerssellers to sell goods they own in our marketplaces and we charge them a commission fee based on the gross or net proceeds received from such sales. The revenue from our consignment transaction model is recognized within the Fee revenue line item on the Consolidated Statements of Operations. OurBecause we are the agent in consignment model sales, our commission fee revenue, which we refer to as Sellerseller commissions, represents a percentage of the sales price the Buyerbuyer pays upon completion of a transaction. We vary the percentage amount of the Sellerseller commission depending on the various value-added services we provide to the Sellerseller to facilitate the transaction. For example, we generally increase the percentage amount of the commission if we take possession, handle, ship, or provide enhanced product information for the merchandise. In most cases we collect the Sellerseller commission by deducting the appropriate amount from the sales proceeds prior to the distribution to the seller after completion of the transaction. In addition to Sellerseller commissions, we also collect Buyerbuyer premiums. Fee Revenue from our consignment model accounted for 30.8% and 30.0% of our total revenue forFor the three and nine months ended June 30, 2019,2020, our consignment model accounted for 77.9% and 77.6% of our GMV, and 30.2% and 29.9% of our total revenues, respectively. The merchandise sold underFor the three and nine months ended June 30, 2019, our consignment model accounted for 78.2% and 77.5% of our GMV, and 30.8% and 30.0% of our total GMVrevenues, respectively.
Other — fee revenue. We also earn non-consignment fee revenue from Machinio's sales listing subscription service, as well as other services including returns management and refurbishment of assets, as well as asset valuation services. For the three and nine months ended June 30, 2020, our other revenues accounted for 6.0% and 6.2% of our total revenues, respectively. For the three and nine months ended June 30, 2019, respectively.our other revenues accounted for 5.2% and 4.7% of our total revenues, respectively
Buyer premiums. We collect a Buyer premium on most of the transactions under both of the transaction models
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Industry trends.  While we offer to Sellers. Buyer premiums are calculated as a percentage of the sale price of the merchandise sold and are paid to usexperiencing challenges presented by the Buyer. Buyer premiums are in addition to the price of the merchandise.
Other — fee revenue. We also earn non-consignment fee revenue from subscription fees and fees for other services. In the prior year, the non-consignment fee revenue also included service revenue from the Surplus Contract. This revenue is included within the Fee revenue line item on our Consolidated Statements of Operations.

Industry trends.  WeCOVID-19 pandemic, we believe there are several industry trends positively impacting the long-term growth of our business including: (1) the ability for businesses to conduct ecommerce via the Internet both in the United States and abroad, which continues to mature; (2) the increase in the volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales; (3)(2) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets; (4)(3) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets as they focus on reducing costs, improving transparency, compliance and working capital flows, and increasingly prefer service providers with a proven track record, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain, which we expect to increase our Sellerseller base; (4) an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which results in lower per unit prices and margins in our retail goods vertical; (5) in the long-term we expect innovation in the retail supply chain which we expect will increase the pace of product obsolescence in the long-term and, therefore, increase the supply of surplus assets.assets; and (6) the increased demand by sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events.






Our Vendor Agreements
 
Our Department of Defense (DoD)commercial agreements.  Historically, we had two material We have vendor contracts with Amazon.com, Inc. under which we acquire and sell commercial merchandise. The property we purchased under these contracts represented 60.4% and 41.6% of consolidated cost of goods sold for the DoD:three months ended June 30, 2020 and 2019, respectively, and 54.5%, and 43.9% of consolidated cost of goods sold for the Scrap Contractnine months ended June 30, 2020 and the Surplus Contract.2019, respectively.

Scrap Contract.  On April 8, 2016, the DLA awarded us the current Scrap Contract.  Under the Scrap Contract, which concluded on September 30, 2019, we acquireacquired, managed and sold all non-electronic scrap property fromof the DLADoD turned into the Defense Logistics Agency (DLA), and paypaid the DLA a revenue-sharing payment equal to 64.5% of the gross resale proceeds. Scrap property generally consisted of items determined by the DoD to have no use beyond their base material content, such as metals, alloys, and building materials. We bearbore all of the costs for the sorting, merchandising and sale of the property. TransactionsThe resale transactions for scrap property sourced under this contract followfollowed the purchase transaction model described above. model.

The Scrap Contract has a 36-month base term, commencing in the first quarter of fiscal year 2017, with two 12-month extension options exercisable by the DLA. On June 10, 2019, the DoD informed the Company that the option periods in the Scrap Contract would not be exercised and instructed the Company to commence the phase-out period as of that date. The Scrap Contract will conclude on September 30, 2019.

Resaleresale of scrap property that we purchased under the Scrap Contract accounted for 8.2% and 12.1%approximately 2.8% of our revenueGMV and 8.2% of our total revenues for the three months ended June 30, 2019 and 2018, respectively,2.7% of our GMV and 7.8% and 10.0% of our revenuetotal revenues for the nine months ended June 30, 2019 and 2018, respectively. The property sold underresults of the Scrap Contract accounted for 2.8% and 3.7% of our GMV for the three months ended June 30, 2019 and 2018, respectively, and 2.7% and 3.7% of our GMV for the nine months ended June 30, 2019 and 2018, respectively. This contract iswere included withinin our CAG segment.

We recorded $0.2 million of employee severance and benefits costs during the three and nine months ended June 30, 2019 as a result of the DoD's instruction to commence the phase-out period to conclude the Scrap Contract on September 30, 2019.

Surplus Contract.  The Surplus Contract was a competitive-bid contract under which we acquired, managed and sold usable DoD surplus personal property turned into the DLA. Surplus property generally consisted of items determined by the DoD to be no longer needed, and not claimed for reuse by any federal agency, such as electronics, industrial equipment, office supplies, scientific and medical equipment, aircraft parts, clothing and textiles. In October 2017, the DLA put out for bid two new term surplus contracts, and in December 2017, the DLA determined that we were not the high bidder for either of the two contracts. As a result, we made our final inventory purchase under the Surplus Contract during December 2017, and as of June 30, 2018, we had wound down all operations under the Surplus Contract. The Surplus Contract accounted for $27.9 million, or 16.2%, of revenue in the nine months ended June 30, 2018. The property sold under the Surplus Contract accounted for 0.1% and 5.4% of our GMV for the three and nine months ended June 30, 2018, respectively. Transactions under the Surplus Contract followed the purchase transaction model described above. This contract was included within our CAG segment.

We recorded $1.0 million of severance and occupancy cost during the nine months ended June 30, 2018 as a result of the restructuring and realignment efforts undertaken due to the loss of the Surplus Contract.

Our commercial agreements. We have a vendor contract with Amazon.com, Inc. under which we acquire and sell commercial merchandise. The inventory we purchased under this contract represented 41.6%, and 41.0% of cost of goods sold for the three months ended June 30, 2019 and 2018, respectively, and 43.9% and 28.5% of cost of goods sold for the nine months ended June 30, 2019 and 2018, respectively. This contract is included within the Company's RSCG segment.


Key Business Metrics
 
Our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies, allocation of resources and our capacity to fund capital expenditures and expand our business. These key business metrics include:
 
GMV.Gross merchandise volume (GMV). GMV an operating measure, is the total sales value of all merchandise sold by us or our Sellerssellers through our marketplaces andor by us through other channels during a given period of time. We review GMV because it provides a measure of the volume of goods being sold in our marketplaces and thus the activity of those marketplaces. GMV also provides a means to evaluate the effectiveness of investments that we have made and continue to make, including in the areas of Buyerbuyer and Sellerseller support, value-added services, product development, sales and marketing, and operations. See Results of Operations for further information on GMV.
 
