What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-12-09 compared with 2020-12-08 · 262 added, 354 removed, 1171 unchanged (34% of the section changed)

14 unchanged sentences

This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the Chief Executive Officer and Chief Financial Officer, concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and Form 10-K.

components of our disclosure controls are also evaluated on an ongoing basis by our finance organization.

Many of the components of our disclosure controls are also evaluated on an ongoing basis by our finance organization.

The overall goals of these various evaluation activities are to monitor our disclosure controls, and to modify them as necessary.

23 unchanged sentences

During the three months ended September 30, 2021, 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 the COVID-19 pandemic and our actions taken in response, including terminations, furloughs and employees working remotely, have not materially affected our internal control over financial reporting as of September 30, 2020, we will continue to monitor and assess this ongoing situation for potential material effects.

Report of Independent Registered Public Accounting Firm

7 unchanged sentences

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Liquidity Services, Inc.

as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended September 30, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated December 8, 2020 expressed an unqualified opinion thereon.

as of September 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended September 30, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated December 9, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

19 unchanged sentences

Other Information.

Departure of Directors or Certain Officers;

Election of Directors;

Appointment of Certain Officers;

Compensatory Arrangements of Certain Officers.

The Board of Directors adopted an Annual Incentive Plan (the “Incentive Plan”) on December 2, 2020, which is effective as of October 1, 2020.

The Incentive Plan will be administered by the Compensation Committee or other committee appointed by the Board in accordance with the plan (the “Committee”).

Participation in the Incentive Plan is limited to certain eligible participants, including executive officers and certain other employees designated by the Committee.

The right to receive a bonus under the Incentive Plan depends on the achievement of specific performance goals, referred to as Management Objectives.

The Committee will establish the Management Objectives and amount of incentive bonus payable for a performance period.

Management Objectives may be described in terms of company-wide objectives or objectives that are related to the performance of the individual participant or of the subsidiary, division, department or function within the company or subsidiary in which the participant is employed.

The Management Objectives are limited to specified levels of growth in, or relative peer company performance in, one or more of the following:

(i) sales, including net sales, unit sales volume, and aggregate product price;

(ii) share price, including market price per share, and share price appreciation;

(iii) earnings, including earnings per share, reflecting dilution of shares, gross or pretax profits, post-tax profits, operating profit, contribution profit, gross profit, earnings net of or including dividends, earnings net of or including the after-tax cost of capital, earnings before (or after) interest and taxes (“EBIT”), earnings per share from continuing operations, diluted or basic, (xi) earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBIT or adjusted EBITDA, pre-tax operating earnings after interest and before incentives, service fees and extraordinary or special items, operating earnings, growth in earnings or growth in earnings per share, total earnings and operating income;

(iv) return on equity, including return on equity, return on invested capital, return or net return on assets, return on net assets, return on equity, return on gross sales, return on investment, return on capital, return on invested capital, return on committed capital, financial return ratios, value of assets, and change in assets;

(v) cash flow(s), including operating cash flow, net cash flow, free cash flow, cash flow on investment, levered free cash flow, and unlevered free cash flow;

(vi) revenue, including gross or net revenue, and changes in annual revenues;

(vii) margins, including adjusted pre-tax margin, and operating margins;

(viii) income, including net income, and consolidated net income;

(ix) economic value added;

(x) costs, including operating or administrative expenses, operating expenses as a percentage of revenue, general and administrative expenses as a percentage of revenue, expense or cost levels, reduction of losses, loss ratios or expense ratios, reduction in fixed costs, expense reduction levels, operating cost management, and cost of capital;

(xi) financial ratings, including credit rating, capital expenditures, debt, debt reduction, working capital, average invested capital, and attainment of balance sheet or income statement objectives;

(xii) market or category share, including market share, volume, unit sales volume, and market share or market penetration with respect to specific designated products or product groups and/or specific geographic areas;

(xiii) shareholder return, including total shareholder return, stockholder return based on growth measures or the attainment of a specified share price for a specified period of time, and dividends;

(xiv) objective nonfinancial performance criteria measuring either regulatory compliance, productivity and productivity improvements, inventory turnover, average inventory turnover or inventory controls, net asset turnover, customer satisfaction based on specified objective goals or company-sponsored customer surveys, employee satisfaction based on specified objective goals or company-sponsored employee surveys, objective employee diversity goals, employee turnover, specified objective environmental goals, specified objective social goals, specified objective goals in corporate ethics and integrity, specified

objective safety goals, specified objective business expansion goals or goals relating to acquisitions or divestitures, and succession plan development and implementation.

The Committee may, for a performance period, amend or adjust the applicable Management Objective(s) or other terms and conditions relating thereto in recognition of acquisitions or divestitures;

litigation or claim judgments or settlements;

unusual, nonrecurring or one-time events affecting us or our subsidiaries, our financial statements, or changes in law or accounting principles;

asset write downs;

capital charges;

costs and expenses;

reorganization and restructuring programs;

or similar non-GAAP adjustments.

The Committee will determine whether the Management Objectives have been achieved and the amounts payable following the end of the applicable performance period.

The Committee will also have the ability to modify such amounts payable in its discretion.

The Committee may amend the Incentive Plan from time to time and the Incentive Plan will remain effective until otherwise terminated by the Board.

The foregoing summary is qualified by reference to the full text of the Incentive Plan, a copy of which is attached hereto as Exhibit 10.20, and is incorporated herein by reference.

On December 6, 2021, the Company's Board of Directors authorized the repurchase of up to $ 20.0 million of the Company's outstanding shares of common stock through December 31, 2023.

The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and the existence of alternative investment opportunities.

The repurchase program will be executed consistent with the Company's capital allocation strategy of prioritizing investment to grow the business over the long term.

Under the repurchase program, repurchases can be made from time to time using a variety of methods, including open market purchases, all in compliance with the rules of the United States Securities and Exchange Commission (the “SEC”) and other applicable legal and regulatory requirements.

The repurchase program does not obligate the Company to acquire any particular amount of common shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

Directors, Executive Officers and Corporate Governance.

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Consolidated Statements of Operations for the years ended September 30, 202 1 , 20 20 and 20 19

Consolidated Statements of Comprehensive Loss for the years ended September 30, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income ( Loss ) for the years ended September 30, 202 1 , 20 20 and 201 9

Consolidated Statements of Stockholders' Equity for the years ended September 30, 202 1 , 20 20 and 2 019

11 unchanged sentences

We have audited the accompanying consolidated balance sheets of Liquidity Services, Inc.

and Subsidiaries (the Company) as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended September 30, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

and Subsidiaries (the Company) as of September 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended September 30, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2021, in conformity with U.S.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Valuation Allowance

Description of the Matter As described in Note 10 to the consolidated financial statements, at September 30, 2021, the Company had deferred tax assets related to deductible temporary differences and carryforwards of $54.3 million, net of a $13.8 million valuation allowance.

Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

During the year ended September 30, 2021, the Company reduced its valuation allowance by $27.9 million as a result of a change in its estimate of forecasted future taxable income.

Auditing management’s assessment of the realizability of its deferred tax assets involved complex auditor judgment because management’s estimate of future taxable income is highly judgmental as it requires the evaluation of positive and negative evidence of realization, including the consideration of historical operating losses, and is based on assumptions that may be affected by future performance, market or economic conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the realizability of deferred tax assets.

This included controls over management’s scheduling of the future reversal of existing taxable temporary differences, identification and use of available tax planning strategies and projections of future taxable income.

To test the Company’s assessment of the realizability of its deferred tax assets, our substantive audit procedures included, among others, testing the Company’s scheduling of the reversal of existing temporary taxable differences.

We evaluated the assumptions used by the Company to develop projections of future taxable income by jurisdiction and tested the completeness and accuracy of the underlying data used in its projections.

For example, we compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends.

We also assessed the historical accuracy of management’s projections and compared the projections of future taxable income with other forecasted financial information prepared by the Company.

We further evaluated management’s sensitivity analyses of the significant assumptions to consider the changes in realizability of deferred tax assets that would result from changes in the assumptions.

In addition, we evaluated the adequacy of the Company’s financial statement disclosures.

