What changed in this filing

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Item 1. Financial Statements

2022-02-03 compared with 2021-08-05 · 276 added, 248 removed, 378 unchanged (58% of the section changed)

Financial Statements.

Financial Statements (Unaudited)

Liquidity Services, Inc.

and Subsidiaries

Consolidated Balance Sheets

Condensed Consolidated Balance Sheets

(Dollars in Thousands, Except Par Value)

June 30, 2021 September 30, 2020

December 31, 2021 September 30, 2021

Current assets:

28 unchanged sentences

120,000,000 shares authorized;

35,417,715 shares issued and outstanding at June 30, 2021;

35,533,071 shares issued and outstanding at December 31, 2021;

35,457,095 shares issued and outstanding at September 30, 2021

1 unchanged sentence

Treasury stock, at cost;

1,587,199 shares at June 30, 2021 and 547,508 shares at September 30, 2020

2,373,946 shares at December 31, 2021 and 2,222,083 shares at September 30, 2021

( 39,691 ) ( 36,628 )

3 unchanged sentences

Total liabilities and stockholders’ equity $ 286,878 $ 255,576

See accompanying notes to the unaudited consolidated financial statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

Liquidity Services, Inc.

and Subsidiaries

Consolidated Statements of Operations

Condensed Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Data)

Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 2021 2020

Three Months Ended December 31,

Revenue $ 36,217 $ 31,071

7 unchanged sentences

Depreciation and amortization 2,302 1,871

Other operating expenses 1,180 319 1,390 500

Other operating (income) expenses ( 32 ) 4

Total costs and expenses 62,224 51,125

Income (loss) from operations 8,594 198 18,858 ( 9,244 )

Income from operations 4,483 4,626

Interest and other income, net ( 131 ) ( 185 )

Income (loss) before provision for income taxes 8,848 422 19,326 ( 8,511 )

Income before provision for income taxes 4,614 4,811

Provision for income taxes 1,012 297

Net income (loss) $ 8,419 $ 213 $ 18,193 $ ( 9,221 )

Basic income (loss) per common share $ 0.25 $ 0.01 $ 0.55 $ ( 0.27 )

Diluted income (loss) per common share $ 0.24 $ 0.01 $ 0.52 $ ( 0.27 )

Net income $ 3,602 $ 4,514

Basic income per common share $ 0.11 $ 0.14

Diluted income per common share $ 0.10 $ 0.13

Basic weighted average shares outstanding 32,971,709 33,176,895

Diluted weighted average shares outstanding 34,868,869 34,911,119

See accompanying notes to the unaudited consolidated financial statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

Liquidity Services, Inc.

and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Income

(Dollars in Thousands)

Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 2021 2020

Net income (loss) $ 8,419 $ 213 $ 18,193 $ ( 9,221 )

Other comprehensive income (loss):

Three Months Ended December 31,

Net income $ 3,602 $ 4,514

Other comprehensive (loss) income:

Foreign currency translation ( 131 ) 896

Other comprehensive income (loss) 23 424 1,042 ( 46 )

Comprehensive income (loss) $ 8,442 $ 637 $ 19,235 $ ( 9,267 )

See accompanying notes to the unaudited consolidated financial statements.

Other comprehensive (loss) income ( 131 ) 896

Comprehensive income $ 3,471 $ 5,410

See accompanying notes to the unaudited condensed consolidated financial statements.

Liquidity Services, Inc.

and Subsidiaries

Consolidated Statement of Stockholders’ Equity

Condensed Consolidated Statement of Stockholders’ Equity

(Dollars In Thousands)

13 unchanged sentences

Stock compensation expense — — 2,270 — — — — 2,270

Foreign currency translation — — — — — 896 — 896

Balance at December 31, 2020 34,212,815 $ 34 $ 250,002 ( 866,388 ) $ ( 8,255 ) $ ( 8,886 ) $ ( 117,832 ) $ 115,063

Net income — — — — — — 5,260 5,260

Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 1,079,955 1 154 — — — — 155

Taxes paid associated with net settlement of stock compensation awards ( 177,463 ) — ( 3,145 ) — — — — ( 3,145 )

Common stock repurchased — — — ( 647,583 ) ( 12,040 ) — — ( 12,040 )

Common stock surrendered in the exercise of stock options — — 1,333 ( 73,228 ) ( 1,333 ) — — —

Stock compensation expense — — 1,522 — — — — 1,522

Foreign currency translation — — — — — 123 — 123

Balance at March 31, 2021 35,115,307 $ 35 $ 249,866 ( 1,587,199 ) $ ( 21,628 ) $ ( 8,763 ) $ ( 112,572 ) $ 106,938

Net income — — — — — — 8,419 8,419

Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 318,242 — — — — — — —

Taxes paid associated with net settlement of stock compensation awards ( 15,834 ) — ( 343 ) — — — — ( 343 )

Stock compensation expense — — 1,525 — — — — 1,525

Foreign currency translation and other — — — — — ( 131 ) 136 5

Balance at June 30, 2021 35,417,715 $ 35 $ 251,048 ( 1,587,199 ) $ ( 21,628 ) $ ( 8,740 ) $ ( 104,154 ) $ 116,561

See accompanying notes to the unaudited consolidated financial statements.