Total Registered Buyers.  We grow our Buyerbuyer base through a combination of marketing and promotional efforts. A person becomes a registered Buyerbuyer by completing an online registration process on one of our marketplaces. As part of this process, we collect business and personal information, including name, title, company name, business address and contact information, and information on how the person intends to use our marketplaces. Each prospective Buyerbuyer must also accept our terms and conditions of use. Following the completion of the online registration process, we verify each prospective buyer’s e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the U.S. federal


government. After the verification process, which is completed generally within 24 hours, the registration is approved and activated, and the prospective buyer is added to our registered Buyerbuyer list.
 
Total registered Buyers,buyers, as of a given date, represent the aggregate number of persons or entities who have registered on one of our marketplaces. We use this metric to evaluate how well our marketing and promotional efforts are performing. Total registered Buyersbuyers exclude duplicate registrations, buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database. In addition, if we become aware of registered Buyersbuyers that are no longer in business, we remove them from our database. As of June 30, 2019,2020 and September 30, 2018,2019, we had approximatelyapproximately 3,719,000 and 3,627,000 and 3,357,000 registered Buyers,buyers, respectively.
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Total auction participants.  For each auction we manage, the number of auction participants represents the total number of registered Buyersbuyers who have bid one or more times in that auction. As a result, a registered Buyerbuyer who bids, or participates, in more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this metric to allow us to compare our online auction marketplaces to our competitors, including other online auction sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered Buyersbuyers and to measure the performance of our marketing and promotional efforts. During the three months ended June 30, 2020 and 2019, approximately 420,000 and 2018, approximately 528,000, and 512,000, respectively,respectively, total auction participants participated in auctions on our marketplaces. During the nine months ended June 30, 2020 and 2019, approximately 1,363,000 and 2018, approximately 1,561,500, and 1,580,000, respectively, total auction participants participated in auctions on our marketplaces. Largely as a result of the wind-down of the Surplus Contract, there was a decrease in auction participants during fiscal 2019.
 
Completed transactions.  Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the three months ended June 30, 20192020 and 2018,2019, we completed approximatelyapproximately 134,000 and 160,000 and 145,000 transactions,transactions, respectively. During the nine months ended June 30, 20192020 and 2018,2019, we completed approximatelyapproximately 420,000 and 458,000 and 429,000 transactions,transactions, respectively.


Non-GAAP Financial Measures
 
EBITDA and Adjusted EBITDA. EBITDA is a supplemental non-GAAP financial measure and is equal to net income (loss) income plus interest and other expense, net;net excluding the non-service components of net periodic pension (benefit) expense; provision (benefit) for income taxes; and depreciation and amortization. Interest and other expense, net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our definition of Adjusted EBITDA differs from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, deferred revenue purchase accounting adjustments, and goodwill and long-lived asset impairment.
 
We believe EBITDA and Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons:
 
•Depreciation and amortization expense primarily relates to property and equipment and the amortization of intangible assets. These expenses are non-cash charges that have fluctuated significantly in the past. As a result, we believe that adding back these non-cash charges is useful in evaluating the operating performance of our business on a consistent basis from year-to-year.
•As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts for provision (benefit) for income taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
•The authoritative guidance for stock-based compensation requires all share-based payments to employees, including grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the income statement based on their estimated fair values. We believe adjusting for this stock-based compensation expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
•The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value with subsequent changes in fair value recorded through the statements of operations, and disallows the capitalization of transaction costs. We believe adjusting for these acquisition related expenses is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year.
•We believe adjusting for business realignment expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year, as these expenses are outside our ordinary course of business.


•We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance.
•We believe EBITDA and Adjusted EBITDA are important indicators of our operational strength and the performance of our business because they provide a link between profitability and operating cash flow.
•We also believe that analysts and investors use EBITDA and Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry.
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Our management uses EBITDA and Adjusted EBITDA:
•as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of items not directly resulting from our core operations;
•for planning purposes, including the preparation of our internal annual operating budget;
•to allocate resources to enhance the financial performance of our business;
•to evaluate the effectiveness of our operational strategies; and
•to evaluate our capacity to fund capital expenditures and expand our business.


EBITDA and Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, EBITDA and Adjusted EBITDA: (a) do not represent net (loss) income or cash flows from operating activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as alternatives to net (loss) income, income from operations, cash provided by operating activities or our other financial information as determined under GAAP.
 
We prepare Adjusted EBITDA by adjusting EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to all of the limitations applicable to EBITDA. Our presentation of Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.
The table below reconciles net lossincome (loss) to EBITDA and Adjusted EBITDA for the periods presented. 
Three Months Ended June 30,Nine Months Ended June 30,
 2020201920202019
(in thousands) (Unaudited)
Net income (loss)$213  $(4,649) $(9,221) $(14,033) 
Interest and other income, net1
(156) (368) (489) (976) 
Provision for income taxes209  542  710  1,136  
Depreciation and amortization1,567  1,206  4,716  3,575  
EBITDA1,833  (3,269) (4,284) (10,298) 
Stock compensation expense2
1,516  1,362  3,785  5,456  
Acquisition costs and impairment of long-lived assets3
—  52  5  171  
Business realignment expenses3,4
328  1,055  328  1,095  
Fair value adjustments to acquisition earn-outs3
—  900  200  2,300  
Deferred revenue purchase accounting adjustment—  110  3  800  
Adjusted EBITDA$3,677  $210  $37  $(476) 
  Three Months Ended June 30, Nine Months Ended June 30,
  2019 2018 2019 2018
  (In thousands)
(Unaudited)
Net loss $(4,649) $(3,705) $(14,033) $(10,572)
Interest and other income, net1
 (368) (47) (976) (776)
Provision (benefit) for income taxes 542
 612
 1,136
 (3,824)
Depreciation and amortization 1,206
 1,020
 3,575
 3,375
EBITDA (3,269) (2,120) (10,298) (11,797)
Stock compensation expense2
 1,362
 1,436
 5,456
 4,134
Acquisition costs and impairment of long-lived assets3
 52
 204
 171
 204
Business realignment expenses4
 1,055
 249
 1,095
 2,073
Fair value adjustments to acquisition earn-outs3
 900
 —
 2,300
 —
Deferred revenue purchase accounting adjustment 110
 —
 800
 —
Adjusted EBITDA $210
 $(231) $(476) $(5,386)
1 Represents Interest and other income, net, excludes non-servicesper the Statement of Operations, excluding the non-service components of net periodic pension and other postretirement benefit(benefit) expense.
2 Excludes the impact of forfeitures of stock awards by employees terminated by business realignment actions. That impactactions, which is included in the business realignment expenses line.line for the three and nine months ended June 30, 2019. There were no such impacts for the three and nine months ended June 30, 2020.
3 Acquisition costs, and impairment of long-lived assets, and fair value adjustments to acquisition earn-outs, whichand business realignment expenses are excluded from Adjusted EBITDA, are included incomponents of Other operating expenses on the Statements of Operations.
4 Business realignment expense includes the amounts accounted for as exit costs under ASC 420 as described in Note 1110 to the ConsolidatedConsolidated Financial Statements, and the related impacts of business realignment actions subject to other accounting guidance. Those related impacts were $317 thousand for the three and nine months ended June 30, 2019, primarily due to forfeitures of stock awards by terminated employees. NoThere were no related impacts were associated withfor the other periods presented.three and nine months ended June 30, 2020.