/s/ Ernst & Young LLP

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Cash and cash equivalents $ 106,335 $ 76,036

Short-term investments — 30,000

Accounts receivable, net of allowance for doubtful accounts of $ 490 and $ 389

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Current portion of operating lease liabilities 4,250 3,818

Distributions payable — 1,675

Deferred revenue 4,624 3,255

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Total liabilities 120,561 84,819

Commitments and contingencies (Notes 9 and 16)

Commitments and contingencies (Note 15)

Stockholders' equity:

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2,222,083 shares at September 30, 2021 and 547,508 shares at September 30, 2020

( 36,628 ) ( 3,983 )

Accumulated other comprehensive loss ( 9,011 ) ( 9,782 )

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Total costs and expenses 230,363 209,837 246,033

Loss from operations ( 3,897 ) ( 19,508 ) ( 21,728 )

Income (loss) from operations 27,168 ( 3,897 ) ( 19,508 )

Interest and other income, net ( 411 ) ( 924 ) ( 1,448 )

Loss before provision for income taxes ( 2,973 ) ( 18,060 ) ( 20,943 )

Provision (benefit) for income taxes 801 1,200 ( 9,328 )

Net loss $ ( 3,774 ) $ ( 19,260 ) $ ( 11,615 )

Basic and diluted loss per common share $ ( 0.11 ) $ ( 0.58 ) $ ( 0.36 )

Basic and diluted weighted average shares outstanding 33,612,263 33,062,976 32,095,491

Income (loss) before income taxes 27,579 ( 2,973 ) ( 18,060 )

(Benefit) provision for income taxes ( 23,370 ) 801 1,200

Net income (loss) $ 50,949 $ ( 3,774 ) $ ( 19,260 )

Basic income (loss) per common share $ 1.53 $ ( 0.11 ) $ ( 0.58 )

Diluted income (loss) per common share $ 1.45 $ ( 0.11 ) $ ( 0.58 )

Basic weighted average shares outstanding 33,333,557 33,612,263 33,062,976

Diluted weighted average shares outstanding 35,024,108 33,612,263 33,062,976

See accompanying notes to the consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Income (Loss)

(Dollars In Thousands)

1 unchanged sentence

2021 2020 2019

Net loss $ ( 3,774 ) $ ( 19,260 ) $ ( 11,615 )

Net income (loss) $ 50,949 $ ( 3,774 ) $ ( 19,260 )

Other comprehensive (loss) income:

Defined benefit pension plan—unrecognized amounts, net of taxes 170 ( 2,293 ) ( 540 )

Foreign currency translation 484 ( 984 ) ( 791 )

Other comprehensive (loss) income, net of taxes ( 1,809 ) ( 1,524 ) ( 18 )

Comprehensive loss $ ( 5,583 ) $ ( 20,784 ) $ ( 11,633 )

Foreign currency translation, net of taxes 601 484 ( 984 )

Other comprehensive income (loss), net of taxes 771 ( 1,809 ) ( 1,524 )

Comprehensive income (loss) $ 51,720 $ ( 5,583 ) $ ( 20,784 )

See accompanying notes to the consolidated financial statements.

10 unchanged sentences

Balance at September 30, 2018 32,774,118 $ 33 $ 236,115 — — $ ( 6,449 ) $ ( 100,045 ) $ 129,654

Exercise of common stock options and vesting of restricted stock 973,755 1 403 — — — — 404

Compensation expense and incremental tax benefit from grants of common stock options and restricted stock — — 6,346 — — — — 6,346

Issuance of common stock for acquisition activity 297,014 3 2,002 — — — — 2,005

Cumulative adjustment related to adoption of ASU 2016-09 — — 100 — — — ( 207 ) ( 107 )

Net Loss — — — — — — ( 19,260 ) ( 19,260 )

Exercise of common stock options and vesting of restricted stock 953,066 1 589 — — — — 590

Tax settlements associated with stock compensation expense ( 6,906 ) — ( 44 ) — — — — ( 44 )

Forfeiture of restricted stock awards ( 33,163 ) — — — — — — —

Stock compensation expense — — 6,026 — — — — 6,026

Cumulative adjustment related to adoption of ASC 606 — — — — — — 730 730

Defined benefit pension plan—unrecognized amounts, net of taxes — — — — — ( 540 ) — ( 540 )

1 unchanged sentence

Balance at September 30, 2019 33,687,115 $ 34 $ 242,686 — — $ ( 7,973 ) $ ( 118,572 ) $ 116,175

Exercise of common stock options, grants of restricted stock awards, and vesting of restricted stock units 953,066 1 589 — — — — 590

Taxes paid associated with net settlement of stock compensation awards ( 6,906 ) — ( 44 ) — — — — ( 44 )

Net Loss — — — — — — ( 3,774 ) ( 3,774 )

Exercise of common stock options and vesting of restricted stock 494,683 — 111 — — — — 111

Tax settlements associated with stock compensation expense ( 84,392 ) — ( 594 ) — — — — ( 594 )

Forfeiture of restricted stock awards ( 15,000 ) — — — — — — —

Common stock repurchases — — — ( 547,508 ) ( 3,983 ) — — ( 3,983 )

Stock compensation expense — — 5,689 — — — — 5,689

Cumulative adjustment related to adoption of ASC 606 — — — — — — 730 730

Net loss — — — — — ( 19,260 ) ( 19,260 )

Defined benefit pension plan—unrecognized amounts, net of taxes — — — — — ( 2,293 ) — ( 2,293 )

1 unchanged sentence

Balance at September 30, 2020 34,082,406 $ 34 $ 247,892 ( 547,508 ) $ ( 3,983 ) $ ( 9,782 ) $ ( 122,346 ) $ 111,815

Common stock repurchases — — — ( 547,508 ) ( 3,983 ) — — ( 3,983 )

Net income — — — — — — 50,949 50,949

Exercise of common stock options, grants of restricted stock awards, and vesting of restricted stock units 1,605,618 1 444 — — — — 445

Taxes paid associated with net settlement of stock compensation awards ( 217,196 ) — ( 3,915 ) — — — — ( 3,915 )

Common stock repurchases — — — ( 1,591,963 ) ( 31,143 ) — — ( 31,143 )

Common stock surrendered in the exercise of stock options — — 1,502 ( 82,612 ) ( 1,502 ) — — —

Forfeiture of restricted stock awards ( 13,733 ) — — — — — — —

Stock compensation expense — — 6,094 — — — — 6,094

Net loss — — — — — — ( 3,774 ) ( 3,774 )

Defined benefit pension plan—unrecognized amounts, net of taxes — — — — — 170 — 170

9 unchanged sentences

Operating activities

Net loss $ ( 3,774 ) $ ( 19,260 ) $ ( 11,615 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Net income (loss) $ 50,949 $ ( 3,774 ) $ ( 19,260 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 6,969 6,290 5,091

Change in fair value of earnout liability 200 3,500 100

Change in fair value of earn-out liability — 200 3,500

Stock compensation expense 6,947 5,660 6,508

1 unchanged sentence

Provision for doubtful accounts 297 200 178

Deferred tax expense (benefit) 106 136 ( 10,945 )

Change in fair value of financial instruments — — 90

Gain on disposal of property and equipment ( 29 ) ( 15 ) ( 480 )

Deferred tax (benefit) expense ( 24,510 ) 106 136

Impairment of long-lived and other non-current assets 1,338 — —

Loss (gain) on disposal of property and equipment 80 ( 29 ) ( 15 )

Gain on disposal of lease assets ( 23 ) — —

Changes in operating assets and liabilities:

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Maturities of short-term investments — 55,000 60,000

Cash paid for business acquisition, net of cash acquired — — ( 16,673 )

Net cash provided by (used in) investing activities 28,647 ( 15,714 ) ( 37,054 )

Net cash (used in) provided by investing activities ( 1,004 ) 28,647 ( 15,714 )

Financing activities

2 unchanged sentences

Taxes paid associated with net settlement of stock compensation awards ( 3,915 ) ( 594 ) ( 44 )

Payment of earnout liability related to business acquisition ( 1,200 ) — —

Payment of earn-out liability related to business acquisition — ( 1,200 ) —

Common stock repurchases ( 31,143 ) ( 3,983 ) —

5 unchanged sentences

Supplemental disclosure of cash flow information

Earnout liability for acquisition activity $ — $ — $ 1,200

Issuance of common stock for acquisition activity — — 2,005

Cash paid (received for) for income taxes, net of refunds 1,442 ( 1,519 ) 1,008

Common stock surrendered in the exercise of stock options 1,502 — —

See accompanying notes to the consolidated financial statements.

3 unchanged sentences

Liquidity Services, Inc.

(the Company) operates a network of e-commerce marketplaces that enable buyers and sellers to transact in an efficient, automated environment offering over 500 product categories.

The Company’s marketplaces provide professional buyers access to a global, organized supply of new, surplus and idle assets presented with digital images and other relevant product information.