Balance at December 31, 2021 35,533,071 $ 36 $ 253,536 ( 2,373,946 ) $ ( 39,691 ) $ ( 9,142 ) $ ( 67,660 ) $ 137,079

See accompanying notes to the unaudited condensed consolidated financial statements.

Liquidity Services, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Cash Flows

(Dollars In Thousands)

Nine Months Ended June 30,

Three Months Ended December 31,

Operating activities

Net income (loss) $ 18,193 $ ( 9,221 )

Adjustments to reconcile net loss to net cash used in operating activities:

Net income $ 3,602 $ 4,514

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 2,302 1,871

Stock compensation expense 2,280 2,229

Inventory adjustment to net realizable value 98 —

Provision for doubtful accounts 11 15

Deferred tax provision 881 32

Loss (gain) on disposal of property and equipment 87 ( 29 )

Change in fair value of earnout liability — 200

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

Gain on disposal of property and equipment ( 6 ) ( 1 )

Gain on termination of lease ( 205 ) —

Changes in operating assets and liabilities:

6 unchanged sentences

Accrued expenses and other current liabilities ( 5,193 ) ( 1,994 )

Distributions payable — ( 1,675 )

Deferred revenue 60 174

3 unchanged sentences

Investing activities

Increase in intangibles ( 23 ) ( 53 )

Cash paid for business acquisition, net of cash acquired ( 11,063 ) —

Purchases of property and equipment, including capitalized software ( 1,964 ) ( 1,363 )

Increase in intangibles ( 1 ) ( 5 )

Proceeds from sales of property and equipment 7 14

Proceeds from promissory note — 508

Purchases of short-term investments — ( 25,000 )

Maturities of short-term investments — 55,000

Net cash provided by investing activities 900 28,939

Net cash used by investing activities ( 13,021 ) ( 846 )

Financing activities

2 unchanged sentences

Proceeds from exercise of stock options — 197

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

Common stock repurchased ( 2,963 ) ( 4,103 )

Net cash (used in) financing activities ( 19,370 ) ( 1,754 )

Net cash used by financing activities ( 3,841 ) ( 3,973 )

Effect of exchange rate differences on cash and cash equivalents ( 23 ) 589

Net increase in cash and cash equivalents 36,630 36,232

Net (decrease) increase in cash and cash equivalents ( 15,014 ) 1,808

Cash and cash equivalents at beginning of period 106,335 76,036

1 unchanged sentence

Supplemental disclosure of cash flow information

Cash paid for income taxes, net $ 907 $ 203

Cash (received) paid for income taxes, net $ ( 28 ) $ 208

Earnout liability for acquisition activity $ 26,900 $ —

Common stock surrendered in the exercise of stock options $ 100 $ 169

See accompanying notes to the unaudited consolidated financial statements.

See accompanying notes to the unaudited condensed consolidated financial statements.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements

Notes to the Unaudited Condensed Consolidated Financial Statements

Liquidity Services, Inc.

(the Company) operates a network of e-commerce marketplaces that power the circular economy which benefits businesses, society, and the environment through the safe and effective resale and redeployment of surplus assets;

reducing waste, carbon emissions and transportation costs;

and by creating markets for items that would otherwise be landfilled.

The Company's marketplaces enable buyers and sellers to transact in an efficient, automated environment offering over 600 product categories and provide professional buyers access to a global, organized supply of new, surplus and idle assets presented with digital images and other relevant product information.

The Company's marketplaces enable 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.secondipity.com, and 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:

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

See Note 13 for Segment Information.

(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.

Results from our operations are organized into four reportable segments:

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

See Note 13 - Segment Information for more information.

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

and commenced operations in early 2000.

On November 1, 2021, the Company purchased all of the issued and outstanding shares of stock of Bid4Assets, Inc.

(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 3 - Bid4Assets Acquisition 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;

the effect of general business and economic trends, including the extent and duration of travel restrictions and the COVID-19 pandemic's impact on current and future macroeconomic conditions;

the effect of general business and economic trends, including the extent and duration of the COVID-19 pandemic;

the Company's susceptibility to rapid technological change;

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Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC).

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In the opinion of management, all adjustments, consisting of normal, recurring adjustments considered necessary for a fair presentation, have been included, and intercompany transactions and accounts have been eliminated in consolidation.

The information disclosed in the notes to the consolidated financial statements for these periods is unaudited.

Operating results for the three and nine months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending September 30, 2021 or for any future period.

The information disclosed in the notes to the condensed consolidated financial statements for these periods is unaudited.

Operating results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the year ending September 30, 2022 or for any future period.

Use of Estimates

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 three and nine months ended June 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.

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 condensed consolidated financial statements and accompanying notes.

For the three months ended December 31, 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 COVID-19 pandemic, the Company will continue to update its assumptions as conditions change.

2 unchanged sentences

Contract assets reflect an estimate of expenses that will be reimbursed upon settlement with a seller.