Critical Accounting Policies and Estimates
 
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. A “critical accounting estimate” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We continuously evaluate ourCompany's critical accounting estimates. We base ourpolicies and estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended September 30, 2018,2019, and in Note 2 — Summary of Significant Accounting Policies to the consolidated financial statements. The same

As discussed in Note 2 — Summary of Significant Accounting Policies, we adopted ASC 842, Leases, as of October 1, 2019, using a modified retrospective approach where our Consolidated Balance Sheet as of September 30, 2019 was not changed.
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Relative to the most recent annual report on Form 10-K, there have been no other material changes to the Company's accounting policies are used in preparing ourthese interim consolidated financial statements.

As of July 1, 2019, the Company performed its annual impairment testing using a resultfair-value based test for all reporting units, and determined the fair value for each of adopting ASC 606,its reporting units with goodwill balances substantially exceeded their carrying values except for the Machinio reporting unit, which exceeded its carrying value by approximately 11%.

As of March 31, 2020, in response change in economic conditions resulting from the COVID-19 pandemic, the Company performed an interim impairment test using a fair-value based test for all reporting units with goodwill balances, and determined that the fair value for each of its reporting units with goodwill balances substantially exceeded their carrying values except for CAG and Machinio, which exceeded their carrying values by approximately 21% and 12%, respectively.

As of March 31, 2020, the Company determined the fair value of the CAG and Machinio reporting units using a discounted cash flow (DCF) analysis. The DCF analysis relied on significant assumptions and judgments about the forecasts of future cash flows over the five-year projection period, including revenues, gross profit margins, operating expenses, income taxes, capital expenditures, working capital, and an estimate of the impact and duration of COVID-19 on those factors. A long-term growth rate of 2.5% was applied thereafter. These forecasts of future cash flows represent the Company's best estimate using information that is currently available. However, given the uncertainty associated with the COVID-19 pandemic, including its extent and duration, actual results could differ significantly from those estimates.

The cash flows for CAG and Machinio were discounted at a weighted average cost of capital (WACC) of 17% and 26%, respectively, and reflected an increase in the equity risk premium caused by the emergence of the COVID-19 pandemic. Given the uncertainty that COVID-19 has introduced into the equity markets, the Company performed a sensitivity analysis that noted that the CAG and Machinio WACCs would need to increase by over 180 and 260 basis points, respectively, to impact the recovery of goodwill.

The Company has continued to evaluate the impact of the COVID-19 pandemic on the recoverability of its goodwill. As there were significanthave been favorable developments in the factors that indicated a goodwill impairment test was necessary in the previous quarter, the Company did not identify any indicators of impairment that required an additional interim goodwill impairment test during the three months ended June 30, 2020.

The Company will continue to monitor these reporting units for changes that could impact the recoverability of goodwill, which will depend on changes to our revenue recognition policy from the policy disclosed in the Form 10-K. See Note 1 to the unaudited consolidated financial statements in Item 1 of Part I, "Financial Statements," of this Form 10-Q for a descriptionextent and duration of the revisions to our revenue recognition policy.COVID-19 pandemic, and its impact on the equity markets.

Components of Revenue and Expenses


Revenue. We generate a large portionRefer to the discussion in the Our revenue section above, and to Note 2 — Summary of our revenue from the proceeds of sales of merchandise held in inventory. We also generate fee revenue from commissions on salesSignificant Accounting Policies in our marketplacesAnnual Report on Form 10-K for discussion of merchandise that is owned by others.the Company's related accounting policies.
 
Cost of goods sold. CostRefer to the discussion in Note 2 — Summary of Significant Accounting Policies in our Annual Report on Form 10-K for discussion of the Company's Costs of goods sold includes the costs of purchasing and transporting property for auction, credit card transaction fees and shipping and handling costs.related accounting policies.


Seller distributions. Under the current Scrap Contract, which concluded on September 30, 2019, we acquireacquired scrap property from the DLA for resale and paypaid the DLA a revenue-sharing paymentseller distributions equal to 64.5% of the gross resale proceeds. We bear all of the costs for the sorting, merchandising and sale of the property. The Scrap Contract will conclude on September 30, 2019 and we will not incur further Seller distributions once the contract concludes.
 
Technology and operations.  Technology expenses consist primarily of the cost of technical staff who develop, deploy, and maintain our marketplaces and corporate infrastructure. These personnel also develop and upgrade the software systems that support our operations, such as sales processing. Technology expenses also includes certain costs associated with our LiquidityOne initiative.e-commerce platform.


Because our marketplaces and support systems require frequent upgrades and enhancements to maintain viability, we have determined that the useful life for certain internally developed software is less than one year. As a result, we expense those costs as incurred. However, where we determine that the useful life of the internally developed software will be greater than one year, we capitalize development costs in accordance with ASC 350, Intangibles-Goodwill and Other.350-40, Internal-use software. As such, we are capitalizing certain development costs associated with our LiquidityOnee-commerce platform, as well as other software development activities.
Operations expenses consist primarily of operating costs, including Buyerbuyer relations, shipping logistics and distribution center operating costs.
27

Sales and marketing.  Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of marketing and promotional activities. These activities include all sales and marketing-related activity, including but not limited to trade shows and online marketing campaigns such as paid search advertising.
 
General and administrative.  General and administrative expenses include all corporate and administrative functions that support our operations and provide an infrastructure to facilitate our future growth. Components of these expenses include executive management and staff salaries, bonuses and related taxes and employee benefits; travel; headquarters rent and related occupancy costs; and legal and accounting fees. The salaries, bonus and employee benefits costs included as general and administrativeThese expenses are generally more fixed in nature than our other operating expenses and do not significantly vary directly within response to the volume of merchandise sold through our marketplaces.
 


Depreciation and amortization.  Depreciation and amortization expenses consist primarily of the depreciation and amortization of amounts recorded in connection with the purchase of furniture, fixturesproperty and equipment, amortization of internally developed software, and amortization of intangible assets from our acquisitions.assets.


Other operating expenses (income). Other operating expenses (income)expense includes the change in fair value of financial instruments and contingent consideration, as well as business realignment expenses, including those associated with restructuring initiatives and the exit of certain business operations.


Interest and other (income) expense, net.  Interest (income) expense and other (income) expense, net consists of interest income on the note receivable related to the sale of the Jacobs Trading business in 2015, interest income on short-term investments and the promissory note issued to JTC, the components of net periodic benefitpension (benefit) other than the services costservice component, and impacts of foreign currency fluctuations.
 
Income taxes.  For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-tax (loss) income. Our effective income tax rate before discrete items was (7.9)%(8.4%) for the nine months ended June 30, 2019.2020. The effective tax rate differed from the statutory federal rate of 21% primarily as a result of the valuation allowance charge on current year losses and the impact of foreign, state, and local income taxes and permanent tax adjustments.