Additionally, the Company enables corporate and government sellers 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's services include program management, valuation, asset management, reconciliation, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, compliance and risk mitigation, as well as self-directed service 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, heavy equipment, fleet and transportation equipment and specialty equipment.

The Company’s marketplaces are:

www.allsurplus.com, www.liquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.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 four reportable segments:

(the Company) is a leading global commerce company providing trusted marketplace platforms that power the circular economy.

We create a better future for organizations, individuals, and the planet by capturing and unleashing the intrinsic value of surplus.

We connect millions of buyers and thousands of sellers through our leading auction marketplaces, search engines, asset management software, and related services.

Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items owned by business and government sellers.

We believe our ability to create liquid marketplaces for surplus and idle assets generates a continuous flow of goods from our sellers.

This valuable and reliable flow of goods, in turn, attracts an increasing number of buyers to our marketplaces.

Increasing numbers of buyers to our marketplaces, in turn, attracts more sellers to our marketplaces which, in turn, reinforces a valuable and reliable flow of surplus assets.

Results from our operations are organized into four reportable segments:

Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals, and Machinio.

See Note 17 for Segment Information.

See Note 16 to the Consolidated Financial Statements for Segment Information.

We were incorporated in Delaware in November 1999 as Liquidation.com, Inc.

and commenced operations in early 2000.

On November 1, 2021, we acquired Bid4Assets.

(Bid4Assets), a Maryland corporation based in Silver Spring, MD.

Bid4Assets auctions distressed real estate for the federal government, sheriffs, county-tax collectors, financial institutions, and real estate funds.

See Note 17 - Subsequent Events for more information regarding this transaction.

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;

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The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts in the consolidated financial statements and accompanying notes.

For the year ended September 30, 2020, these estimates required the Company to make assumptions about the extent and duration of the 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 will continue to update its assumptions as conditions change.

Actual results could differ from those estimates.

For the year ended September 30, 2021, these estimates required the Company to make assumptions about the extent and duration of restrictions on cross-border transactions and the impact of the COVID-19 pandemic on macroeconomic conditions and, in turn, the Company's results of operations.

As there remains uncertainty associated with the Pandemic, the Company will continue to update its assumptions as conditions change.

Actual results could differ significantly from those estimates.

Principles of Consolidation and Basis of Presentation

1 unchanged sentence

All intercompany balances and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.

In addition, in the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation of the results for the periods presented have been included.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Business Combinations

6 unchanged sentences

All other changes in valuation allowances are recognized as a reduction or increase to income tax expense or as a direct adjustment to additional paid-in capital as required.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Cash and Cash Equivalents

The Company considers all highly liquid securities purchased with an initial maturity of three months or less to be cash equivalents.

Short-term Investments

The Company's short-term investments at September 30, 2019 consisted of various certificates of deposit with maturities of six months or less with interest rates between 1.97 % and 2.50 %.

Accounts Receivable

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Prepaid expenses and other current assets

Prepaid expenses and other current assets includes the short-term portion of a promissory note (described in "Other Assets"), as well as other miscellaneous prepaid expenses.

Prepaid expenses and other current assets include the short-term portion of a promissory note (described in "Other Assets"), as well as other miscellaneous prepaid expenses.

On September 30, 2015, the Company sold certain assets related to its Jacobs Trading business to Tanager Acquisitions, LLC ("Tanager").

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Upon execution of the Forbearance Agreement, JTC repaid $ 2.5 million in principal, plus $ 0.4 million of 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 initially owed to the Company in conjunction with the sale of the Jacobs Trading business, $ 6.9 million of principal has been repaid as of September 30, 2020.

Of the $ 5.4 million in principal outstanding at September 30, 2020, $ 3.8 million was recorded in Other assets, and $ 1.6 million in Prepaid expenses and other current assets based on the scheduled repayment dates.

As of March 31, 2021, JTC had repaid $ 7.7 million of the $ 12.3 million owed to the Company and had an outstanding principal balance of $ 4.6 million.

On May 12, 2021, the Company entered into the First Amendment to the Forbearance Agreement with JTC, providing JTC with full satisfaction and discharge from its indebtedness upon receipt of a $ 3.5 million payment made on May 17, 2021.

As a result, the Company recorded a $ 1.1 million loss as component of Other operating expenses in its Consolidated Statement of Operations during the year ended September 30, 2021, representing the difference between the $ 4.6 million outstanding balance of principal and accrued interest and the $ 3.5 million payment received.

Liquidity Services, Inc.

11 unchanged sentences

Land Not depreciated

(1) As part of our reassessment of the estimated useful lives of our property and equipment, our estimate of the useful life of internally developed software for internal-use changed from seven years to five years in the fourth quarter of the year ended September 30, 2019.

This change in estimate was applied prospectively and it increased amortization expense by $ 0.1 million for the year ended September 30, 2019 and $ 0.7 million for the year ended September 30, 2020.

The Company determines if an arrangement is a lease upon inception.

18 unchanged sentences

If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets.

No impairment charges were recorded during the years ended September 30, 2020 and 2019 and 2018.

The Company did no t record impairment charges on material long-lived assets during the years ended September 30, 2021, 2020, and 2019.

Liquidity Services, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Continued)

Goodwill represents the costs in excess of the fair value of net assets acquired through acquisitions by the Company.

The Company reviews goodwill for impairment annually on July 1, or more frequently if events or circumstances indicate impairment may exist.

6 unchanged sentences

If, instead, the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in the amount of the excess carrying value.

Under previous accounting guidance applied to goodwill impairment tests performed in fiscal 2018 and prior, a second step was required.

The second step involved comparing the carrying amount of a reporting unit's goodwill to the implied fair value of its goodwill, and recognizing an impairment loss in the amount that the carrying amount of goodwill exceeded the implied fair value of goodwill.

Deferred Revenue

Deferred revenue is primarily derived from Machinio and MachineryHost subscriptions that range from one to forty months .

Deferred revenue is primarily derived from Machinio Advertising and System subscriptions that range from one to forty months.

Subscription fees are recognized ratably over the term of the agreements.

Short-Term Borrowings

The Company may enter into collateralized short-term borrowing agreements with banks to facilitate certain international transactions conducted under the purchase model.

During the year ended September 30, 2019, the Company borrowed and fully repaid its borrowings under such arrangements.

No short-term debt was outstanding as of September 30, 2020 and 2019.

Revenue Recognition

In the Consolidated Statements of Operations, revenue from the resale of inventory that the Company purchases from sellers is recognized within Revenue.

Revenue from the sale of inventory that the Company sells on a consignment basis, and other non-consignment fee revenue, which includes Machinio's sales listing subscription service, service revenue from the Surplus Contract (defined below), as well as other services including returns management and refurbishment of assets, is recognized within Fee Revenue.

Revenue from the sale of inventory that the Company sells on a consignment basis, and other non-consignment fee revenue, which includes Machinio's sales listing subscription service as well as other services including returns management and refurbishment of assets, is recognized within Fee Revenue.

The Company adopted the Financial Accounting Standard Board's (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) effective October 1, 2018.

14 unchanged sentences

rather, it is a purchase of inventory.

When the Company is acting as an agent (a “consignment” arrangement), its performance obligation is

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.

Liquidity Services, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Continued)

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, refurbishment of assets, or valuation services.

32 unchanged sentences

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 $ 3.0 million as of September 30, 2019, and $ 3.3 million as of September 30, 2020 and is included in the line item

The contract liability balance was $ 3.3 million as of September 30, 2020, and $ 4.6 million as of September 30, 2021 and is included in the line item Deferred revenue on the consolidated balance sheets.

Of the September 30, 2020 contract liability balance, $ 3.2 million was earned as Fee Revenue during the year ended September 30, 2021.

Liquidity Services, Inc.

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Notes to Consolidated Financial Statements (Continued)

Deferred revenue on the consolidated balance sheets.

Of the September 30, 2019 contract liability balance, $ 3.0 million was earned as Fee Revenue during the year ended September 30, 2020.

Contract Costs

Contract costs relate to sales commissions paid on consignment contracts that are capitalized.

Contract costs relate to sales commissions paid on subscription contracts that are capitalized within our Machinio segment.

Contract costs are amortized over the expected life of the customer contract.

The contract cost balance was $ 1.6 million as of September 30, 2021 and $ 0.7 million as of September 30, 2020 and is included in the line item Prepaid expenses and other current assets and Other assets on the consolidated balance sheet.

Amortization expense was immaterial during the year ended September 30, 2020.