The contract asset balance was $ 0.4 million as of June 30, 2021 and $ 0.4 million as of September 30, 2020 and is included in the line item Prepaid expenses and other current assets on the Consolidated Balance Sheets.

The contract asset balance was $ 0.7 million as of December 31, 2021 and $ 0.6 million as of September 30, 2021 and is included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

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 $ 4.5 million as of June 30, 2021 and $ 3.3 million as of September 30, 2020 and is included in the line item Deferred revenue on the Consolidated Balance Sheets.

Of the September 30, 2020 contract liability balance, $ 3.0 million was earned as Fee revenue during the nine months ended June 30, 2021.

For the Company's Machinio business segment, performance obligations are satisfied over time as the Company provides the services over the term of the subscription.

At June 30, 2021, the Machinio business segment had a remaining performance obligation of $ 4.5 million;

the Company expects to recognize the substantial majority of that amount as Fee Revenue over the next 12 months.

The contract liability balance was $ 4.7 million as of December 31, 2021 and $ 4.6 million as of September 30, 2021 and is included in the line item Deferred revenue on the Condensed Consolidated Balance Sheets.

Of the September 30, 2021 contract liability balance, $ 2.1 million wa s earned as Fee revenue during the three months ended December 31, 2021.

Performance obligations for Machinio's subscription services are satisfied over time as the Company provides the services over the term of the subscription.

At December 31, 2021, the Company has a remaining performance obligation of $ 4.7 million for these subscription services, and the Company expects to recognize the substantial majority of that amount as Fee Revenue over the next 12 months.

Contract Costs

1 unchanged sentence

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

The contract cost balance w as $ 1.5 million a s of June 30, 2021 and $ 0.7 million as of September 30, 2020 and is included in the line items Prepaid expenses and other current assets and Other assets on the Consolidated Balance Sheets.

Amortization expense was $ 0.2 million and $ 0.5 million during the three and nine months ended June 30, 2021 and was $ 0.1 million and $ 0.3 million during the three and nine months ended June 30, 2020.

The contract cost balance w as $ 1.7 million a s of December 31, 2021 and $ 1.6 million as of September 30, 2021 and is included in the line items Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets.

Amortization expense was $ 0.2 million and $ 0.1 million during the three months ended December 31, 2021 and 2020, respectively.

Other Assets - Promissory Note

7 unchanged sentences

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 three and nine months ended June 30, 2021, representing the difference between the $ 4.6 million outstanding balance of principal and accrued interest and the $ 3.5 million payment received.

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

There was no impact on the unaudited financial statements from this transaction as of and for the three months ended December 31, 2021 and December 31, 2020.

Risk Associated with Certain Concentrations

2 unchanged sentences

For consignment sales transactions, funds are typically collected from buyers and are held by the Company on the sellers' behalf.

The funds are included in Cash and cash equivalents on the Consolidated Balance Sheets.

The funds are included in Cash and cash equivalents on the Condensed Consolidated Balance Sheets.

The Company releases the funds to the seller, less the Company's commission and other fees due, through Accounts payable after the buyer has accepted the goods or within 30 days, depending on the state where the buyer and seller conduct business.

3 unchanged sentences

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

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

1 unchanged sentence

The property purchased under these contracts with Amazon.com, Inc.

represented 63.5 % and 60.4 % of consolidated Cost of goods sold for the three months ended June 30, 2021 and 2020, respectively, and 61.7 % and 54.5 % of consolidated Cost of goods sold for the nine months ended June 30, 2021 and 2020, respectively.

These contracts are included within the RSCG segment.

represented 60.5 % and 60.0 % of consolidated Cost of goods sold for the three months ended December 31, 2021 and 2020, respectively.

These contracts are included within the RSCG reportable segment.

Recent Accounting Pronouncements

Accounting Standards Adopted

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.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The Company adopted the new standard on a prospective basis effective October 1, 2021.

This accounting standard has not had a material impact on the Company's condensed consolidated financial statements.

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 and money market funds.

The Company is in the process of evaluating the impact ASC 326 will have on its condensed consolidated financial statements and expects to estimate credit losses on its financial assets such as its Accounts receivable and money market funds.

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

ASU 2019-12 seeks to improve the consistent application of, and simplify the guidance for, the accounting for income taxes.

The ASU removes certain exceptions to the general principals in ASC 740, Income Taxes , and clarifies and amends other existing guidance.

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

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

Bid4Assets Acquisition

On November 1, 2021, the Company purchased all of the issued and outstanding shares of stock of Bid4Assets, Inc.

(Bid4Assets), a Maryland corporation.

Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's sales.

The results of Bid4Assets' operations are included within our GovDeals reportable segment.

As of December 31, 2021, the Company's purchase price allocation related to this acquisition is preliminary and subject to revisions as additional information is obtained about the facts and circumstances that existed as of the acquisition date.

The revisions may have a significant impact on our condensed consolidated financial statements.

The allocation of the purchase price will be finalized once all the information that was known and knowable as of the acquisition date is obtained and analyzed, but not to exceed one year from the acquisition date.