Results of Operations

The following table sets forth, for the periods indicated, our operating results (dollars in thousands):results:
 Three Months Ended June 30,Nine Months Ended June 30,
(dollars in thousands)20202019$ Change% Change20202019$ Change% Change
Revenue$30,442  $36,388  $(5,946) (16.3)%$95,994  $109,478  $(13,484) (12.3)%
Fee revenue17,280  20,494  (3,214) (15.7) 54,056  58,257  (4,201) (7.2) 
Total revenue47,722  56,882  (9,160) (16.1) 150,050  167,735  (17,685) (10.5) 
Costs and expenses from operations:  
Cost of goods sold (excludes depreciation and amortization)22,494  25,337  (2,843) (11.2) 73,289  75,100  (1,811) (2.4) 
Seller distributions—  2,994  (2,994) (100.0) —  8,393  (8,393) (100.0) 
Technology and operations9,515  12,145  (2,630) (21.7) 32,342  38,098  (5,756) (15.1) 
Sales and marketing7,412  8,771  (1,359) (15.5) 27,126  26,887  239  0.9  
General and administrative6,217  8,959  (2,742) (30.6) 21,321  26,217  (4,896) (18.7) 
Depreciation and amortization1,567  1,206  361  29.9  4,716  3,575  1,141  31.9  
Other operating expenses319  2,031  (1,712) (84.3) 500  3,586  (3,086) (86.1) 
Total costs and expenses47,524  61,443  (13,919) (22.7) 159,294  181,856  (22,562) (12.4) 
Income (loss) from operations198  (4,561) 4,759  NM(9,244) (14,121) 4,877  34.5  
Interest and other income, net(224) (454) 230  50.7  (733) (1,224) 491  40.1  
Income (loss) before provision for income taxes422  (4,107) 4,529  NM(8,511) (12,897) 4,386  34.0  
Provision for income taxes209  542  (333) (61.4) 710  1,136  (426) (37.5) 
Net income (loss)$213  $(4,649) $4,862  NM$(9,221) $(14,033) $4,812  34.3 %

 NM = not meaningful
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 Three Months Ended June 30,     Nine Months Ended June 30,    
 2019 2018 $ Change % Change 2019 2018 $ Change % Change
Revenue$36,388
 $32,080
 $4,308
 13.4 % $109,478
 $115,464
 $(5,986) (5.2)%
Fee revenue20,494
 18,489
 2,005
 10.8
 58,257
 56,345
 1,912
 3.4
Total revenue56,882
 50,569
 6,313
 12.5
 167,735
 171,809
 (4,074) (2.4)
Costs and expenses from operations: 
  
      
      
Cost of goods sold (exclusive of depreciation and amortization)25,337
 19,489
 5,848
 30.0
 75,100
 75,847
 (747) (1.0)
Seller distributions2,994
 3,936
 (942) (23.9) 8,393
 11,107
 (2,714) (24.4)
Technology and operations12,145
 13,663
 (1,518) (11.1) 38,098
 47,718
 (9,620) (20.2)
Sales and marketing8,771
 8,386
 385
 4.6
 26,887
 24,921
 1,966
 7.9
General and administrative8,959
 6,847
 2,112
 30.8
 26,217
 22,056
 4,161
 18.9
Depreciation and amortization1,206
 1,020
 186
 18.2
 3,575
 3,375
 200
 5.9
Other operating expenses2,031
 452
 1,579
 349.3
 3,586
 2,222
 1,364
 61.4
Total costs and expenses61,443
 53,793
 7,650
 14.2
 181,856
 187,246
 (5,390) (2.9)
Loss from operations(4,561) (3,224) (1,337) (41.5) (14,121) (15,437) 1,316
 8.5
Interest and other income, net(454) (131) (323) (246.6) (1,224) (1,041) (183) (17.6)
Loss before provision (benefit) for income taxes(4,107) (3,093) (1,014) (32.8) (12,897) (14,396) 1,499
 10.4
Provision (benefit) for income taxes542
 612
 (70) (11.4) 1,136
 (3,824) 4,960
 129.7
Net loss$(4,649) $(3,705) $(944) (25.5)% $(14,033) $(10,572) $(3,461) (32.7)%



The following table presents segment GMV, revenue, gross profit (which is calculated as total revenue less cost of goods sold (exclusive of depreciation and amortization) and Seller distributions), and gross profit margin for the periods indicated (dollars in thousands):indicated:


Three Months Ended June 30,Nine Months Ended June 30,
(dollars in thousands)2020201920202019
GovDeals:
GMV$57,906  $90,927  $214,255  $244,626  
Total revenue6,021  9,280  21,858  24,635  
Gross profit5,637  8,560  20,361  22,663  
Gross profit margin93.6 %92.2 %93.2 %92.0 %
RSCG:
GMV44,991  39,561  129,181  116,904  
Total revenue33,553  31,261  101,507  94,750  
Gross profit12,022  10,874  34,721  32,710  
Gross profit margin35.8 %34.8 %34.2 %34.5 %
CAG:
GMV27,191  37,656  79,546  120,086  
Total revenue6,372  14,890  21,353  44,056  
Gross profit5,892  7,759  16,628  25,255  
Gross profit margin92.5 %52.1 %77.9 %57.3 %
Machinio:
GMV—  —  —  —  
Total revenue1,776  1,451  5,332  3,816  
Gross profit1,677  1,358  5,051  3,501  
Gross profit margin94.4 %93.6 %94.7 %91.7 %
Corporate & Other:
GMV—  —  —  469  
Total revenue—  —  —  478  
Gross profit—  —  —  113  
Gross profit margin— %— %— %23.6 %
Consolidated:
GMV130,088  168,144  422,982  482,085  
Total revenue47,722  56,882  150,050  167,735  
Gross profit25,228  28,551  76,761  84,242  
Gross profit margin52.9 %50.2 %51.2 %50.2 %
   Three Months Ended June 30, Nine Months Ended June 30,
   2019 2018 2019 2018
GovDeals:        
 GMV $90,927
 $85,415
 $244,626
 $225,996
 Total revenue 9,280
 8,421
 24,635
 22,554
 Gross profit 8,560
 7,795
 22,663
 20,927
 Gross profit margin 92.2% 92.6% 92.0% 92.8 %
          
CAG:        
 GMV 37,656
 43,841
 120,086
 144,002
 Total revenue 14,890
 15,011
 44,056
 72,230
 Gross profit 7,759
 9,911
 25,255
 39,973
 Gross profit margin 52.1% 66.0% 57.3% 55.3 %
          
RSCG:        
 GMV 39,561
 33,550
 116,904
 97,857
 Total revenue 31,261
 26,343
 94,750
 73,742
 Gross profit 10,874
 9,305
 32,710
 24,649
 Gross profit margin 34.8% 35.3% 34.5% 33.4 %
          
Machinio:        
 GMV —
 —
 —
 —
 Total revenue 1,451
 —
 3,816
 —
 Gross profit 1,358
 —
 3,501
 —
 Gross profit margin 93.6% —
 91.7% —
          
Corporate & Other:        
 GMV —
 787
 469
 3,273
 Total revenue —
 794
 478
 3,283
 Gross profit —
 133
 113
 (694)
 Gross profit margin —% 16.8% 23.6% (21.1)%
          
Consolidated:        
 GMV 168,144
 163,593
 482,084
 471,128
 Total revenue 56,882
 50,569
 167,735
 171,809
 Gross profit 28,551
 27,144
 84,242
 84,855
 Gross profit margin 50.2% 53.7% 50.2% 49.4 %


Three Months Ended June 30, 20192020 Compared to the Three Months Ended June 30, 20182019


Segment Results


GovDeals. Revenue from our GovDeals segment increased 10.2%decreased 35.1%, or $0.9$3.3 million due to a 6.5%36.3%, or $5.5$33.0 million decrease in GMV primarily resulting from decreased activity due to limitations on government facility operations in response to the COVID-19 pandemic. As a result of the decrease in revenues, gross profit decreased 34.1%, or $2.9 million. Gross profit margin remained relatively consistent between the periods.