Amortization expense was $ 0.7 million during the year ended September 30, 2021 and was $ 0.4 million during the year ended September 30, 2020 .

Risk Associated with Certain Concentrations

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The amount of cash held on behalf of the sellers is recorded as Payables to sellers in the accompanying Consolidated Balance Sheets.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of Cash and cash equivalents in banks over FDIC limits, Short-term investments, and Accounts receivable.

The Company deposits its Cash and cash equivalents with and acquires Short-term investments from financial institutions that the Company considers to be of high credit quality.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash in banks and cash equivalent money market funds in accounts which may at times exceed federally insured limits (FDIC and/or SIPC), and Accounts receivable.

The Company deposits its cash and acquires cash equivalent money market funds with financial institutions that the Company considers to be of high credit quality.

Additionally, the Company has multiple vendor contracts with Amazon.com, Inc.

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This contract is included within the RSCG segment.

During the years ended September 30, 2019 and 2018, the Company had two material vendor contracts with the Department of Defense (DoD) under which it acquired, managed and sold government property.

Revenue from the sale of property acquired, as well as provision of services, under the Surplus Contract accounted for 0 % and 12.4 % of the Company's consolidated revenue for the years ended September 30, 2019 and 2018, respectively.

Revenue from the sale of property acquired under the Scrap Contract accounted for 7.4 % and 10.2 % of the Company's total revenue for the years ended September 30, 2019 and 2018, respectively.

These contracts are included within the Company's CAG segment.

See Note 3, Significant Contracts, for further information related to the Scrap and Surplus Contracts.

The Company accounts for income taxes using an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and income tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which the taxes are expected to be paid or recovered.

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Accounting Standards Codification (ASC) 740 states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of technical merits.

During the year ended September 30, 2020 , the Company recorded a benefit of $ 0.2 million for the reversal of an unrecognized tax benefit related to foreign operations.

The Company’s policy is to recognize interest and penalties in the period in which they occur in the income tax provision.

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The awards issued can contain service conditions, performance conditions based upon Company financial results, and/or market conditions based upon changes in the Company's stock price.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Service- and performance-based stock awards are measured at fair value on their grant date.

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The Black-Scholes option-pricing model includes assumptions for the expected term, volatility, and dividend yield, each of which are determined in reference to the Company's historical results.

Where applicable, the expected term assumption is derived separately for homogenous groups within overall award population.

Restricted stock units and restricted stock awards are measured at fair value using the closing price of the Company's stock on the grant date.

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For performance-based stock awards, the Company recognizes expense on a straight-line basis over the derived service period expected to be required to achieve the performance condition.

The Company records a cumulative adjustment to compensation expense for performance-based awards if there is a change in determination of whether it is probable that the performance condition will be achieved.

The Company records a cumulative adjustment to compensation

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

expense for performance-based awards if there is a change in determination of whether it is probable that the performance condition will be achieved.

Market-based stock awards are measured at fair value on their grant date using a Monte Carlo simulation.

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The Company recognizes the impact of forfeitures in the period they occur.

This policy was adopted in the first quarter of 2018 due to the adoption of ASU 2016-09 , which resulted in a $ 0.2 million retained earnings adjustment as of October 1, 2017.

Compensation expense from the stock awards is included in the same lines on the consolidated statements of operations as the cash compensation to the employees receiving the stock awards.

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Balance at September 30, 2021 $ ( 7,484 ) $ ( 1,527 ) $ ( 9,011 )

Net Loss Per Share (EPS)

The Company calculates basic EPS by dividing net loss by the weighted-average number of common shares outstanding during the reporting period, excluding unvested restricted stock awards.

The Company calculates diluted EPS giving effect to potentially dilutive common shares using the treasury stock method.

The Company's potentially dilutive common shares include stock options, restricted stock units, and restricted stock awards.

For such awards that have performance- or market-conditions, they are considered only when those performance- or market-conditions have been satisfied as of the reporting date.

However, in periods of a net loss, the Company's diluted EPS will equal its basic EPS, as all its potential common shares are anti-dilutive in that case.

For the years ended September 30, 2020, 2019 and 2018, the Company operated at a net loss, and basic and diluted weighted average common shares were the same because the inclusion of potentially dilutive common shares would have been anti-dilutive.

See Note 12 for outstanding stock options, restricted stock units, and restricted stock awards, all of which are anti-dilutive as of September 30, 2020.

Net Income (Loss) Per Share (EPS)

See discussion of our Net income (loss) per share (EPS) determination and related calculations below at Note 3 Earnings Per Share .

Recent Accounting Pronouncements

Accounting Standards Adopted

On October 1, 2019, the Company adopted ASC 842 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 also elected to combine both the lease and non-lease components as a single component to be accounted for as a lease, to not recognize lease assets or liabilities for leases with initial lease terms of 12 months or less, and to not use hindsight when determining the lease term.

Upon adoption, the Company recognized $ 11.3 million of operating 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 Consolidated Statements of Operations or Consolidated Statements of Cash Flows.

Refer to Note 6 for additional details on the Company’s leases.

On October 1, 2019, the Company adopted ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income .

As the Company had no stranded tax effects resulting from the Tax Cuts and Jobs Act enacted on

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

December 22, 2017, no election to reclassify stranded tax effects from Accumulated other comprehensive to Retained earnings was made.

The Company also adopted the following ASU 2018-07, Improvements to Nonemployee Share-based Payment Accounting, during the year ended September 30, 2020.

It did not have a significant impact on the consolidated financial statements or the related footnote disclosures.

On October 1, 2020, the Company adopted ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract .

This accounting standard has not had a material impact on the Company's consolidated financial statements as no significant implementations of cloud computing arrangements have occurred since adoption.

Accounting Standards Not Yet Adopted

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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, Cash equivalents, 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 .

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 does not expect that the adoption of this ASU will have an immediate material impact on its consolidated financial statements.

Material impacts could be experienced if and when the Company implements cloud computing arrangements in the future.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes .

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The ASU will become effective for the Company beginning October 1, 2021.

The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.

DoD Contracts with DLA Disposition Services

Historically, the Company had two material vendor contracts with the DoD, the Scrap Contract and the Surplus Contract.

Under the Scrap Contract, which concluded on September 30, 2019, the Company was 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 Company paid 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 bore all of the costs for the sorting, merchandising and sale of the property.

Revenue from the Scrap Contract accounted for 7.4 % and 10.2 % of the Company's consolidated revenue for the years ended September 30, 2019 and 2018 , respectively.

Under the Surplus Contract, which concluded on June 30, 2018, the Company managed and sold usable DoD surplus personal property turned into the DLA.

Surplus property generally consisted of items the DoD determined were no longer needed, and not claimed for reuse by any federal agency, such as consumer 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.

The Company retained 100 % of the profits from the resale of the property and bore all of the costs for the merchandising and sale of the property.

Revenue from the Surplus Contract accounted for 12.4 % of the Company's consolidated revenue for the year ended September 30, 2018.

On July 10, 2018, the Company acquired 100 % of the issued and outstanding capital stock of Machinio.

Machinio operates a global online platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors.

The reason for the acquisition was to expand the services and channels the Company offers to its sellers, and to grow the Company's network of buyers.

For segment reporting purposes, Machinio is a separate reportable segment.

The Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.

Liquidity Services, Inc.

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Notes to Consolidated Financial Statements (Continued)

The consideration paid to the Sellers for the acquisition of Machinio equity was $ 19.9 million in cash, earn-out consideration, and Company equity, including the acquisition of Machinio cash of $ 1.5 million at the closing and a closing working capital purchase price adjustment (for a net cash consideration of $ 16.7 million).

Shares of restricted stock of the Company issued in a private placement to Machinio executives in exchange for their shares of Machinio stock valued at $ 2.0 million were included in the consideration.

In addition, the Machinio sellers are eligible to receive earn-out consideration up to $ 5.0 million, based upon Machinio's adjusted EBITDA performance for the calendar year ended December 31, 2019.

The earn-out consideration was valued at $ 1.2 million at the acquisition date.

The earn-out consideration was subject to fair value measurement each reporting period until it was settled in fiscal 2020, see Note 13 for further details.

In connection with the acquisition, the Company issued restricted stock units and restricted stock awards valued at $ 4.7 million in the aggregate to Machinio’s executives and employees.

The restricted stock units and restricted stock awards are subject to performance-based vesting, based upon Machinio's 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 on such vesting dates and other standard terms and conditions set forth in the respective grant agreements.

Under the acquisition method of accounting, the total estimated purchase price is allocated to Machinio's net tangible and intangible assets acquired based on their estimated fair values as of July 10, 2018.