The primary areas of the purchase price allocation that are not yet finalized relate to income and non-income taxes, the valuation of intangible assets acquired and earn-out liability, and the residual goodwill.

The preliminary amounts assigned to intangible assets by type for this acquisition were based upon our valuation model and historical experiences with entities with similar business characteristics.

The preliminary acquisition date fair value of the consideratio n transferred to the shareholders of Bid4Assets was approximately $ 41.6 million consisting of $ 14.7 million in cash (net of working capital adjustments totaling $ 0.3 million) and earn-out consideration with a preliminary fair value of $ 26.9 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 trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

The Company's preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the Bid4Assets acquisition date of November 1, 2021, is as follows:

(in thousands) Fair Value

Cash and cash equivalents $ 3,576

Intangible assets 16,500

Other assets 368

Total assets acquired 20,443

Payables to sellers 3,701

Operating lease liabilities 204

Deferred tax liabilities 3,724

Total liabilities assumed 7,629

Net identifiable assets acquired $ 12,815

Goodwill 28,825

Total consideration transferred $ 41,639

The excess of purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as goodwill.

The goodwill associated with our acquisition includes the acquired assembled work force, and the value associated with the opportunity to leverage the workforce to continue to grow by adding additional customer relationships or new solutions in the future.

Based on management's preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, goodwill of approximately $ 28.8 million was recorded.

The total goodwill arising from the acquisition is included in the GovDeals reportable segment and is not deductible for tax purposes.

The known intangible assets acquired were determined to consist of, and preliminarily fair valued at, the following:

(in thousands) Useful Life (in years) Fair Value

Contract intangibles 8 $ 13,900

Developed software 3 2,200

Trade name 3 400

Total identifiable intangible assets $ 16,500

Contract Intangibles

We recorded contract intangibles separately from goodwill based upon determination of the length, strength, and contractual nature of the relationship that Bid4Assets shared with its suppliers.

We valued the contract intangibles using the multi-period excess earnings method, an income approach valuation model.

The significant assumptions used in the income approach includes estimates about future expected cash flows from supplier contracts, the attrition rate, and the discount rate.

We are amortizing the contract intangibles, preliminarily valued at $ 13.9 million, on a straight line basis over a useful life of eight years , which is materially consistent with the expected pattern of economic benefit.

Developed Software

Developed software primarily consists of intellectual property of the Bid4Assets e-commerce marketplace and associated mailing lists.

We valued the developed software by applying the relief-from-royalty method, an income approach valuation model.

The significant assumptions used in the relief-from-royalty method include estimates about future expected cash flows from the developed software, the royalty rate, the obsolescence factor and the discount rate.

We are amortizing the acquired developed technology, preliminarily valued at $ 2.2 million, on a straight line basis over a useful life of three years , which is materially consistent with the expected pattern of economic benefit.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

We valued the trade name acquired using a relief-from-royalty method.

The significant assumptions used in the relief-from-royalty method include future expected cash flows from the trade name, the royalty rate, and the discount rate.

We are amortizing the trade name, preliminarily valued at $ 0.4 million, on a straight line basis over a useful life of three years , which is materially consistent with the expected pattern of economic benefit.

Contingent Consideration

During the three months ended December 31, 2021, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary contingent consideration in the amount of $ 26.9 million on its Condensed Consolidated Balance Sheets.

See further discussion of this matter within Note 10 - Fair Value Measurement .

Other Information

Revenue, net income (loss), and pro forma information related to the Bid4Assets acquisition was immaterial to the condensed consolidated financial statements and its related notes for the three months ended December 31, 2021 and 2020, as applicable.

Earnings per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares outstanding during the period.

Diluted net income (loss) per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period.

Basic net income per share is computed by dividing net income for the period by the weighted average number of shares outstanding during the period.

Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period.

The calculation of diluted net income per share excludes all anti-dilutive common shares.

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

Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 2021 2020

Net income (loss) $ 8,419 $ 213 $ 18,193 $ ( 9,221 )

Three Months Ended December 31,

Net income $ 3,602 $ 4,514

Basic weighted average shares outstanding 32,971,709 33,176,895

1 unchanged sentence

Diluted weighted average shares outstanding 34,868,869 34,911,119

Basic income (loss) per common share $ 0.25 $ 0.01 $ 0.55 $ ( 0.27 )

Diluted income (loss) per common share $ 0.24 $ 0.01 $ 0.52 $ ( 0.27 )

Basic income per common share $ 0.11 $ 0.14

Diluted income per common share $ 0.10 $ 0.13

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

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and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

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

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The components of lease expense are:

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(in thousands) 2021 2020

2 unchanged sentences

Operating lease cost 1,478 1,389

Operating lease impairment expense — — 172 —

Short-term lease cost 53 74

Variable lease cost (1)

360 371 1,178 1,122

Sublease income ( 36 ) ( 76 )

2 unchanged sentences

To a lesser extent, the Company's equipment leases have variable costs associated with usage and subsequent changes to costs based upon an index.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

Maturities of lease liabilities are:

June 30, 2021

December 31, 2021

(in thousands) Operating Leases Finance Leases

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(2) The weighted average discount rate is 6.3 % for operating leases and 5.5 % for finance leases.