29

RSCG. Revenue from our RSCG segment increased 7.3%, or $2.3 million, due to a 13.7%, or $5.4 million, increase in GMV resulting from additional sales volume fromdriven primarily by growing volumes within existing Sellersseller accounts, partially offset by a decrease in the mix of transactions performed under the purchase model. As a result of the increase in revenues and an increase in gross profit margin, gross profit increased 10.6%, or $1.1 million. Gross profit margin remained relatively consistent between the numberperiods.

CAG. Revenue and GMV from the CAG segment decreased 57.2%, or $8.5 million, and 27.8%, or $10.5 million, respectively. The conclusion of new Sellers.the Scrap Contract in fiscal 2019 caused revenue and GMV to each decline by $4.6 million. Excluding the impact of the completed Scrap Contract, revenue decreased by 37.8%, or $3.9 million, and GMV decreased by 17.6%, or $5.8 million.The declines were primarily driven by lower activity due to limitations on commercial facility operations and global travel restrictions in response to the COVID-19 pandemic. These restrictions had a larger impact on principal transactions than on transactions using our lower-touch consignment model. Gross profit within the CAG segment decreased 24.1%, or $1.9 million, primarily due to a $1.6 million impact from the completion of the Scrap Contract and the reduction in revenues. Gross profit margin increased to 92.5% from 52.1% due the larger impact of the COVID-19 pandemic on principal transactions, and the completion of the Scrap Contract, which had lower gross profit margins than the remaining business.

Machinio. Revenue from our Machinio segment increased 22.4%, or $0.3 million, due to an increase in subscription activity, and due to revenue earned from deferred revenues no longer containing effects from purchase accounting. As a result of the increase in revenues, gross profit increased 9.8%23.5%, or $0.8$0.3 million. Gross profit margin was consistent between the periods.




CAG. Revenue from our CAG segment decreased 0.8%, or $0.1 million, due to a 14.1%, or $6.2 million, reduction in GMV, offset by an increase in the mix of transactions conducted under the purchase model. The reduction in GMV was driven by the prior period including strong performance in international consignment sales, as well as unfavorable price and mix effects on the Scrap contract that were partially offset by volume increases. Gross profit decreased 21.7%, or $2.2 million due to the reduction in GMV and the increase in mix of transactions conducted under the purchase model. Gross profit margin decreased to 52.1% from 66.0% due to the increase in mix of transactions conducted under the purchase model.

RSCG. Revenue from our RSCG segment increased 18.7%, or $4.9 million, due to a 17.9%, or $6.0 million, increase in GMV driven by transactions under both the purchase and consignment models related to higher volumes within existing and new accounts and strong Buyer participation in our retail marketplace, as well as an increase in other service fees. As a result of the increase in revenues, gross profit increased 16.9%, or $1.6 million. Gross profit margin was consistent between the periods.

Machinio. Machinio's revenues for the period represent $1.1 million related to new subscriptions and subscription renewals during fiscal 2019, and $0.4 million related to revenues recognized for subscriptions that started prior to fiscal 2019. Because Machinio was acquired on July 10, 2018, there is no reported revenue in the prior period.
Corporate & Other. The changes inare no amounts of revenue, GMV, gross profit and gross profit margin are due to the Company's exit from the IronDirect business in January 2019.


Consolidated Results

Revenue - Total consolidated revenue decreased $9.2 million, or 16.1%. Refer to the discussion of Segment Results above for discussion of the decrease in revenue.
Cost of goods sold.  Cost of goods sold increased $5.8decreased $2.8 million, or 30.0%11.2%, primarily relateddue to the increaserevenue declines in transactions conducted under the purchase model in the CAG, and RSCG segments, partially offset by a $0.6the revenue increases in RSCG.

Seller distributions.  Seller distributions decreased $3.0 million, decreaseor 100.0%, due to the Company's exit from the IronDirect business in January 2019.

Seller distributions.  Seller distributions decreased $0.9 million, or 23.9%, due to lower revenues undercompletion of the Scrap Contract.


Technology and operations expenses.  Technology and operations expenses decreased $1.6$2.6 million, or 11.1%21.7%. The decrease included $1.1 million due to the completion of the Scrap Contract in fiscal 2019, $1.9 million in reductions in Corporate and CAG expenses (excluding the Scrap Contract) driven by benefits from restructuring and other organizational changes performed in fiscal 2019, and actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020. However, the impact of the action taken to reduce our operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover. These decreases were partially offset by a $0.3 million increase in RSCG and GovDeals driven by increased customer support and operations expenses from the continued growth in those segments.

Sales and marketing expenses.  Sales and marketing expenses decreased $1.4 million, or 15.5%, due to $1.0 million of reduced operations expenses associated with the Surplus and Scrap Contracts, $0.6 million in lower operationactions taken to reduce operating expenses in response to the CAG segment primarily drivenCOVID-19 pandemic in the quarter ended June 30, 2020. However, the impact of these actions on our operating expense levels will lessen as business conditions continue to recover.

General and administrative expenses.  General and administrative expenses decreased $2.7 million, or 30.6%, and was impacted by actions taken to reduce operating expenses in response to the effectsCOVID-19 pandemic in the quarter ended June 30, 2020, benefits from restructuring and other organizational changes performed in fiscal 2019, and the completion of the prior periodScrap Contract in fiscal 2019. The impact of the actions taken to reduce operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover.

Other operating expenses.  Other operating expense of $0.3 million for the three months ended June 30, 2020 represents business realignment activity (see Note 11expenses were incurred related to the accompanying Noteselimination of certain positions in response to the Unaudited Consolidated Financial Statements), and reduced stock-based compensationCOVID-19 pandemic. Other operating expense driven by reductions in the fair value of cash-settled stock appreciation rights. Technology and operations expenses$2.0 million for the three months ended June 30, 2019 includes $0.6 million related to an estimated liability from a sales tax audit being performed by the State of California (see Note 12 to the accompanying Notes to the Unaudited Consolidated Financial Statements). The Company continues to capitalize technology costs associated with its LiquidityOne initiative and other development activities, with a total of $1.0 million of costs capitalized during the three months ended June 30, 2019.

Sales and marketing expenses.  Sales and marketing expenses increased $0.4 million, or 4.6%, primarily due to the impact of the acquisition of Machinio, which did not incur sales and marketing expenses in the prior period.

General and administrative expenses.  General and administrative expenses increased $2.2 million, or 30.8%, primarily due to an increase in labor costs mapped to general and administrative expenses resulting from the Company's management reorganization activities to capitalize on its RISE strategy, and the impact of the acquisition of Machinio, which did not incur general and administrative expenses in the prior period.
Other operating expenses.  For the three months ended June 30, 2019, other operating expenses included $1.4 million of business realignment expenses, (see Note 11 to the accompanying Notes to the Unaudited Consolidated Financial Statements), partially offset by $0.3 million of reversed stock-based compensation expense due to the related forfeitures, and a $0.9 million increase in the fair value the Machinio earn-out liability. For the three months ended June 30, 2018, other operating expenses included $0.3 million of business realignment expenses (see Note 11 to the accompanying Notes to the Unaudited Consolidated Financial Statements), and $0.2 million costs associated with the Machinio acquisition.


Interest and other income, net.  Interest and other income, net, increaseddecreased by $0.3$0.2 million primarily driven by increaseddue to a decline in the holdings of short-term investments.investments and also in their interest rates.
30

 
Provision (benefit) for income taxes.  Provision (benefit) for income taxes decreased $0.1$0.3 million due to the impact of foreign, state, and local taxes and permanent tax adjustments.




Nine Months Ended June 30, 20192020 Compared to the Nine Months Ended June 30, 20182019


Segment Results


GovDeals. Revenue from our GovDeals segment increased 9.2%decreased 11.3%, or $2.1$2.8 million, due to a 12.4%, or $30.4 million decrease in GMV primarily resulting from lower activity due to limitations on government facility operations in response to the COVID-19 pandemic, partially offset by adding new sellers prior to its onset. As a result of the decrease in revenues, gross profit decreased 10.2%, or $2.3 million. Gross profit margin remained relatively consistent between the periods.

RSCG. Revenue from our RSCG segment increased 7.1%, or $6.8 million, due to an 8.2%10.5%, or $18.6$12.3 million, increase in GMV resulting from additional sales volume fromdriven by growing volumes within existing Sellersseller accounts and an increase in the number oflaunching new Sellers.programs with mid-sized and large retailers. As a result of the increase in revenues, gross profit increased 8.3%6.1%, or $1.7$2.0 million. Gross profit margin wasremained relatively consistent between the periods.


CAG. Revenue and GMV from ourthe CAG segment decreased 39.0%51.5%, or $28.2$22.7 million, and 33.8%, or $40.5 million, respectively. The conclusion of the Scrap Contract caused revenue and GMV to each decline by $13.0 million. Excluding the impact of the completed Scrap Contract, revenue decreased by 31.5%, or $9.8 million, and GMV decreased by 25.8%, or $27.6 million. The declines were primarily driven by lower activity due to limitations on commercial facility operations and global travel restrictions in response to the COVID-19 pandemic. These restrictions had a larger impact on principal transactions than on transactions using our lower-touch consignment model. The declines were also influenced by a strong prior year performance in the Asia-Pacific region, and associated with softness in the industrial and bio-pharma verticals in North America. Gross profit within the CAG segment decreased 34.2%, or $8.6 million, due to a 16.6%, or $23.9$4.5 million impact from the completion of the Scrap Contract and the reduction in GMV. These declines were primarily caused by the wind-down of the Surplus Contract, which had $25.6 million of higher revenue and GMV in the prior period. The Scrap Contract had a $4.6 million decrease in revenue and GMV due to unfavorable price, mix and volume variances. These decreases were partially offset by increases in revenues and GMV associated with commercial transactions under the purchase model. Gross profit decreased 36.8%, or $14.7 million, primarily due to the impacts of the reduced revenues under the Surplus and Scrap Contracts, as well as the increase in mix of commercial transactions conducted under the purchase model.revenues. Gross profit margin increased to 77.9% from 57.3% from 55.3% primarily due to the wind-downcompletion of the SurplusScrap Contract, partially offset bywhich had lower gross profit margins than the increase in mixremaining business, and due the larger impact of commercialthe COVID-19 pandemic on principal transactions conducted under the purchase model.

RSCG. Machinio. Revenue from our RSCGMachinio segment increased 28.5%39.7%, or $21.0$1.5 million, due to a 19.5%, or $19.0 million increase in GMV, and an increase in the mix of transactions conducted under the purchase transaction model related to higher volumes within existing and new accounts and strong Buyer participation in our retail marketplace, as well an increase in other service fees. Gross profit increased 32.7%, or $8.1 million, due to the increase in GMV and an increase in margins on transactions conducted under the purchase model. Gross profit margin increased to 34.5%, from 33.4%, primarily due to an increase in margins on transactions conducted undersubscription activity, and due to revenue earned from deferred revenues no longer containing effects from purchase accounting. As a result of the purchase model.increase in revenues, gross profit increased 44.3%, or $1.6 million.

Machinio. Machinio's revenues for the period represent $1.9 million related to new subscriptions and subscription renewals during fiscal 2019, and $1.9 million related to revenues recognized for subscriptions that started prior to fiscal 2019. Because Machinio was acquired on July 10, 2018, there is no reported revenue in the prior period.
Corporate & Other. The changes in revenue, GMV, gross profit and gross profit margin are due to the Company's exit from the IronDirect business in January 2019.


Consolidated Results

Revenue - Total consolidated revenue decreased $17.7 million, or 10.5%. Refer to the discussion of Segment Results above for discussion of the decrease in revenue.
Cost of goods sold.  Cost of goods sold decreased $0.7increased $1.8 million, or 0.9%2.4%, primarily due to a $18.5revenue increases in RSCG, partially offset by revenue declines in CAG.

Seller distributions.  Seller distributions decreased $8.4 million, reduction from the reduced revenues on the Surplus and Scrap Contracts, and a $1.6 million reductionor 100.0%, due to the Company's exit from the IronDirect business in January 2019. These reductions were partially offset by increases in CAG and RSCG segments due to the increase in transactions conducted under the purchase model.

Seller distributions.  Seller distributions decreased $2.7 million, or 24.3%, due to lower revenues undercompletion of the Scrap Contract.


Technology and operations expenses.  Technology and operations expenses decreased $9.6$5.8 million, or 20.1%15.1%. The decrease included $3.9 million due to the completion of the Scrap Contract in fiscal 2019, $4.2 million in reductions in Corporate and CAG (excluding the Scrap Contract) driven by benefits from restructuring and other organizational changes performed in fiscal 2019, and actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020. However, the impact of the action taken to reduce our operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover. These decreases were partially offset by a $2.5 million increase in RSCG and GovDeals driven by increased customer support and operations expenses from the continued growth in those segments.

Sales and marketing expenses.  Sales and marketing expenses increased $0.2 million, or 0.9%, due to $6.8an increase in marketing expenses to promote our new e-commerce technology platform and develop our consolidated marketplace, which was partially offset by actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020. However, the impact of these actions on our operating expense levels will lessen as business conditions continue to recover.
31


General and administrative expenses.  General and administrative expenses decreased $4.9 million, or 18.7%, and was impacted by actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020, benefits from restructuring and other organizational changes performed in fiscal 2019, and the completion of the Scrap Contract in fiscal 2019. The impact of the actions taken to reduce operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover.

Other operating expenses.  Other operating expense of $0.5 million for the nine months ended June 30, 2020 represents $0.3 million of reduced operations expenses associated with the Surplus and Scrap Contracts, $2.6 million in lower operation expenses in the CAG segment primarily driven by the effects of the prior period business realignment activity (see Note 11expenses that were incurred related to the accompanying Noteselimination of certain positions in response to the Unaudited Consolidated Financial Statements),COVID-19 pandemic, and reduced stock-based compensation expense driven by reductionsa $0.2 million increase in the fair value of cash-settled stock appreciation rights. Technology and operations expensesthe Machinio earn-out liability. Other operating expense of $3.6 million for the nine months ended June 30, 2019 includes $0.6 million related to an estimated liability from a sales tax audit being performed by the State of California (see Note 12 to the accompanying Notes to the Unaudited Consolidated Financial Statements). The Company continues to capitalize technology costs associated with its LiquidityOne initiative and other development activities, with a total of $2.8 million costs capitalized during the nine months ended June 30, 2019.

Sales and marketing expenses.  Sales and marketing expenses increased $2.0 million, or 8.0%, primarily due to the impact of the acquisition of Machinio, which did not incur sales and marketing expenses in the prior period.

General and administrative expenses.  General and administrative expenses increased $4.1 million, or 18.6%, primarily due to an increase in labor costs mapped to general and administrative expenses resulting from the Company's management reorganization activities to capitalize on its RISE strategy, and the impact of the acquisition of Machinio, which did not incur general and administrative expenses in the prior period.


Other operating expenses.  For the nine months ended June 30, 2019, other operating expenses included $1.5 million of business realignment expenses, (see Note 11 to the accompanying Notes to the Unaudited Consolidated Financial Statements), partially offset by $0.3 million of reversed stock-based compensation expense due to related forfeitures, and a $2.3 million increase in the fair value of the Machinio earn-out liability. For the nine months ended June 30, 2018, other operating expenses included $2.1 million of business realignment expenses (see Note 11 to the accompanying Notes to the Unaudited Consolidated Financial Statements), and $0.2 million of costs associated with the Machinio acquisition.


Interest and other income, net.  Interest and other income, net, increased $0.2decreased by $0.5 million primarily driven by increaseddue to a decline in the holdings of short-term investments.investments and also in their interest rates.
 
Provision (benefit) for income taxes.  Provision (benefit) for income taxes increased $4.9decreased $0.4 million due to benefits resulting from the Tax Cut and Jobs Act enacted in fiscal year 2018 and the impact of foreign, state, and local taxes and permanent tax adjustments.

Liquidity and Capital Resources
 
Historically, our primaryOur operational cash needs have beenprimarily relate to working capital, including staffing costs, technology expenses and capital used for inventory purchases, which we have funded through existing cash on-handbalances and cash generated from operations. From time to time, we may use our capital resources for other activities, such as contract start-up costs, joint ventures and acquisitions. As of June 30, 2019,2020, we had $36.4$72.7 million in cash and cash equivalents.

The COVID-19 pandemic caused the Company's GMV and revenues to decline in the short-term. The temporary cost control measures put into place mitigated those declines, resulting in net income of $0.2 million for the quarter ended June 30, 2020. From a cash flow perspective, the Company employed working capital management practices, primarily in the form of temporary extensions to vendor payment terms, and also experienced accumulation in its payables to sellers balance due to COVID-19 restrictions causing some buyer delays in being able to pick up purchased assets. The effects of these items caused our cash balance to increase relative to the $41.8 million in cash as well as $30.0$10.0 million in short-term investments.investments we held as of March 31, 2020. While the Company expects to use working capital in the near-term as these temporary effects unwind, we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next twelve months.


Subsequent to June 30,In fiscal 2019, we deployed our new e-commerce technology platform and completed our LiquidityOne strategic initiative.platform. We expect to continue investment as we prepare for the launch of a new consolidatedto invest in enhancements to our marketplace capabilities and for the implementation of tools for data-driven product recommendation,recommendations, omni-channel behavioral marketing and predictive analytics. In addition, theanalytics and integrated services for our retail supply transaction volume, which has a unique setchain segment.

During the second quarter of services, remains a part of our future integration plans. We may also invest in new business ventures, such asfiscal 2020 the Company paid the $5.0 million earn-out payment for the Machinio acquisition we made in July 2018 for which we paid $16.7 million in cash and have contingent consideration in an amount up to $5.0 million payable in 2020.at closing.

We did not record a provision for deferred U.S. tax expense on the undistributed earnings of foreign subsidiaries because we intend to indefinitely reinvest the earnings of these foreign subsidiaries outside the United States. The amount of such undistributed foreign earnings was $2.8$3.7 million as of June 30, 2019.2020. As of June 30, 20192020 and September 30, 2018, $16.42019, $17.2 million and $14.4$21.0 million, respectively, of cash and cash equivalents was held outside of the U.S.

We are authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The repurchase program may be discontinued or suspended at any time and will be funded using our available cash. We did not repurchase shares under this program during the nine months ended June 30, 20192020 or 2018.2019. As of June 30, 2019, the Company has2020, we are authorized to repurchase up to an additional $10.1 million of remaining authorization to repurchasein shares under this program.
 
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Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and PayPal, an Internet based payment system, as methods of payments. As a result, we are not subject to significant collection risk, as goods are generally not shipped before payment is received.


Changes in Cash Flows: Nine Months Ended June 30, 20192020 Compared to the Nine Months Ended June 30, 20182019
 
Net cash used inprovided by (used in) operating activities was $7.2$9.2 million and $(7.2) million for the nine months ended June 30, 2020 and 2019, as compared to net cash provided by operating activities of $1.6 million for the nine months ended June 30, 2018.respectively. The $8.8$16.4 million increase in cash used inprovided by operations between periods was attributable to changes in payables to sellers, driven by timings of payments, and increases in transactions that have been paid for but not yet picked up due to delays caused the COVID-19 pandemic; changes to accounts payable, accrued expenses and other liabilities driven by the management of working capital, primarily from changesuch as temporary extensions of payment terms in accounts receivable, settlementresponse to the COVID-19 pandemic; and $2.5 million of accounts payable, payables to Sellershigher net income as adjusted for non-cash items, including the impact of temporary cost control measures. These changes were partially offset by the $3.8 million portion of the Machinio earn-out payment associated with its increase in value post-acquisition, and purchasethe final payments of inventory.seller distributions associated with the completion of the Scrap Contract. Our working capital accounts are subject to natural variations depending on the timing of cash receipts and payments, however, there have been no significant changesand our variations in our transaction volumes are related to settlements between our buyers and sellers. However, the Company expects to use working capital in the near-term as the temporary responses to the working capital requirements forCOVID-19 pandemic implemented in the Company, other than the Machinio earn-out that will be paid in fiscal 2020.third quarter start to unwind.

Net cash used inprovided by (used in) investing activities was $14.7$28.9 million for the nine months ended June 30, 2019,2020, and $11.9$(14.7) million for the nine months ended June 30, 2018.  Net cashwas used inby investing activities for the nine months ended June 30, 2019 consisted of $102019. The $43.6 million of net purchases ofincrease in cash provided by investing activities was driven by a $40.0 million increase in activity related to short-term investments as well as expenditureswhich are used to manage the Company's excess cash balances, and $2.5 million principal payment on the promissory note issued to JTC. As discussed in Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements, the Company concluded that it remains probable that the Company will collect the amounts related to the promissory note issued to JTC. However, the Company will continue to monitor for capitalized software, purchaseschanges that could impact the recoverability of equipment,the promissory note, which will depend on JTC's subsequent operating performance and leasehold improvements. ability to make the payments required by the new repayment schedule.

Net cash used in investing activities for the nine months ended June 30, 2018 consisted of $10 million of purchases of short-term investments, as well as expenditures for capitalized software, purchases of equipment, and leasehold improvements.


Net cash provided by financing activities was $0.13$1.8 million for the nine months ended June 30, 2019 compared to $0.012020. The $1.9 million increase in cash provided by financing activities for the nine months ended June 30, 2018.  Net cash providedused by financing activities consisted primarily of proceeds from$1.2 million the exerciseportion of commonthe Machinio earn-out payment that represented its fair value at the date of acquisition, and $0.6 million taxes paid associated with net settlement of stock options.compensation awards. Net settlement was not used in the prior year comparable period.

Capital Expenditures.  Our capital expenditures consist primarily of capitalized software, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements. Capitalized software includes costs associated with our LiquidityOne initiative. The timing and volume of such capital expenditures in the future will be affected by the addition of new customerssellers or buyers or expansion of existing customer relationships, as well as our development of our LiquidityOne initiative.seller or buyer relationships. We intend to fund those expenditures primarily withfrom operating cash on hand.flows. Our capital expenditures for the nine months ended June 30, 20192020 were $4.8$3.6 million. As of June 30, 2019,2020, we had no significant outstanding commitments for capital expenditures.

We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the development and deployment of new marketplaces, the introduction of new value-added services and the costs to establish additional distribution centers. Although we are currently not a party to any definitive agreement with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased interest expense and could result in covenants that would restrict our operations. There is no assurance that such financing, if required, will be available in amounts or on terms acceptable to us, if at all.

Off-Balance Sheet Arrangements
 
We do not have any transactions, agreements or other contractual arrangements that could be considered material off-balance sheet arrangements.


Item 3.Quantitative and Qualitative Disclosures About Market Risk.
 
Interest rate sensitivity. We had no debt as of June 30, 2019, and thus2020, but we do hold $30.0 million of cash equivalents in money market funds. The impact of changes in interest rates on these money market funds is not expected to have any related interest rate exposure.a significant impact to our consolidated results of operations. Our investment policy requires us to invest funds in excess of current operating requirements. The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss.


Exchange rate sensitivity. Because of the number of countries and currencies we operate in, movements in currency exchange rates may affect our results. We report our operating results and financial condition in U.S. dollars. Our U.S. operations earn
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revenues and incur expenses primarily in U.S. dollars. Outside the United States, we predominantly generate revenues and expenses in the local currency. When we translate the results and net assets of these operations into U.S. dollars for reporting purposes, movements in exchange rates will affect reported results and net assets. Volatile market conditions arising from the COVID-19 pandemic may result in significant changes in exchange rates, which could affect our results of operations expressed in U.S. dollars.


Item 4. Controls and Procedures.


We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.


During the three months ended June 30, 2019,2020, no change occurred in our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. While the impact of COVID-19 pandemic and our actions taken in response, including terminations, furloughs and employees working remotely, has not materially affected our internal control over financial reporting as of June 30, 2020, we will continue to monitor and assess this ongoing situation for potential material effects.




As of June 30, 2019,2020, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (Principal Financial Officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer (Principal Financial Officer) concluded that our disclosure controls and procedures were effective and were operating to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer, principal financial officer, as appropriate to allow timely decisions regarding required disclosure.




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PART II—OTHER INFORMATION
 
Item 1. Legal Proceedings.

Information regarding the Company's legal proceedings may be found in Note 1211 of the accompanying Notes to the Unaudited Consolidated Financial Statements.


Item 1A. Risk Factors.

The global COVID-19 pandemic could harm our business and results of operations.

The global spread of COVID-19 and related measures to contain its spread (such as government mandated business closures and shelter in-place guidelines) have created significant volatility, uncertainty and economic disruption. Although the COVID-19 pandemic and the related measures to contain its spread have not had a material adverse effect on our consolidated results of operations to date, they have adversely affected certain components of our business, particularly revenues during times and in places in which governments ordered business and governmental closures and issued the most restrictive shelter in-place guidelines. The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition and liquidity in the future will depend on numerous evolving factors that we cannot predict, including the duration and scope of the pandemic; any resurgence or “second waves” of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the availability of government funding programs benefiting our sellers and buyers; the impact of the pandemic on national and global economic activity, unemployment levels and financial markets, including the possibility of a national or global recession; the potential for shipping difficulties, including slowed deliveries from sellers to their customers; and the ability of consumers to pay for products. The COVID-19 pandemic has generally resulted in a decrease in consumer spending, which could have an adverse impact on our sellers through reduced consumer demand for their surplus assets, which could in turn negatively impact the demand for use of our platforms. Additionally, the COVID-19 pandemic has caused us to require employees to work remotely for an indefinite period of time, which could negatively impact our business and harm productivity and collaboration. If there is a prolonged impact of COVID-19, it could adversely affect our business, results of operations, financial condition and liquidity, perhaps materially. The future impact of COVID-19 and these containment measures cannot be predicted with certainty and may adversely affect our business, results of operations, financial condition and liquidity, and we cannot assure that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward. 

In addition to the other information set forth in this report, you should carefully consider the factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018,2019 and Part II, "Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K and Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.


Item 5. Other Information.


Appointment of Chief Technology OfficerNone


The Company anticipates that on August 5, 2019, Mr. Steven Weiskircher will join the Company and be appointed as the Company’s Senior Vice President and Chief Technology Officer. Mr. Weiskircher, age 46, will report to Mr. William P. Angrick, III, the Company’s Chairman and Chief Executive Officer.
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As Senior Vice President and Chief Technology Officer, Mr. Weiskircher will lead the Company’s information technology activities. The Company looks forward to leveraging Mr. Weiskircher’s more than 18 years of experience in the information technology industry. Prior to joining the Company, Mr. Weiskircher worked for GameStop as Vice President, Omnichannel, Marketing, and Digital Technology Delivery from July 2018 through July 2019. Prior to that, Mr. Weiskircher worked for ThinkGeek as Chief Information Officer/Acting General Manager from February 2013 through July 2018. Mr. Weiskircher has also been employed as Chief Information Officer at Fanatics, Inc. and as Vice President, Information Technology at Crutchfield Corporation. Mr. Weiskircher served as a Captain in the U.S. Army Signal Corps.


Mr. Weiskircher holds a B.S. in Mechanical Engineering from Virginia Tech and a M.S. in Management Information Systems from the University of Virginia.

Mr. Weiskircher’s base salary will be $320,000 and his target bonus percentage will be 50% of his base salary. In connection with his appointment, Mr. Weiskircher will receive an award of 150,000 restricted stock units. Half (75,000) of the restricted stock units will vest, if at all, based on the Company’s achievement of total shareholder return (“TSR”) milestones. TSR is calculated based on the change in the Company’s stock price during the performance period. The other half (75,000) of the restricted stock units will vest over time, with 25% vesting on September 1, 2020 and an additional 25% vesting on each of September 1, 2021, 2022 and 2023, subject to Mr. Weiskircher’s continued employment with the Company. In addition to the initial equity award, Mr. Weiskircher will be eligible for a period of three (3) years for annual equity awards with an approximate value of $160,000. In subsequent years, Mr. Weiskircher will be eligible to receive additional long-term incentive compensation each year as approved by the Company’s Board of Directors. The Executive Employment Agreement by and between the Company and Mr. Weiskircher is attached hereto as Exhibit 10.3.

There are no family relationships between Mr. Weiskircher and any other director or executive officer of the Company. The Company had no transactions, and has no transaction proposed, in which Mr. Weiskircher, or any member of his immediate family, has a direct or indirect material interest.



Item 6. Exhibits.
 
Exhibit No.Description
2.1
3.1
3.2
10.131.1 
10.2
Retirement Agreement and General Release dated May 13, 2019 by and between Roger Gravley and the Company
10.3
Executive Employment agreement by and between the Company and Steven Weiskircher (filed herewith)
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2
32.1
32.2
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The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019,2020, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statement of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Unaudited Consolidated Financial Statements.
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)









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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 thereunto duly authorized.
 
LIQUIDITY SERVICES, INC.
(Registrant)
August 6, 2020By:/s/ William P. Angrick, III
William P. Angrick, III
Chairman of the Board of Directors
and Chief Executive Officer
August 6, 2020By:/s/ Jorge A. Celaya
Jorge A. Celaya
Executive Vice President and Chief Financial Officer
August 6, 2020LIQUIDITY SERVICES, INC.
By:(Registrant)
August 1, 2019By:/s/ William P. Angrick, III
William P. Angrick, III
Chairman of the Board of Directors
and Chief Executive Officer
August 1, 2019By:/s/ Jorge A. Celaya
Jorge A. Celaya
Executive Vice President and Chief Financial Officer
August 1, 2019By:/s/ Samuel M. Guzman, Jr.
Samuel M. Guzman, Jr.
Vice President and Chief Accounting Officer



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