Based on management's valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, goodwill of $ 14.6 million was recorded, of which zero is deductible for tax purposes.

The purchase price was allocated as follows:

Consideration Amount

(in thousands)

Other Current Assets $ 106

Goodwill 14,558

Customer relationships intangible asset 3,100

Developed technology intangible asset 2,700

Trade name intangible asset 1,500

Property and equipment and other long-term assets 252

Liabilities excluding deferred revenue ( 956 )

Deferred revenue ( 1,400 )

Total consideration $ 19,860

Related to the recognition of intangible assets for customer relationships, developed technology, and trade name, as well as the earn-out consideration and deferred revenue, certain nonrecurring fair value measurements were performed as of the acquisition date under the provisions of ASC 805.

The fair value measurements were classified as Level 3 assets within the fair value hierarchy under the provisions of ASC 820 and ASC 805.

The significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy were discount rates ranging from 30 % to 35 % for the identifiable intangible assets and deferred revenue and 12 % to 17 % for the contingent consideration.

The valuation processes used included the relief from royalty method and the multi-period excess earnings method for the identifiable intangible assets, cost to fulfill method for the deferred revenue, and a Monte Carlo simulation to estimate the fair value of the contingent consideration.

The net sales and operating losses of Machinio included within the Consolidated Financial Statements since the date of acquisition was $ 0.7 million and $( 0.9 ) million for the year ended September 30, 2018.

Earnings Per Share

The Company calculates basic EPS by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period, excluding unvested restricted stock awards.

The Company calculates diluted net income (loss) per share by dividing net income (loss) by the weighted-average number of common shares and potentially dilutive common shares outstanding during the reporting period using the treasury stock method.

The Company's potentially dilutive common shares include stock options, restricted stock units, and restricted stock awards.

For such awards that have performance- or market-conditions, they are considered dilutive only when those performance- or market-conditions have been satisfied as of the reporting date.

However, in periods of a net loss, the Company's diluted EPS will equal its basic EPS, as all its potential common shares are anti-dilutive in that case.

In periods of net income, t he calculation of diluted net income per share will exclude all anti-dilutive common shares.

The computation of basic and diluted net income per share is as follows:

Year Ended September 30,

2021 2020 2019

Net income (loss) $ 50,949 $ ( 3,774 ) $ ( 19,260 )

Basic weighted average shares outstanding 33,333,557 33,612,263 33,062,976

Dilutive impact of stock options, RSUs and RSAs 1,690,551 — —

Diluted weighted average shares outstanding 35,024,108 33,612,263 33,062,976

Basic income (loss) per common share $ 1.53 $ ( 0.11 ) $ ( 0.58 )

Diluted income (loss) per common share $ 1.45 $ ( 0.11 ) $ ( 0.58 )

Stock options, RSUs and RSAs excluded from income (loss) per diluted share because their effect would have been anti-dilutive

420,454 3,526,055 4,621,199

DoD Contract with DLA Disposition Services

During the year ended September 30, 2019, the Company had a material vendor contract with the Department of Defense (DoD), the Scrap Contract, which concluded on September 30, 2019.

Under the Scrap Contract, the Company was 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.

Revenue from the Scrap Contract accounted for 7.4 % of the Company's consolidated revenue for the year ended September 30, 2019.

Liquidity Services, Inc.

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Notes to Consolidated Financial Statements (Continued)

The following pro-forma financial information presents the Company's results as if the acquisition had occurred on October 1, 2016:

Year Ended September 30, 2018

(in thousands)

Revenue $ 228,484

Net loss $ ( 12,857 )

This pro-forma information includes nonrecurring adjustments for the amortization of intangible assets and the recognition of deferred revenue.

Property and Equipment

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Included in those amounts is amortization of internally developed software for internal-use of $ 3.9 million, $ 2.9 million and $ 1.2 million, respectively.

There were no property and equipment impairment charges for the years ended September 30, 2020, 2019 and 2018.

The Company did no t record impairment charges on material property and equipment during the years ended September 30, 2021, 2020 and 2019.

The Company has operating leases for its corporate offices, warehouses, vehicles and equipment.

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The Company's finance leases and related balances are not significant.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

The components of lease expense are:

(in thousands) Year ended September 30, 2020

September 30,

(in thousands)

Finance lease – lease asset amortization $ 54 $ 69

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Operating lease cost 5,139 5,264

Operating lease impairment expense 172 —

Short-term lease cost 242 125

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Maturities of lease liabilities are:

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

September 30, 2021

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2024 2,445 30

2025 1,441 30

Thereafter 212 12

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(2) The weighted average discount rate is 6.5 % for operating leases and 6.7 % for finance leases.

Additionally, the Company has approximately $ 1.9 million of future payment obligations related to an executed warehouse lease agreement that has not yet commenced as of September 30, 2021 .

Supplemental disclosures of cash flow information related to leases are:

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adjustments to lease assets and liabilities 3,756 3,942

(1) Amount includes $ 12.2 million of lease liabilities recognized upon the adoption of ASC 842 on October 1, 2019 (see Note 2).

(1) Year ended September 30, 2020 a mount includes $ 12.2 million of lease liabilities recognized upon the adoption of ASC 842 on October 1, 2019 (see Note 2).

Liquidity Services, Inc.

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Balance at September 30, 2018 $ 21,530 $ 23,731 $ 14,558 $ 59,819

Business acquisition — — 14,558 14,558

Translation adjustments ( 352 ) — — ( 352 )

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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 was available at the time.

The DCF analysis also used included significant assumptions and judgments about long-term growth rates and discount rates.

As of March 31, 2020, the fair value of the GovDeals reporting unit was substantially in excess of its carrying value, and the fair value of the CAG and Machinio reporting units exceeded their carrying values by 21 % and 12 %, respectively.

No impairment charge was recorded as a result of the interim goodwill impairment test.

As of July 1, 2020, the Company performed its annual impairment testing using a fair-value based test for all reporting units with goodwill balances.

As there were favorable developments in the factors that indicated a goodwill impairment test was necessary as of March 31, 2020, the fair values of each of our reporting units with goodwill balances was higher as of July 1, 2020 than on March 31, 2020, and the fair values of each of those reporting units exceeded their carrying values by at least 20 %.

No impairment charge was recorded as a result of the annual test.

However, given the uncertainty associated with the COVID-19 pandemic, including its extent and duration, actual results could differ significantly from the assumptions made in these goodwill impairment tests.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Pursuant to ASC 350, Goodwill and Other , the Company may utilize the optional qualitative assessment for its reporting units.

The qualitative assessment considers trends in macroeconomic conditions, industry and market conditions, cost factors, and overall performance of the reporting unit.

After assessing the totality of these factors and trends, if it is determined that it is more likely than not that the fair value of the reporting unit exceeds its carrying value, then no further steps are required.

If not however, then the Company will perform the quantitative impairment test.

As of July 1, 2021, the Company performed its annual impairment test using the optional qualitative assessment for each of our reporting units.

For each of our reporting units, based upon the significance of positive indicators identified through our assessment of qualitative evidence, we concluded that it was more likely than not that the fair value of each reporting unit exceeded their carrying amounts.

The Company did no t record impairment charges on goodwill during the years ended September 30, 2021, 2020 and 2019.

Intangible Assets

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Total $ 3,453

Amortization expense related to intangible assets for the years ended September 30, 2020, 2019 and 2018 was $ 1.3 million, $ 1.3 million and $ 0.4 million, respectively.

Impairment Analysis

The factors associated with the COVID-19 pandemic discussed in Note 7 also indicated that an interim long-lived asset impairment test was necessary during the three months ended March 31, 2020.

For each asset group, the Company performed an undiscounted cash flow analysis that relies on significant assumptions and judgments surrounding the forecasts of future cash flows over each asset group's projection period.

These forecasts of future cash flows represent the Company's best estimate using information that was available at the time.

For each asset group, the undiscounted cash flows exceeded the asset group's carrying value as of March 31, 2020.

No impairment charge was recorded as a result of the interim long-lived asset impairment test.

However, given the uncertainty associated with the COVID-19 pandemic, including its extent and duration, actual results could differ significantly from the assumptions made in this test.

The Company has continued to evaluate the impact of the COVID-19 pandemic on the recoverability of its long-lived assets.

As there have been favorable developments in the factors that previously indicated that a long-lived asset impairment test was necessary as of March 31, 2020, the Company did not identify any indicators of impairment that required an additional long-lived asset impairment test during the year ended September 30, 2020.

The Company did no t record intangible asset impairment charges during the years ended September 30, 2020, 2019 and 2018.