Additionally, the Company has approximately $ 4.8 million of future payment obligations related to executed warehouse lease agreements that have not yet commenced as of June 30, 2021.

Supplemental disclosures of cash flow information related to leases are:

Nine Months Ended June 30,

Three Months Ended December 31,

(in thousands) 2021 2020

4 unchanged sentences

adjustments to lease assets and liabilities 1

(1) Nine months ended June 30, 2020 amount includes $ 12.2 million of lease liabilities recognized upon the adoption of ASC 842 on October 1, 2019.

( 205 ) 3,187

(1) These include adjustments due to lease modifications, renewals, and other related adjustments.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows:

5 unchanged sentences

$ 21,583 $ 23,731 $ 14,558 $ 59,872

Bid4Assets acquisition (see Note 3) — 28,825 — 28,825

Translation adjustments 30 — — 30

Balance at June 30, 2021

Balance at December 31, 2021

$ 21,613 $ 52,556 $ 14,558 $ 88,727

The increase in the goodwill balance of $ 28.8 million at the GovDeals reportable segment during the three months ended December 31, 2021 is due to the Bid4Assets acquisition.

See Note 3 - Bid4Assets Acquisition for further information.

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.

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

As there have been favorable developments in the factors that previously indicated an interim goodwill impairment test was necessary during the prior fiscal year ended September 30, 2020, the Company did not identify any indicators of impairment that required an interim goodwill impairment test during the three and nine months ended June 30, 2021.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

The Company did not identify any indicators of impairment that required an interim goodwill impairment test during the three months ended December 31, 2021.

Intangible Assets

Intangible assets consist of the following:

June 30, 2021 September 30, 2020

(dollars in thousands) Useful

December 31, 2021 September 30, 2021

(in thousands) Useful

(in years) Gross

4 unchanged sentences

Contract intangibles 6 - 8

17,000 ( 2,098 ) 14,902 3,100 ( 1,679 ) 1,421

Technology 3 - 5

5,300 ( 2,033 ) 3,267 2,700 ( 1,755 ) 945

Patent and trademarks 3 - 10

1 unchanged sentence

Total intangible assets $ 24,660 $ ( 5,473 ) $ 19,187 $ 8,160 $ ( 4,707 ) $ 3,453

Future expected amortization of intangible assets at June 30, 2021, is as follows:

The gross carrying amount of total intangible assets increased by $ 16.5 million during the three months ended December 31, 2021 due to the Bid4Assets acquisition.

The acquired developed software and trade name are included in the above line items of Technology and Patent and trademarks, respectively.

See Note 3 - Bid4Assets Acquisition for further information.

Future expected amortization of intangible assets at December 31, 2021, is as follows:

(in thousands) Expected Amortization Expense

1 unchanged sentence

Remainder of 2022

2026 and thereafter 7,180

Total $ 19,187

Intangible asset amortization expense was $ 0.3 million and $ 0.3 million for the three months ended June 30, 2021 and 2020, respectively, and $ 1.0 million and $ 1.0 million for the nine months ended June 30, 2021 and 2020, respectively.

Intangible asset amortization expense was $ 0.8 million and $ 0.3 million for the three months ended December 31, 2021 and 2020, respectively.

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

The Company has not identified indicators of impairment requiring an interim impairment test on material long-lived assets during the three and nine months ended June 30, 2021.

The Company has not identified indicators of impairment requiring an interim impairment test on material long-lived assets during the three months ended December 31, 2021.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

The Company’s interim effective income tax rate is based on management’s best current estimate of the Company's expected annual effective income tax rate.

The Company recorded pre-tax income in the first nine months of fiscal year 2021 and its corresponding effective tax rate is 5.9 % compared to ( 8.4 %) for the first nine months of fiscal year 2020.

The change in the effective tax rate for the nine months ended June 30, 2021 as compared to the same period in the prior year was primarily due to state and foreign taxes.

Tax expense in the nine months ended June 30, 2021 is due to state and foreign taxes paid.

The Company recorded pre-tax income in the first three months of fiscal year 2022 and its corresponding effective tax rate is 21.3 % compared to 6.2 % for the first three months of fiscal year 2021.

The change in the effective tax rate for the three months ended December 31, 2021 as compared to the same period in the prior year was primarily due to state and foreign taxes, and the utilization of net operating losses.

Tax expense in the three months ended December 31, 2021 is due to state and foreign taxes paid and the utilization of net operating losses.

The effective tax rate differed from the U.S.

statutory federal rate of 21% primarily as a result of the utilization of net operating losses and the impact of foreign, state, and local income taxes and permanent tax adjustments.

statutory federal rate of 21% primarily as a result of the impact of foreign, state, and local income taxes and permanent tax adjustments.

The Company applies the authoritative guidance related to uncertainty in income taxes.

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

The Company identified no new uncertain tax positions during the nine months ended June 30, 2021.