Commitments and Contingencies

The Company leases certain office space and equipment under non-cancelable operating lease agreements, which expire at various dates through 2026.

Certain of the leases contain escalation clauses and provide for the pass-through of increases in operating expenses and real estate taxes.

Rent related to leases that have escalation clauses is recognized on a straight-line basis.

Resulting deferred rent charges are included in other long-term liabilities and were $ 0.4 million at September 30, 2019.

Liquidity Services, Inc.

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Notes to Consolidated Financial Statements (Continued)

Future minimum payments under the leases as of September 30, 2019, are as follows:

Year Ending September 30, Operating

Payments Capital

Payments Total

(in thousands)

2020 $ 5,572 $ 52 $ 5,624

2021 3,551 53 $ 3,604

2022 2,279 53 $ 2,332

2023 1,500 54 $ 1,554

2024 545 160 $ 705

Total future minimum lease payments $ 13,447 $ 372 $ 13,819

Rent expense for the years ended September 30, 2019 and 2018, was $ 5.9 million and $ 10.7 million, respectively.

Contingencies

During the year ended September 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 $ 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 as of September 30, 2019.

The liability was paid in the first quarter of fiscal 2020.

Amortization expense related to intangible assets for the years ended September 30, 2021, 2020 and 2019 was $ 1.3 million, $ 1.3 million and $ 1.3 million, respectively.

The Company did no t record impairment charges on any intangible assets during the years ended September 30, 2021, 2020 and 2019.

401(k) Benefit Plan

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Operating lease assets 3,605 2,236

Restructuring costs — 42

Depreciation 2,339 1,266

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Amortization of goodwill 7,322 6,666

Depreciation — —

Capitalized costs 5,602 4,470

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Stock-based stock compensation expense ( 14.1 ) % ( 14.9 ) % ( 2.0 ) %

Non deductible compensation expense ( 6.0 ) % ( 0.6 ) % — %

Nondeductible compensation expense 5.5 % ( 6.0 ) % ( 0.6 ) %

Other permanent items 0.1 % ( 1.1 ) % ( 4.2 ) %

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Change in valuation allowance ( 98.9 ) % 9.9 % ( 22.5 ) %

Benefit from new Tax Act — % — % 51.3 %

Write-down of deferred tax assets on share-based stock compensation 0.7 % ( 12.3 ) % ( 7.9 ) %

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Other 0.2 % 1.3 % 1.5 %

Provision for income taxes ( 26.9 ) % ( 6.6 ) % 44.6 %

At September 30, 2020 and 2019, the Company had federal and state deferred tax assets of $ 27.7 million and $ 27.9 million, respectively, related to available federal and state net operating loss (NOL) carryforwards, foreign tax credit carryforwards, and other U.S.

Effective rate ( 84.7 ) % ( 26.9 ) % ( 6.6 ) %

As of September 30, 2021 and 2020, the Company had federal and state deferred tax assets of $ 23.5 million and $ 27.7 million, respectively, related to available federal and state net operating loss (NOL) carryforwards, foreign tax credit carryforwards, and other U.S.

deductible temporary differences.

The federal and state NOL carryforwards expire beginning in 2035 and 2022, respectively.

The Company's ability to use these various carryforwards to offset any taxable income generated in future taxable periods may be limited under Section 382 and other federal tax provisions.

The foreign tax credit carryforwards expire beginning in 2023.

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The NOLs with limited carryforward periods will expire beginning in 2022.

On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic.

The Company evaluates the recoverability of its deferred tax assets on a jurisdictional basis by considering whether deferred tax assets will be realized on a more likely than not basis.

To the extent a portion or all of the applicable deferred tax assets do not meet the more likely than not threshold, a valuation allowance is recorded.

Consideration was given to the tax planning strategies and, when applicable, future taxable income as to how much of the relevant deferred tax asset could be realized on a more likely than not basis.

The Company has recorded a valuation allowance of $ 13.8 million and $ 41.8 million against its gross deferred tax asset balance at September 30, 2021 and September 30, 2020, respectively.

At each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

As of September 30, 2021, in part because in the current year we achieved three years of cumulative pre-tax income in the U.S.

federal jurisdiction, the Company determined that there is sufficient positive evidence to conclude that it is more likely than not that additional deferred tax assets of $ 27.9 million are realizable.

It therefore recorded a net valuation allowance release of $ 27.9 million for the year ended September 30, 2021.

On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the Pandemic.

The CARES Act, among other things, accelerates the recovery of alternative minimum tax (AMT) credits into fiscal year 2020.

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In addition, NOLs incurred in fiscal years 2019, 2020, and 2021 may be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

The Company is currently evaluating the impact of the CARES Act, but at present does not expect the NOL provisions of the CARES Act to result in a material cash benefit.

The Company does not expect the NOL provisions of the CARES Act to result in a material cash benefit.

The Tax Act and Jobs Act of 2017 ("The Tax Act") subjects a U.S.

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The Company has elected to recognize the resulting tax on GILTI as an expense in the period the tax is incurred.

The Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2020.

Such objective evidence limits the ability to consider other evidence such as our projections for future growth.

On the basis of this evaluation, the Company recorded a net change to its valuation allowance of $( 0.1 ) million to bring the total valuation allowance to $ 41.8 million at September 30, 2020.

On July 10, 2018, the Company acquired 100 % of the stock of Machinio for $ 19.9 million.

Under the acquisition method of accounting, the Company recorded a net deferred tax liability of $ 0.7 million comprised primarily of acquired intangibles netted against NOLs and other deferred assets and recognized a $ 0.7 million tax benefit from a reduction to its valuation allowance.

The total amount of acquired NOLs, which are subject to limitations under Section 382, were $ 1.4 million.

Under the acquisition method of accounting, the Company recorded a net deferred tax liability of $ 0.7 million comprised primarily of acquired intangibles netted

Liquidity Services, Inc.

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Notes to Consolidated Financial Statements (Continued)

against NOLs and other deferred assets and recognized a $ 0.7 million tax benefit from a reduction to its valuation allowance.

The total amount of acquired NOLs, which are subject to limitations under Section 382, were $ 1.4 million.

The Company has not recorded a provision for deferred U.S.

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ASC 740 states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

During 2020, the Company recorded a benefit of $ 0.2 million due to the reduction of unrecognized tax benefits related to foreign operations.

During 2021, the Company recorded a charge of $ 0.1 million due to unrecognized tax benefits related to foreign operations.

The Company recognizes interest and penalties in the period in which they occur in the income tax provision.

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However, certain tax attribute carryforwards that were generated prior to fiscal year 2018 may be adjusted upon examination by tax authorities if they are utilized.

The Company's Hong Kong subsidiary is currently under examination for fiscal years 2015 through 2017.

Equity Transactions

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$ 6,947 $ 5,660 $ 6,508

The Company’s total liabilities for liability-classified stock comp ensation awards was $ 102 thousand and $ 758 thousand as of September 30, 2020 and 2019, the current portion of which was $ 61 thousand and $ 707 thousand, respectively.

The Company’s total liabilities for liability-classified stock comp ensation awards was $ 0.5 million and $ 0.1 million as of September 30, 2021 and 2020, the current portion of which was $ 0.3 million and $ 0.1 million , respectively.

Liquidity Services, Inc.

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4.6 - 7.4 years

4.2 - 7.1 years

The weighted-average grant date fair value of options granted during the year-ended September 30, 2021, 2020 and 2019 was $ 4.81 , $ 2.66 and $ 2.70 , respectively.

The total intrinsic value of options exercised during 2020, 2019 and 2018 was $ 92 thousand , $ 307 thousand and $ 30 thousand, respectively.

The total intrinsic value of options exercised during 2021, 2020 and 2019 was $ 15.0 million, $ 0.1 million and $ 0.3 million, respectively.

Stock options containing performance conditions are discussed separately in the section below.

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Exercisable as of September 30, 2021 12,045 $ 6.11 1.26 $ 187

Of the 113,148 SARs not yet exercisable as of September 30, 2020, 37,974 can become exercisable by satisfying service conditions only, and 75,174 can become exercisable by satisfying service and performance or market conditions.

As of September 30, 2020, there was less than $ 0.1 million of unrecognized compensation cost related to SARs containing only service conditions, which is expected to be recognized over a weighted-average period of 2.3 years .

The 30,000 SARs not yet exercisable as of September 30, 2021 can become exercisable by satisfying service conditions only.

As of September 30, 2021, there was $ 0.3 million of unrecognized compensation cost related to SARs containing service conditions, which is expected to be recognized over a weighted-average period of 1.3 years .