The Company identified no new uncertain tax positions during the three months ended December 31, 2021.

The Company and its subsidiaries file income tax returns in the U.S.

federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the United Kingdom.

As of June 30, 2021, none of the Company's federal or state income tax returns are under examination, however, we remain subject to examination for certain of our foreign income tax returns.

The Company has no open income tax examinations in the U.S.

As of December 31, 2021, the Company has no open income tax examinations in the U.S.

and the statute of limitations for years prior to 2018 is now closed.

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.

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

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

During fiscal year 2020, the Company recovered its full AMT refund of $ 1.7 million.

Prior to the CARES Act, the Company’s AMT credits were recoverable in fiscal years 2021 through 2023.

The CARES Act also permits net operating loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

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.

Stockholders’ Equity

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

Common Stock Treasury Stock

(dollars in thousands) Shares Amount Additional

Capital Accumulated

Capital Shares Amount Accumulated

Comprehensive

2 unchanged sentences

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

Net loss — — — — ( 5,196 ) ( 5,196 )

Net income — — — — — — 4,514 4,514

Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 151,845 — 197 — — — — 197

1 unchanged sentence

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

Common stock repurchased — — — ( 309,496 ) ( 4,103 ) — — ( 4,103 )

Common stock surrendered in the exercise of stock options — — 169 ( 9,384 ) ( 169 ) — — —

Stock compensation expense — — 1,801 — — — — 1,801

1 unchanged sentence

Balance at December 31, 2020 34,212,815 $ 34 $ 250,002 $ ( 866,388 ) $ ( 8,255 ) $ ( 8,886 ) $ ( 117,832 ) $ 115,063

Net loss — — — — ( 4,238 ) ( 4,238 )

Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 111,272 — 32 — — 32

Taxes paid associated with net settlement of stock compensation awards ( 10,065 ) — ( 60 ) — — ( 60 )

Stock compensation expense — — 1,244 — — 1,244

Foreign currency translation — — — ( 1,303 ) — ( 1,303 )

Balance at March 31, 2020 33,988,798 $ 34 $ 244,527 $ ( 8,443 ) $ ( 128,006 ) $ 108,112

Net income — — — — 213 213

Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 34,185 — 1 — — 1

Taxes paid associated with net settlement of stock compensation awards ( 1,210 ) — ( 6 ) — — ( 6 )

Stock compensation expense — — 1,494 — — 1,494

Foreign currency translation and other — — — 424 — 424

Balance at June 30, 2020 34,021,773 $ 34 $ 246,016 $ ( 8,019 ) $ ( 127,793 ) $ 110,238

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

Stock Compensation Incentive Plans

The Company has several incentive plans under which stock options, restricted stock units (RSUs), restricted stock awards (RSAs), and cash-settled stock appreciation rights (SARs) have been issued, including the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan, as amended, and a plan and private placement issuances related to the Company’s acquisition of Machinio.

As of June 30, 2021, the Company has reserved at total of 19,100,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans.

As of December 31, 2021, the Company has reserved at total of 19,100,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans.

Vesting of RSUs and grants of RSAs count as 1.5 x shares against the plan reserves.

As of June 30, 2021, 1,901,415 shares of common stock remained available for use.

As of December 31, 2021, 994,605 shares of common stock remained available for use.

Stock Compensation Expense

The table below presents the components of share-based compensation expense (in thousands):

Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 2021 2020

Three Months Ended December 31,

Equity-classified awards:

3 unchanged sentences

Liability-classified awards:

SARs 278 22 945 ( 75 )

Total stock compensation expense:

$ 2,280 $ 2,229

The table below presents the components of share-based compensation expense by line item within our Condensed Consolidated Statement of Operations (in thousands):

Three Months Ended December 31,

Stock Compensation Expense by Line Item

Technology and operations $ 303 $ 367

Sales and marketing 490 580

General and administrative 1,487 1,282

Total stock compensation expense:

$ 2,280 $ 2,229

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

Stock Options and RSUs & RSAs

The following table presents stock option and RSUs & RSAs grant activity:

Nine Months Ended

June 30, 2021

Three Months Ended

December 31, 2021

Stock Options granted:

10 unchanged sentences

Weighted average grant date fair value $ 18.80

________________

1 55,000 RSUs containing service conditions and 70,000 RSUs containing performance conditions were granted by private placement.

The stock options and RSUs & RSAs containing only service conditions will vest over a four-year service period.

The stock options and RSUs & RSAs containing performance conditions will vest upon the achievement of specified financial targets of the Company or its segments.

The stock options and RSUs & RSAs containing performance conditions will vest upon the achievement of specified financial targets of the Company, a segment, or a division of a segment.

The stock options and RSUs & RSAs containing market conditions will vest upon the achievement of specified increases in the Company’s share price.

Vesting is measured the first day of each fiscal quarter over the four-year terms of the awards, starting with the first fiscal quarter after the first anniversary of the grant date, based upon the trailing 20-days average of the Company’s share price.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

The range of assumptions used to determine the fair value of stock options containing only service conditions using the Black-Sc holes option-pricing model during the nine months ended June 30, 2021 were as follows:

Nine Months Ended

June 30, 2021

The range of assumptions used to determine the fair value of stock options containing only service conditions using the Black-Sc holes option-pricing model during the three months ended December 31, 2021 were as follows:

Three Months Ended

December 31, 2021

Dividend yield —

2 unchanged sentences

Expected term 4.5 - 5.0 years

The range of assumptions used to determine the fair value of stock options and RSUs & RSAs containing market conditions using Monte Carlo simulations during the nine months ended June 30, 2021 were as follows:

Nine Months Ended

June 30, 2021

The range of assumptions used to determine the fair value of stock options and RSUs & RSAs containing market conditions using Monte Carlo simulations during the three months ended December 31, 2021 were as follows:

Three Months Ended

December 31, 2021

Dividend yield —

2 unchanged sentences

Expected holding period (% of remaining term) 29.4 % - 100.0 %

During the nine months ended June 30, 2021, the Company did no t issue any SARs, 43,959 SARs were exercised requiring the Company to make cash payments of $ 0.4 million, and 73,681 SARs were canceled.

As of June 30, 2021 , 43,170 SARs were outstanding.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

During the three months ended December 31, 2021, the Company did no t issue any SARs, 750 SARs were exercised requiring the Company to make cash payments of less than $ 0.1 million, and 2,500 SARs were canceled.

As of December 31, 2021 , 38,795 SARs were outstanding.

Share Repurchase Program

3 unchanged sentences

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

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 647,583 shares for $ 12.0 million and 957,079 shares for $ 16.1 million under this program during the three and six months ended March 31, 2021 , respectively.

As of March 31, 2021 , we had no remaining authorization to repurchase shares under these programs.

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 made no repurchases under the May 3, 2021 Stock Repurchase Plan during the three months ended June 30, 2021.

The Company had no remaining share repurchase authorization as of September 30, 2021.

On December 6, 2021, the Company's Board of Directors authorized a new stock repurchase plan (the "December 6 Stock Repurchase Plan") of up to $ 20 million of the Company's ou tstanding shares of common stock through December 31, 2023.

During the three months ended December 31, 2021, the Company repurchased a total of 147,185 shares for $ 3.0 million under this program.

As of December 31, 2021, the company may repurchase an additional $ 17.0 million of shares under this program.

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 nine months ended June 30, 2021, participants surrendered 82,612 shares of common stock in the exercise of stock options .

During the three months ended December 31, 2021 and December 31, 2020, participants surrendered 4,678 a nd 9,384 shares of common stock, respectively, in the exercise of stock options.

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

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

Fair Value Measurement

5 unchanged sentences

Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

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

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

The Company had $ 40.0 million of money market funds considered cash equivalents at December 31, 2021 and September 30, 2021.

These assets were measured at fair value at December 31, 2021 and September 30, 2021 and were classified as Level 1 assets within the fair value hierarchy.

There were no transfers between levels during the periods presented.

During the three months ended December 31, 2021, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary fair value of contingent consideration in the amount of $ 26.9 million on its Condensed Consolidated Balance Sheets.

The contingent consideration is based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022.

The liability for this consideration has $ 14.5 million included in Accrued expenses and other current liabilities and $ 12.4 million recorded in Other long-term liabilities within the Condensed Consolidated Balance Sheets.

The Company fair valued the earn-out consideration using Monte Carlo valuation method.

The fair value measurements utilized 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 measurem ent categorized within Level 3 of the fair value hierarchy included estimated results of operations over the earn-out period, volatility of gross profit and operating expenses, and the discount rate.

The earn-out consideration was preliminarily valued at approximately $ 26.9 million at the acquisition date.

Fair value of the earn-out consideration will be remeasured at the end of each calendar quarter until December 31, 2022.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

T he changes in earn-out liability measured at fair value for which the Company has used Level 3 inputs to determine fair value during the three months ended December 31, 2021, is as follows (in thousands):

Contingent Consideration

Balance at September 30, 2021 $ —

Earn-out from business acquisition 26,900

Balance at December 31, 2021 $ 26,900

When valuing its Level 3 liability, management's estimation of fair value is based on the best information available in the circumstances and may incorporate management's own assumptions around market demand which could involve a level of judgment, taking into consideration a combination of internal and external factors.

Changes in the fair value of the Company's Level 3 liability are recorded in Other operating (income) expenses in the Condensed Consolidated Statements of Operations.

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 assets and liabilities approximate fair value.

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

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

As of December 31, 2021, the Company had no non-financial instruments measured at fair value on a non-recurring basis other than fair value measurements associated with the preliminary purchase accounting for Bid4Assets.

See Note 3 - Bid4Assets Acquisition for more information.

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

Defined Benefit Pension Plan

2 unchanged sentences

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

The net periodic (benefit) is recognized within Interest and other income, net in the Consolidated Statements of Operations, and for the three and nine months ended June 30, 2021 and 2020 included the following components:

Three Months Ended June 30, Nine Months Ended June 30,

The net periodic (benefit) is recognized within Interest and other income, net in the Condensed Consolidated Statements of Operations, and for the three months ended December 31, 2021 and 2020 included the following components:

Three Months Ended December 31,

(in thousands) 2021 2020

3 unchanged sentences

Total net periodic (benefit) $ ( 98 ) $ ( 82 )

During the three months ended June 30, 2021, the Company extended early settlement offers to all members of the Scheme.