The Company made cash paym ents of $ 0.4 million, $ 0.6 million and $ 0.5 million to settle SARs exercised during the years ended September 30, 2021, 2020 and 2019, respectively.

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0.1 - 3.3 years

As of September 30, 2020 and 2019, the weighted-average fair value of SARs outstanding w as $ 0.63 and $ 1.67 per award.

As of September 30, 2021 and 2020, the weighted-average fair value of SARs outstanding w as $ 18.86 and $ 0.63 per award, respectively.

SARs containing performance conditions and market conditions are discussed separately in the section below.

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30.7 % - 100.0 %

25.9 % - 100.0 %

Share Repurchase Program

The Company is authorized to repurchase issued and outstanding shares of its common stock under a share repurchase program approved by the Board of Directors.

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 the Company's

The repurchase program may be discontinued or suspended at any time and will be funded using our available cash.

Liquidity Services, Inc.

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Notes to Consolidated Financial Statements (Continued)

available cash.

The Company's Board of Directors reviews the share repurchase program periodically, the last such review having occurred in September 2020.

During the year ended September 30, 2020, the Company repurchased 547,508 shares of its common stock for $ 4.0 million.

As of September 30, 2020, the Company may repurchase an additional $ 6.1 million of shares under this program.

As of the fiscal year ended September 30, 2020, we had $ 6.1 million of remaining share repurchase authorization.

On March 8, 2021, our Board of Directors authorized an additional $ 10 million of share repurchases of the Company's outstanding shares of common stock through March 31, 2023.

We repurchased 957,079 shares for $ 16.1 million under this program during the six months ended March 31, 2021.

On May 3, 2021, the Company's Board of Directors authorized a new stock repurchase plan (the “May 3, 2021 Stock Repurchase Plan”) of up to $ 15 million of our outstanding shares of common stock through June 30, 2023.

We repurchased 634,884 shares for $ 15.0 million under this program during the year ended September 30, 2021 .

On December 6, 2021, the Company's Board of Directors authorized the repurchase of up to $ 20 million of the Company's outstanding shares of common stock through December 31, 2023.

Other Share Repurchases

Separate from the share repurchase program, our stock incentive plans allow for participants to exercise stock options by surrendering shares of common stock equivalent in value to the exercise price due.

During the three months ended June 30, 2021, no shares of common stock were surrendered by participants in the exercise of stock options.

During the year ended September 30, 2021 , participants surrendered 82,612 shares of common stock in the exercise of stock options.

Any shares surrendered to the Company in this manner are not available for future grant.

Fair Value Measurement

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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 was measured at fair value (Level 3).

At September 30, 2019, the 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.

At September 30, 2020, the calendar year 2019 earn-out period was complete and the liability has been paid in full.

The changes in the earn-out liability measured at fair value for which the Company has used Level 3 inputs to determine fair value for the year ended September 30, 2020, are as follows (dollars in thousands):

Contingent Consideration

Balance at September 30, 2019 $ 4,800

Change in fair value of earn-out liability 200

Settlement $ ( 5,000 )

Balance at September 30, 2020 $ —

The increase in the fair value of the earn-out liability is due to Machinio's full attainment of its actual adjusted EBITDA target for the calendar year 2019 earn-out period.

The expense for the change in fair value was included in Other operating expenses in the Consolidated Statements of Operations.

The earn-out liability was paid in full during the three months ended March 31, 2020.

Management’s estimation of the fair value of these assets and liabilities is based on the best information available in the circumstances and may incorporate management's own assumptions regarding market demand for these assets.

Such assumptions involve management's judgment, taking into consideration a combination of internal and external factors.

The Company had short-term investments of $ 30.0 million at September 30, 2019 in certificates of deposit with maturities of six months or less, and interest rates between 1.97 % and 2.5 %.

The Company has $ 30.0 million of money market funds considered cash equivalents at September 30, 2020.

The Company had $ 40.0 million and $ 30.0 million of money market funds considered cash equivalents at September 30, 2021 and 2020, respectively.

These assets were measured at fair value at September 30, 2021 and 2020 and were classified as Level 1 assets within the fair value hierarchy.

The Company’s financial assets not measured at fair value are cash, accounts receivable, and a promissory note.

There were no transfers between levels during the periods presented.

The Company’s financial assets and liabilities not measured at fair value are cash, accounts receivable, and accounts payable.

The Company believes the carrying values of these instruments approximate fair value.

As of September 30, 2020 and 2019, the Company did no t have any assets or liabilities measured at fair value on a non-recurring basis.

As of September 30, 2021 and 2020, the Company did no t have any material assets or liabilities measured at fair value on a non-recurring basis.

Defined Benefit Pension Plan

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The Scheme was closed to new members on January 1, 2002.

The Company recognizes the funded status of its postretirement benefit plans, with a corresponding noncash adjustment to accumulated other comprehensive loss, net of tax, in stockholders' equity.

The funded status is measured as the difference between the fair value of the Scheme's assets and the benefit obligation of the Scheme.

Liquidity Services, Inc.

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Notes to Consolidated Financial Statements (Continued)

The Company recognizes the funded status of its postretirement benefit plans, with a corresponding noncash adjustment to accumulated other comprehensive loss, net of tax, in stockholders' equity.

The funded status is measured as the difference between the fair value of the Scheme's assets and the benefit obligation of the Scheme.

The net periodic benefit cost is recognized within Interest and other income, net in the Consolidated Statements of Operations, and for the years ended September 30, 2021, 2020 and 2019, included the following components:

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Because the Scheme is closed to new participants, the accumulated benefit obligation is equal to the projected benefit obligation, which was $ 27.0 million and $ 26.0 million at September 30, 2021 and 2020, respectively.

During the year ended September 30, 2021, the Company extended early settlement offers to all members of the Scheme.

There was no material impact to the consolidated financial statements as a result of the early settlement offers.

The amounts recognized in other comprehensive (income) loss related to the Company's qualified defined benefit pension plan, net of taxes, and the related foreign currency translation adjustments, for the years ended September 30, 2021 and 2020, is shown in the following table:

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(in thousands)

Accumulated other comprehensive income at beginning of year $ 303 $ 892

Net actuarial loss ( 2,293 ) ( 540 )

Accumulated other comprehensive (loss) income at beginning of year $ ( 1,971 ) $ 303

Net actuarial gain (loss) 170 ( 2,293 )

Foreign currency translation adjustments ( 84 ) 19

Accumulated other comprehensive income (loss) at end of year $ ( 1,971 ) $ 303

Accumulated other comprehensive loss at end of year $ ( 1,885 ) $ ( 1,971 )

The plan complies with the funding provisions of the UK Pensions Act 2004 and the Occupational Pension Schemes Regulations Act 2005.

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Notes to Consolidated Financial Statements (Continued)

For the year ended September 30, 2018, business realignment expenses were incurred related to:

cost saving actions in the CAG segment and Corporate IT department.

These actions were partially offset by an adjustment to reduce the liability associated with the ceased use of the Company's previous headquarters location in Washington D.C.

that was initially recognized during the year ended September 30, 2017.

The table below sets forth the significant components and activity in the liability for business realignment initiatives during the year ended September 30, 2021, on a segment and consolidated basis:

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September 30,

2018 Business

2019 Adoption of ASC 842 Business

Expenses Cash

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September 30,

2019 Adoption of ASC 842 Business

2020 Business

Expenses Cash

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Legal Proceedings

From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the business.

There are no 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.

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.

Former Employee Matters

On December 22, 2020, the Company’s former Vice President, Human Resources (the “HR Plaintiff”) filed a claim with the Equal Employment Opportunity Commission (“EEOC”) for wrongful termination on the basis of gender, race, and age.

The EEOC subsequently assigned HR Plaintiff’s claim to the Montgomery County Office of Human Rights for

investigation, which, in turn, dismissed HR Plaintiff’s claim after HR Plaintiff filed a complaint in the United States District Court for the District of Maryland Southern Division on May 19, 2021.

The Company believes this claim is without merit and cannot estimate a range of potential liability, if any, at this time.

The Company’s employment practices liability insurance carrier, CNA, has accepted tender of this claim.

Separately, HR Plaintiff also alleged outside of the above process wage and hour violations under Maryland law for failure to pay his fiscal year 2020 performance bonus.

The Company and HR Plaintiff settled the wage and hour claims for an immaterial amount in May 2021.

On October 22, 2021, the Company’s former Chief Marketing Officer (“Marketing Plaintiff”) filed a claim with the EEOC alleging that the Company discriminated against him on the basis of his race and age and that the Company retaliated against him.