The impact of the potential pension settlement, which could be significant, has not been reflected in the financial statements for the three and nine months ended June 30, 2021 as the window for members to respond to the early settlement offer extends into the three months ended September 30, 2021.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

Business Realignment Expenses

Business realignment expenses are associated with management changes, exiting certain businesses, or other cost saving actions, and include employee severance and benefit costs associated with terminations, occupancy costs associated the ceased use of facilities, and other related costs, such as impairments.

Business realignment expenses are recorded as a component of Other operating expenses on the Consolidated Statements of Operations.

For the year ended September 30, 2020, business realignment expenses were incurred related to the elimination of certain employee positions in response to the COVID-19 pandemic.

The table below sets forth the significant components and activity in the liability for business realignment initiatives, on a segment and consolidated basis:

(in thousands) Liability Balance at September 30, 2019 Adoption of ASC 842 Business

Expenses Cash

Payments Liability Balance at September 30, 2020 Business

Expenses Cash

Payments Liability Balance at June 30, 2021

Employee severance and benefit costs:

GovDeals $ — $ — $ 29 $ ( 25 ) $ 4 $ — $ ( 4 ) $ —

RCSG — — 84 ( 64 ) 20 — ( 20 ) —

CAG 414 — 120 ( 481 ) 53 5 ( 58 ) —

Corporate & Other 238 — 172 ( 410 ) — — — —

Total employee severance and benefit costs $ 652 $ — $ 405 $ ( 980 ) $ 77 $ 5 $ ( 82 ) $ —

Occupancy and other costs:

CAG 169 ( 169 ) — — — — — —

Corporate & Other — — — — — — — —

Total occupancy and other costs $ 169 $ ( 169 ) $ — $ — $ — $ — $ — $ —

Total business realignment $ 821 $ ( 169 ) $ 405 $ ( 980 ) $ 77 $ 5 $ ( 82 ) $ —

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

Legal Proceedings and Other Contingencies

The Company reserves for contingent liabilities based on ASC 450, Contingencies, when it determines that a liability is probable and reasonably estimable.

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

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

The Equal Employment Opportunity Commission subsequently assigned Plaintiff’s claim to the Montgomery County Office of Human Rights for investigation, which, in turn, dismissed Plaintiff’s claim after plaintiff filed a complaint in the United States District Court for the District of Maryland Southern Division on May 19, 2021.

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, 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 parties settled the wage and hour claims for an immaterial amount in May 2021.

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.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

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.

Unless otherwise noted, based on the information currently available, there are no claims or actions pending or threatened against the Company that, if adversely determined, would have, in Company’s management’s judgement based on the information known to management, a material adverse effect based on the Company in the Company.

Segment Information

2 unchanged sentences

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 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 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, salvage and real estate assets through our GovDeals and Bid4Assets marketplaces (see Note 3).

• 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, Secondipity and AllSurplus Deals 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.

This segment includes the Company's GoIndustry DoveBid marketplace and self-directed and full-service solutions for commercial businesses on the AllSurplus 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.

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 self-directed service solutions for commercial businesses on the AllSurplus 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.

Decisions concerning the allocation of the Company’s resources are made by the Company’s Chief Operating Decision Maker (CODM), which is the Company's Chief Executive Officer, with oversight by the Board of Directors.

The Company reports segment information based on the internal performance measures used by the CODM to assess the performance of each operating segment in a given period.

The Company reports reportable segment information based on the internal performance measures used by the CODM to assess the performance of each operating segment in a given period.

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

2 unchanged sentences

and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements - (Continued)

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

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

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(in thousands) 2021 2020

26 unchanged sentences

The following table reconciles gross profit used in the reportable segments to the Company's consolidated results:

Three Months Ended June 30, Nine Months Ended June 30,

Three Months Ended December 31,

(in thousands) 2021 2020

2 unchanged sentences

Operating expenses 34,494 28,548

Other operating expenses 1,180 319 1,390 500

Other operating (income) expenses ( 32 ) 4

Interest and other income, net ( 131 ) ( 185 )

Income (loss) before provision for income taxes $ 8,848 $ 422 $ 19,326 $ ( 8,511 )

The percent of our revenues that came from transactions conducted outside of the United States for the three months ended June 30, 2021 and 2020 was 14.4 % and 11.2 %, respectively, and the percent of our revenues that came from transactions conducted outside the United States for the nine months ended June 30, 2021 and 2020 was 16.2 % and 12.5 %, respectively.

Income before provision for income taxes $ 4,614 $ 4,811

The percent of our revenues that came from transactions conducted outside of the United States for the three months ended December 31, 2021 and 2020 w as 13.5 % and 9.6 %, respectively.

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-Q

Item 1. Financial Statements