The Company believes these claims are without merit and cannot estimate a range of potential liability, if any, at this time.

CNA has accepted tender of the claims.

Separately, Marketing Plaintiff also alleged wage and hour violations under Maryland law for failure to pay his fiscal year 2021 performance bonus.

Unless otherwise noted, there are no 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.

Segment Information

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Descriptions of our reportable segments are as follows:

• The GovDeals reportable segment provides self-directed service solutions in which sellers 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 quasi-governmental businesses located in the United States and Canada to sell surplus and salvage assets.

GovDeals also offers a suite of services to sellers that includes asset sales and marketing.

• The GovDeals reportable segment provides self-directed service solutions that enable local and state government entities including city, county and state agencies, located in the United States and Canada to sell surplus and

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

salvage assets through our GovDeals marketplace.

Through the end of fiscal 2019, GovDeals provided self-directed service solutions to commercial businesses as part of the Auction 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.

• The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell surplus and salvage consumer goods.

RSCG also offers a suite of services that includes returns management, asset recovery, and e-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 and idle assets.

This segment includes the Company's Liquidation.com and Secondipity marketplaces.

Through the end of third quarter fiscal 2021, RSCG operated the Liquidation.com DIRECT marketplace for truckload quantities of retail surplus.

Those assets are now sold on the Liquidation.com marketplace.

• The CAG reportable segment provides managed and self-directed service solutions to sellers and consists of marketplaces that enable commercial businesses to sell surplus and idle 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.

Commercial seller assets are located across North America, Europe, Australia, Asia, and Africa.

This segment includes the Company's Network International and GoIndustry DoveBid marketplaces and, beginning in fiscal 2020, self-directed service solutions for commercial businesses on the AllSurplus marketplace.

Prior to the conclusion of the Scrap and Surplus Contracts (see Note 3), CAG sold surplus and 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.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Prior to the conclusion of the Scrap Contract, CAG sold scrap assets from the DoD on its Government Liquidation marketplace.

• The Machinio reportable segment operates a global search engine platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors.

We also report results of Corporate & Other, including elimination adjustments.

For the years ended September 30, 2019 and 2018 Corporate & Other included a previously existing operating segment that did not meet the quantitative thresholds to be a reportable segment, IronDirect.

For the year ended September 30, 2019, Corporate & Other included a previously existing operating segment that did not meet the quantitative thresholds to be a reportable segment, IronDirect.

The Company exited the IronDirect business in January 2019.

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In connection with that assessment, the CODM uses segment gross profit to evaluate the performance of each segment.

Gross profit is calculated as total revenue less cost of goods sold and seller distributions.

Segment gross profit is calculated as total revenue less cost of goods sold and seller distributions (excludes depreciation and amortization).

Liquidity Services, Inc.

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Interest and other income, net ( 411 ) ( 924 ) ( 1,448 )

Loss before provision for income taxes ( 2,973 ) ( 18,060 ) ( 20,943 )

Income (loss) before income taxes 27,579 ( 2,973 ) ( 18,060 )

Liquidity Services, Inc.

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(in thousands)

Segment Assets:

GovDeals $ 148,111 $ 102,083

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Corporate & Other, including elimination adjustments ( 102,196 ) ( 90,776 )

Total Segment Assets:

Total Assets:

$ 255,576 $ 196,634

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Rest of the world 43,369 25,053 34,709

Consolidated $ 205,940 $ 226,525 $ 224,514

Total property and equipment by geographic areas are as follows:

Total Revenue $ 257,531 $ 205,940 $ 226,525

Total long-lived assets by geographic areas are as follows:

September 30,

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Rest of the world 373 485

Consolidated $ 17,843 $ 18,846

Total Long-lived Assets $ 17,634 $ 17,843

Subsequent Event

On November 1, 2021, the Company entered into a definitive agreement to purchase all of the issued and outstanding shares of stock of Bid4Assets, Inc.

(Bid4Assets), a pioneer in internet-based public auctions of real property.

This acquisition will support our growth objectives for the GovDeals reportable segment.

Upon closing, the Company paid $ 15 million in cash, including the assumption of a minimum working capital amount of $ 0.3 million.

Shareholders of Bid4Assets are eligible to receive earn-out consideration of up to $ 37.5 million in cash, payable based on Bid4Assets' achievement of certain EBITDA targets measured as of each trailing twelve-month period and determined at the end of each calendar quarter, for the period from October 1, 2021 until the quarter ended December 31, 2022.

The Company is currently evaluating the purchase price accounting for this transaction and as such, the final accounting treatment could result in material changes to our balance sheet and earnings during fiscal 2022.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Quarterly Results (Unaudited)

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Gross profit (excludes depreciation and amortization) $ 25,328 $ 26,205 $ 25,228 $ 33,163 $ 33,178 $ 35,401 $ 41,213 $ 40,061

Income (loss) before provision for income taxes $ ( 4,756 ) $ ( 4,034 ) $ ( 4,107 ) $ ( 5,163 ) $ ( 4,738 ) $ ( 4,195 ) $ 422 $ 5,538

Income (loss) before income taxes $ ( 4,738 ) $ ( 4,195 ) $ 422 $ 5,538 $ 4,811 $ 5,667 $ 8,848 $ 8,253

Net income (loss) $ ( 5,196 ) $ ( 4,238 ) $ 213 $ 5,447 $ 4,514 $ 5,260 $ 8,419 $ 32,756

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LIQUIDITY SERVICES, INC.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

LIQUIDITY SERVICES, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

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2.3 First Amendment to Purchase and Sale Agreement dated September 30, 2015 by and between Jacobs Trading, LLC and Tanager Acquisitions, LLC .

2.4 Agreement and Plan of Merger, dated November 1, 2021, by and among the Company, Liquidity Services RE Ventures, Inc., Bid4Assets, Inc.

(“Bid4Assets”), USA B4A Sellers Rep LLC, and certain holders of the outstanding stock of Bid4Assets, incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the SEC on November 1, 2021.

3.1 Fourth Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.1 to Amendment No.

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Shaffer, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on July 13, 2016.

10.6# Executive Employment Agreement, dated October 1, 2020, by and between the Company and Novelette Murray.

10.7# Executive Employment Agreement, dated November 5, 2019, by and between the Company and Nicholas Rozdilsky, incorporated herein by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K, filed with the SEC on December 10, 2019.

10.6# Executive Employment Agreement, dated October 1, 2020, by and between the Company and Novelette Murray, incorporated herein by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K, filed with the SEC on December 11, 2020.

10.7# Executive Employment Agreement, dated January 27, 2005, by and between the Company and James M.

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10.9.1# Second Amendment to Executive Employment Agreement, dated January 18, 2016, by and between the Company and Michael Lutz, incorporated herein by reference to Exhibit 10.8.1 to the Company’s Annual Report on Form 10-K, filed with the SEC on December 10, 2019.

10.10# Executive Employment Agreement, dated November 5, 2019, by and between the Company and Nicholas Rozdilsky, incorporated herein by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K, filed with the SEC on December 10, 2019.

10.11# Form of Indemnification Agreement for directors and officers, incorporated herein by reference to Exhibit 10.11 to Amendment No.

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10.20# Liquidity Services Inc.

Annual Incentive Plan, adopted on December 2, 2020.

Annual Incentive Plan, adopted on December 2, 2020, incorporated herein by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K, filed with the SEC on December 11, 2020.

21.1 List of Subsidiaries .

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101 The following materials from the Registrant's Annual Report on Form 10-K for the year ended September 30, 2021, formatted in Extensible Business Reporting Language (XBRL):

(i) Consolidated Balance Sheets as of September 30, 2020 and 2019, (ii) Consolidated Statements of Operations for each of the three years in the period ended September 30, 2020, (iii) Consolidated Statements of Comprehensive Loss for each of the three years in the period ended September 30, 2020, (iv) Consolidated Statements of Stockholders' Equity for each of the three years in the period ended September 30, 2020, (v) Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 2020, and (vi) Notes to Consolidated Financial Statements.

(i) Consolidated Balance Sheets as of September 30, 2021 and 2020, (ii) Consolidated Statements of Operations for each of the three years in the period ended September 30, 2021, (iii) Consolidated Statements of Comprehensive Income (Loss) for each of the three years in the period ended September 30, 2021, (iv) Consolidated Statements of Stockholders' Equity for each of the three years in the period ended September 30, 2021, (v) Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 2021, and (vi) Notes to Consolidated Financial Statements.

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures