Liquidity Services, Inc. Annual Report 2014

FY2014 Annual Report · Liquidity Services, Inc.

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2014 Annual Report

Driving Client
Success

liquidityservices.com

A TruSTeD
PArTNer

Client satisfaction drives our success. We seek to exceed
clients’ expectations by helping them grasp the true value
potential of their surplus. No matter the category, type,
or location of our clients’ assets, we optimize and execute
surplus management strategies to help them achieve
their goals.

Every organization has surplus: idle or used equipment, returned goods,
and excess inventory no longer required. Liquidity Services is committed
to intelligently capturing the enduring value of surplus assets, benefiting
our clients, our buyers, and our planet. By managing assets across the
globe more profitably, more efficiently, and more strategically, we transform
surplus from a burden into liquid opportunity that fuels the achievement
of strategic goals.

BAE Systems

Through strategic asset disposition, AssetZone®

software facilitates smart decision-making, and transparent,
comprehensive reporting. We helped BAE Systems generate

nearly $3 million in recovery from 1,200 assets sold, leading it

to extend our contract another two years.

www.liquidityservices.comOur superior service, unmatched scale, and ability to deliver results
enable us to forge trusted, long-term relationships with over 7,000 clients
worldwide, including Fortune 1000 and Global 500 companies as well as
government enterprises. With nearly $1 billion in annual sales proceeds and
nearly three million registered buyers in almost 200 countries and territories,
we are the proven market leader in delivering smart surplus solutions.

Better Service.

Better Scale.

Better Results.

We empower clients to
make informed, sustainable
decisions; mitigate risks; and
generate results that are
meaningful and measurable.

We offer clients integrated
solutions that simplify
operations and enhance
productivity globally through
our reach, multichannel sales
capabilities, and unparalleled
scope of services.

We drive maximum return and
velocity for clients through
proven performance and
continuous improvements to
our buyer base, processes, and
technologies.

International Manufacturer of Energy and

Petrochemical Products

Leveraging online marketplaces, email marketing, and targeted

advertising channels, we created a market in a remote Caribbean
location, selling the client’s assets for nearly $1.5 million while

carefully navigating all environmental and safety risks.

2014 Annual ReportCoRpoRAte InfoRmAtIonA Letter to
ShArehoLderS

Fellow Shareholders:

During FY2014, we focused on positioning Liquidity
Services’ commercial and municipal government
business for long-term success. While we made
progress expanding and diversifying our commercial
client base, overall financial results were pressured
during the year due to the changing mix and volume
of our legacy DoD surplus business and industry
softness with select, longstanding commercial
clients. During FY2014, we continued to demonstrate
our market leadership by pioneering asset recovery
programs with blue chip companies in key industry
verticals such as consumer packaged goods,
electronics manufacturing, energy, healthcare,
technology, transportation, and retail. Highlights
from FY2014 include:

• Our municipal business grew 12% with continued

expansion in the U.S. and Canada;

• Our Retail Supply Chain Group business
expanded with many F1000 retail and
manufacturing accounts and grew its presence in
Canada with existing and new clients;

• Our Capital Assets Group business was very

successful signing new global and Fortune 1000
accounts in all key industrial sectors as we have
centralized our sales organization under a single
leader and moved the entire sales organization
to a common sales force automation system and
sales playbook;

• We continued to grow buyer participation in
our marketplace with over 2.5 million auction
participants and approximately 547,000
completed transactions;

• We continued to expand our asset redeployment,
returns management, and refurbishing services to
provide clients with a turn-key solution to manage
all of their needs; and

• We expanded our employee leadership

development programs and facilitated the
successful appointment of internal candidates in
every major area of our business during the year.

Client success is a key theme of this report, and we
have provided examples which illustrate how our
industry knowledge, multi-channel sales capabilities,
services, and global footprint are unique and highly
valued by the world’s top retailers, manufacturers,
and municipalities. Our ability to manage, value,
and sell nearly all asset categories and conditions in
every major industry vertical for clients this past year
has strengthened our status as the world’s largest
marketplace for business surplus. Liquidity Services
exited 2014 with over 7,000 clients; 2.6 million
registered buyers; global operations in the U.S.,
Canada, Europe, and Asia; and with a strong balance
sheet to fund our priorities with over $63 million in
cash and zero long-term debt.

Our Strategy

The focus of our long-term growth strategy is on
our commercial and municipal government business.
By delivering better service, scale, and results for
clients in the global reverse supply chain, we will tap
growing demand from large U.S. retailers, blue chip
manufacturers, and government agencies in multiple
regions, asset categories, and service lines to grow
our business.

Through organic growth and acquisitions we have
doubled the size of our commercial and municipal
government business over the past three years from
$359 million in FY2011 GMV to $727 million in FY2014
GMV. GAAP Revenues have more than doubled over
the same time frame. This part of the business will
continue to be the focus of our time, investment, and
growth strategy.

To enable our vision of building a diversified, multi-
billion dollar GMV business that enables sellers and
buyers of all sizes to easily manage and monetize
assets in the $150 billion reverse supply chain,
we have launched a multi-year investment strategy
called LiquidityOne.

www.liquidityservices.comOur LiquidityOne transformation plan is focused on
three key areas which will enable the growth of our
commercial business including:

• the integration and enhancement of our

operational processes and marketplace systems;

• the development of new services and capabilities
to grow supply and demand on our platform and
expand our ecosystem of channel partners; and

• the launch of an aligned global brand to reach

Our entire team looks forward to working together
this year to advance our market leadership and
LiquidityOne transformation plan, while maintaining
the highest standards of integrity, service, and
quality to our clients and buying customers.
We thank our clients and shareholders for their
trust and support in 2014 and in the years ahead.

Sincerely,

more customers with our superior offering.

Sincerely,

William P. Angrick, III
Chairman and Chief Executive Officer

This multi-year transformation of our business from
independent marketplaces to an integrated global
business and marketplace platform will result in
improved sales performance, a superior customer
experience, and a more efficient and scalable
operational platform to support our next phase
of growth and value creation.

We recognize that undertaking and funding a large
transformation while supporting our “as is” business
will place a drag on productivity and margins in
the near term. However, with a market-leading
commercial business approaching $1 billion of
GMV, a large market that is ripe for innovation, and
a growing roster of marquee client relationships,
our strategic actions will result in a more diversified,
scalable business with additional opportunities for
growth and value creation for our long-term owners.

Biotech Research Company

Leveraged base of industry specific buyers to sell all assets

for large biotech company, creating more revenue to
enhance company’s core business activities and

further industry leadership.

2014 Annual ReportCoRpoRAte InfoRmAtIonMArket
LeAderShip

Consistent
Profitability
By delivering high
customer value,
Liquidity Services
has grown its
GMV 23.4% and
its Adjusted EPS
by 15.7% since 2006.

GMV
(in millions)

Adj EPS*
(in dollars)

Margins
(% of revenue)

Adj.
EBITDA*
(in millions)

$932

1.03

2 0 1 4

12.7%

$63.0

$973

1.75

2 0 1 3

20.7%

$104.6

$864

1.86

2 0 1 2

23.2%

$110.0

$559

1.05

2 0 1 1

15.6%

$52.7

$430

0.59

2 0 1 0

13.1%

$37.5

$356

0.30

2 0 0 9

10.0%

$23.6

$360

0.51

2 0 0 8

9.9%

$26.2

$234

0.43

2 0 0 7

10.3%

$20.4

$173

0.32

2 0 0 6 10.2%

$15.0

Efficient
Operating Model
Liquidity Services consistently
delivers profitability and
margins by leveraging a
transparent and asset
light operating model.
In FY14, we experienced
margin pressure driven
by property mix shift
and investments in our
technology platform.

*Includes adjustments for stock-based compensation expense, acquisition costs including changes in earn out estimates, goodwill impairment, & business realignment expense

Largest Global Demand for Surplus Assets
Liquidity Services’ unmatched services, scale and track record continue to
attract increasing growth and demand from our global buyer base.

$250

$200

$150

$100

2006

2007

2008

2009

2010

2011

2012

2013

2014

2,500

2,000

1,500

1,000

500

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www.liquidityservices.comTiTleTexT

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

(Mark One)

(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FORM 10-K

For the fiscal year ended September 30, 2014

(cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number 0-51813
LIQUIDITY SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)

1920 L Street, N.W., 6th Floor, Washington, D.C.
(Address of Principal Executive Offices)

52-2209244
(I.R.S. Employer
Identification No.)

20036
(Zip Code)

(202) 467-6868
(Registrant’s Telephone Number, Including Area Code)

Securities Registered pursuant to Section 12(b) of the Act:
None

Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes (cid:3) No (cid:2)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the

Act. Yes (cid:3) No (cid:2)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d)

of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes (cid:2) No (cid:3)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes (cid:2) No (cid:3)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller
reporting company’’ in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer (cid:2)

Non-accelerated filer (cid:3)

Smaller reporting company (cid:3)

Accelerated filer (cid:3)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act). Yes (cid:3) No (cid:2)

Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of
March 31, 2014 based upon the closing price of the common stock as reported by The NASDAQ Stock Market on such
date, was approximately $691,811.49.

The number of shares outstanding of the issuer’s common stock, par value $.001 per share, as of November 17,

2014 was 29,925,911.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement relating to its 2015 Annual Stockholders’ Meeting, to be filed

subsequently, are incorporated by reference into Part III of this Form 10-K.

INDEX

TABLE OF CONTENTS

Description

PART I

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplemental Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

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Item

1.
1A.
1B.
2.
3.
4.

6.
7.

7A.
8.
9.

9A.
9B.

10.
11.
12.

13.
14.

Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58
101

PART IV

Unless the context requires otherwise, references in this report to ‘‘we,’’ ‘‘us,’’ the ‘‘Company’’ and ‘‘our’’

refer to Liquidity Services, Inc. and its subsidiaries.

Item 1. Business.

Overview

PART I

We operate leading online auction marketplaces for surplus and salvage assets. We enable buyers
and sellers to transact in an efficient, online auction environment offering over 500 product categories.
Our marketplaces provide professional buyers access to a global, organized supply of surplus and
salvage assets presented with customer focused information including digital images and other relevant
product information along with services to efficiently complete the transaction. Additionally, we enable
our corporate and government sellers to enhance their financial return on excess assets by providing
liquid marketplaces and value-added services that integrate sales and marketing, logistics and
transaction settlement into a single offering. We organize our products into categories across major
industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment,
aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet
and transportation equipment, and specialty equipment. Our online auction marketplaces are
www.liquidation.com, www.govliquidation.com, www.govdeals.com, www.networkintl.com,
www.truckcenter.com, www.secondipity.com, and www.go-dove.com.

We believe our ability to create liquid marketplaces for surplus and salvage assets generates a
continuing flow of goods from our corporate and government sellers. This valuable and reliable flow of
goods in turn attracts an increasing number of professional buyers to our marketplaces. During fiscal
year 2014, the number of registered buyers grew from approximately 2,424,000 to approximately
2,615,000, or 7.9%.

During the past three fiscal years, we have conducted over 1,578,000 online transactions generating
over $2.8 billion in gross merchandise volume or GMV. We believe the continuing flow of goods in our
marketplaces attracts a growing buyer base which creates a self-sustaining cycle for our buyers and
sellers.

In the fiscal year ended September 30, 2014, we generated GMV of $931.6 million and revenue of

$495.7 million through multiple sources, including transaction fees from sellers and buyers, revenue
sharing arrangements, value-added service charges and online advertising fees. Our GMV has grown at
a compound annual growth rate of approximately 23% since fiscal year 2006. Additionally, we have
been profitable and cash flow positive each year from fiscal year 2003 through fiscal year 2014.

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

operations in early 2000.

Industry Overview

While a well-established forward supply chain exists for the procurement of assets, most

manufacturers, retailers, corporations and government agencies have not made significant investments
in their reverse supply chain process or systems. The reverse supply chain addresses the redeployment
and remarketing of surplus and salvage assets. These assets generally consist of retail customer returns,
overstock products and end-of-life goods or capital assets from both the corporate and government
sectors. According to the National Retail Federation, a retail industry association, the total value of
merchandise returned in the United States for 2013 is estimated to be $259 billion, up approximately
19% from $217 billion in 2011.

The supply of surplus and salvage assets in the reverse supply chain results from a number of

factors, including:

(cid:129) Supply chain inefficiencies. Forecasting inaccuracies, manufacturer overruns, cancelled orders,
evolving market preferences, discontinued product lines, merchandise packaging changes and
seasonal fluctuations result in the growth of surplus assets.

(cid:129) Product innovation. Continuous innovation in technology products, such as computer and office

equipment, consumer electronics, and personal communication and entertainment devices,
results in a continuous flow of surplus assets.

(cid:129) Return policies of large national and online retailers. The flexible return practices of many large

national retailers and online shopping sites result in a continuous supply of returned
merchandise, a significant portion of which must be liquidated.

(cid:129) Compliance with government regulations. An increasingly stringent regulatory environment

necessitates the verifiable recycling and remarketing of surplus assets that would otherwise be
disposed of as waste.

(cid:129) Increasing focus by corporate and government agencies to seek green solutions for surplus assets.
Most organizations appreciate the growing need to be environmentally friendly by improving
their management of end of life or surplus goods, including creating the need to repurpose or
efficiently redistribute surplus and capital assets to minimize waste and maximize value for
themselves and the communities they serve.

(cid:129) Changing budgetary trends in corporate and governmental entities. As corporate and governmental
entities increasingly are being pressured to enhance efficiencies, while utilizing less resources,
surplus and salvage capital assets become a source of funds once liquidated.

Organizations that manufacture, distribute, sell or use finished goods regularly need to dispose of

excess inventory or returned merchandise. We believe the management and remarketing of surplus
assets traditionally has been an inefficient process. While many organizations spend considerable
resources developing systems and channels supporting the flow of finished goods to their core
customers, we believe that many have not historically dedicated significant resources to the reverse
supply chain. Factors contributing to these inefficiencies in the reverse supply chain include the lack of:

(cid:129) a centralized and global marketplace to sell bulk products in the reverse supply chain;

(cid:129) awareness of effective methods and mechanisms for disposal of surplus assets;

(cid:129) experience in managing the reverse supply chain to seek optimal net returns and improve gross

margins; and

(cid:129) real time market data on surplus assets as they move through the final steps of the product life

cycle.

Traditional methods of surplus and salvage asset disposition include ad-hoc, negotiated direct sales,
utilization of individual brokers or sales agents and live on-site auctions. We believe these solutions are
generally highly fragmented, geographically dispersed and poorly integrated with supply chain
operations. The manual, negotiated and geographically dispersed nature of traditional surplus resale
methods results in a lack of pricing transparency for offered goods, multiple brokers/parties ultimately
involved in the final disposition and a lower number of potential buyers and bids, which we believe
typically leads to lower recovery for sellers.

A significant number of professional buyers seek surplus and salvage assets to sustain their
operations and end customers demand. They include online and offline retailers, convenience and
discount stores, value-added resellers such as refurbishers and scrap recyclers, import and export firms,
and small businesses. Traditionally, these buyers have had limited access to a reliable flow of surplus
goods and assets, relying instead on their own network of industry contacts and fixed-site auctioneers to

locate, evaluate and purchase specific items of interest. Traditional methods are inefficient for buyers
due to the lack of:

(cid:129) global access to an available continuous supply of desired goods and assets;

(cid:129) efficient and inexpensive sourcing processes;

(cid:129) a professionally managed central marketplace with transparent, high quality services;

(cid:129) detailed information and product description for the offered goods; and

(cid:129) pricing transparency or ability to compare asset prices.

The Internet is a global medium enabling millions of people worldwide to share information,
communicate and conduct business electronically. Cisco, a virtual networking index, estimates that by
2018, there will be nearly four billion global Internet users (more than 51 percent of the world’s
population), up from 2.5 billion in 2013. (Source: Cisco VNI Global IP Traffic Forecast, 2013 - 2018).
We believe professional buyers of surplus and salvage assets will increasingly use the Internet to
identify and source goods available for immediate purchase.

Our Solution

Our solution is comprised of our online auction marketplaces and value-added services. Our
marketplaces and services are designed to provide sellers a comprehensive solution to quickly bring
surplus assets to market and enhance the financial value realized from the sale of their surplus assets
while providing buyers with confidence in the reliable flow of goods they purchase. We provide our
sellers access to several liquid marketplaces with over 2.6 million professional buyers and a suite of
services and logistics capabilities to efficiently manage our clients’ reverse supply chain. We seek the
optimal methods to maximize our clients’ net recovery using channel strategies and dedicated programs
to deliver transparent, sustained value.

Through our relationships with sellers, we provide buyers convenient access to a substantial and

continuous flow of surplus and salvage assets. We provide buyers with products in over 500 categories
in lot sizes ranging from full truck loads to pallets, packages and individual items. Our solution
combines leading online marketplaces with a full suite of integrated sales, marketing, merchandising,
fulfillment, payment collection, customer support, dispute mediation and logistics services. We provide
buyers a convenient method for sourcing surplus and consumer goods. For any given asset, buyers have
access to a detailed product description, product manifest, digital images of a product, relevant
transaction history regarding the seller, shipping weights, product dimensions and estimated shipping
costs to the buyer’s location. This enables our solutions to become the primary source for many of our
professional buyers and end-users.

The following chart provides a summary of our online marketplace solution:

Pre-Sale

Auction

Post-Sale

Sellers

(cid:129) Sales plan
(cid:129) Marketing
(cid:129) Digital imaging
(cid:129) Asset lotting
(cid:129) Auction creation

(cid:129) Support services
(cid:129) Promotion

(cid:129) Invoicing
(cid:129) Payment collection

Sellers &
Buyers

(cid:129) Seller/Buyer qualification
(cid:129) Distribution center access

(cid:129) Seller/Bidder
communication
(cid:129) Dynamic pricing

(cid:129) Dispute mediation
(cid:129) Shipping coordination
(cid:129) Tracking and reporting
(cid:129) Fund disbursement

Buyers

(cid:129) Search tools
(cid:129) Intelligent alerts
(cid:129) Inspection of goods
(cid:129) Customer Service

(cid:129) Product information
(cid:129) Shipping information
(cid:129) Proxy bidding
(cid:129) Outbid notification

(cid:129) Payment solutions
(cid:129) Title transfer

12NOV201421551910
We believe our marketplaces benefit over time from greater scale and adoption by our constituents

creating a virtual cycle for our buyers and sellers. As of September 30, 2014, we had aggregated over
2,615,000 registered buyers in our marketplaces and access to millions of end-users through a range of
existing consumer marketplaces. Aggregating this level of buyer demand and market data enables us to
generate a continuous flow of goods from corporate and government sellers, which in turn attracts an
increasing number of professional buyers. During the fiscal year ended September 30, 2014 we had over
2,538,000 auction participants in our online auctions from our registered buyers. During fiscal year
2014, we grew our registered buyer base by 7.9% or approximately 191,000. As buyers continue to
discover and use our online marketplaces as an effective method to source assets, we believe our
solutions become an increasingly attractive sales channel for corporations and government agencies. We
believe this self-reinforcing cycle results in greater transaction volume and enhances the value of our
marketplaces.

Competitive Factors

We have created liquid marketplaces for virtually any type, quantity or condition of surplus or

salvage assets. The strengths of our business model include:

Aggregation of supply and demand for surplus and salvage assets

Our ability to aggregate sellers and buyers through our marketplaces is a fundamental strength of

our business model. Sellers benefit from a liquid, transparent market and the active participation of our
large base of professional buyers, which enhances returns. Buyers benefit from our relationships with
high-volume, corporate and government sellers, which provides them with continuous access to a
comprehensive selection of surplus and salvage assets. Our solution eliminates the need for sellers and
buyers to rely on the highly fragmented and geographically dispersed group of traditional liquidators.
Instead, sellers and buyers conveniently access our online marketplaces for their entire surplus and
salvage asset needs.

Integrated and comprehensive solution

Our marketplaces are designed to provide sellers and buyers with a comprehensive solution for the

online sale and purchase of surplus and salvage assets. We offer a full suite of value-added services to
simplify the sales and supply chain processes for sellers and improve the utility of our marketplaces for
buyers. For corporate and government sellers, we provide sales, marketing, logistics and customer
support services that are fully integrated with our marketplaces, creating operational and system
efficiencies. For many of these sellers, asset disposition is not a core business function to which they
desire to dedicate internal resources. With our solution, we manage each step of the transaction and
supply chain for our sellers reducing complexity while providing the ability to optimize the client’s net
financial return in the sale of surplus goods and assets. Sellers simply make goods available at their
facilities or deliver them to our distribution centers and we deliver the profits after the sale is
completed. Our buyer services include intelligent alerts, search tools, dynamic pricing, shipping and
delivery, secure settlement, live customer support and dispute resolution to enable the most effective
methods to source assets for their businesses.

Flexible and aligned transaction model

We offer three primary transaction models to our sellers: consignment, profit-sharing and purchase.

Under these models, our compensation is derived from either the gross or net proceeds received from
the sale of the assets. Our consignment and profit-sharing arrangements are designed to maximize
returns by aligning our economic interests.

Faster transaction cycle times for our seller and buyers

We believe our marketplace solutions allow sellers to complete the entire sales process more
rapidly than through other liquidation methods by generally reducing the complexities in the reverse
supply chain and utilizing our multi-channel strategies to optimize recovery and velocity. As a result,
sellers are able to reduce surplus or less valuable inventory quickly, generate additional working capital
and reduce the cost of carrying unwanted assets. We provide a one stop solution to enable professional
buyers of any size throughout the world to purchase assets in an efficient manner. For these buyers, we
provide a broad range of services to give them the information necessary to make an informed bid and
ensure they quickly and efficiently receive the goods purchased.

Solutions that promote sustainability and green solutions for improved corporate/government stewardship

Our solutions provide a range of capabilities that enable corporate and government agencies to
directly reduce the amount of waste generated by redistributing end of life products or assets, through
our solutions, improving the net financial recovery generated while positively impacting the
communities they serve. In aggregate, some of the world’s largest forward thinking corporations and
government agencies have significantly enhanced their stewardship of communities and the environment
by partnering with us.

Our Strategy

The focus of our growth strategy is to provide commercial, municipal government, and federal

agency clients and buying customers the world’s most transparent, innovative and effective online
marketplaces and integrated services for surplus assets. Our marketplace platform has already attracted
over 2.5 million registered buyers and $900 million of annual sales and is well positioned to serve any
seller for virtually any asset type in every industry sector. Our goal is to develop a multi-billion dollar
business by expanding our platform to a diversified base of Fortune 1000 corporations, municipal
agencies and small and medium size businesses that can benefit from our global marketplace, buyer
liquidity and integrated services.

The key elements of our growth strategy are to:

Grow our buyer base and increase active buyer participation on our marketplaces

We intend to increase the active buyer participation within our consumer goods, commercial
capital assets, and municipal government marketplaces, by attracting new buyers and leveraging our
base of existing professional buyers. We intend to attract new buyers by using a variety of online and
traditional marketing programs while improving the services and experience for our valued professional
buyers. In addition, we plan to use the comprehensive buyer profiles, preferences and transactional
data we have compiled over the last 15 years to enable us to identify and market highly relevant assets
available through our marketplaces to the most likely buyers. We believe these initiatives will help us to
increase the total number of auction participants and increase loyalty among our buyer base.

Increase value and services for existing sellers

We intend to grow by increasing the number of categories and geographies that we serve to

existing sellers as well as providing a broad range of value-added services such as return to vendor
programs and data analytics to solve the needs of large client organizations. For many of our sellers, we
currently handle only a portion of the available supply of their surplus inventory or assets. In recent
years, we have developed trusted relationships with large corporations and government agencies that
offer significant growth opportunities by increasing our services offered and share of supply of their
surplus assets. In addition, we have partnered with our sellers to identify previously unknown
(untapped) flows of surplus assets that can effectively generate greater net returns than their current
processes and improve their corporate stewardship. For example, on behalf of a large multinational
retailer, we expanded our existing operations in Canada and instituted a sustainability program,
enabling our client to realize value for products that were previously land filled, thus creating value for
our client while providing an environmentally friendly solution.

Develop new relationships

We intend to build upon our client base of the world’s largest retailers and manufacturers, our

expertise with the DoD and thousands of municipal clients to attract additional corporate and
government sellers to our marketplaces. We will extend our platform to partners who would benefit
from accessing our marketplace, including dealers, auctioneers, refurbishers, and other principals. We
will work with partners under revenue sharing and joint venture relationships with the understanding
that the assets will be transacted on our marketplace platform. The vast majority of corporations and
government agencies still rely on inefficient, traditional, and less transparent disposition methods for
their surplus assets. We believe our demonstrated performance coupled with an expanded sales
initiative will allow us to attract additional clients. As part of our ongoing sales initiative, we plan to
continue to hire additional professionals and increase our marketing and advertising to the Fortune
1000 companies in our target markets.

Innovation and technology development

We are continuing to evolve our technology in order to create a single integrated marketplace

platform to support marketing, sales, customer service, operations, financial performance and human
capital management. This effort will result in the global implementation of Liquidity Services’ best
practices across its entire business and a superior customer experience, including more personalized
tools for our buyers and sellers. Some of these, such as our Web-site enhancements or features and
multi-channel optimization have already enhanced our business. We intend to develop and introduce
new tools to further automate our global solution and leverage the scalability of our technology
investments across all of our marketplaces, including multi-currency and multi-lingual solutions. In
addition to enhancing the features, experience, and service for our buyers and sellers, we seek to

leverage the increasing insight we gain with each transaction to enhance the recovery value clients
realize along with improving the relevancy for our buyers in the reverse supply chain.

Acquire complementary businesses

We intend to increase our share of the supply of surplus and salvage goods sold by expanding our
operations geographically and across new complementary markets. To support this growth, we intend to
continue our disciplined and targeted acquisition strategy. Our approach focuses on identifying target
companies that will offer us new or complementary areas of expertise, technology advancements, client
bases and geographic territories, such as the GoIndustry acquisition, which we completed in July 2012.
In considering each acquisition scenario, we evaluate the merits of the individual opportunity and
determine whether to employ a ‘‘buy’’ or ‘‘build’’ strategy.

Our Marketplaces

Our online auction marketplaces serve as an efficient and convenient method for the sale of
surplus and salvage consumer goods and capital assets. We operate and enable several marketplaces,
including the following:

(cid:129) Our www.liquidation.com marketplace enables corporations located in the United States to sell

surplus and salvage consumer goods and capital assets. This leading business to business
marketplace and our related value-added services are designed to meet the needs of clients by
selling their surplus assets to domestic and international buyers.

(cid:129) Our www.govliquidation.com marketplace enables selected federal government agencies to sell
surplus and scrap assets. In addition to goods sold on behalf of other federal agencies, the
surplus and scrap assets we sell as the exclusive contractor of the Defense Logistics Agency
(DLA) Disposition Services of the U.S. Department of Defense are sold in this marketplace. To
satisfy the requirements of U.S. federal government agency sellers, this marketplace incorporates
additional terms and conditions of sale, such as U.S. Trade Security Controls clearance for the
sale of export-controlled property.

(cid:129) Our www.govdeals.com marketplace enables local and state government entities including city,
county and state agencies as well as school boards and public utilities located in the United
States to sell surplus and salvage assets. This marketplace and our related services are designed
to meet the unique needs of public sector clients selling to domestic and international buyers.

(cid:129) Our www.networkintl.com marketplace enables corporations to sell idle, surplus, and scrap

equipment in the oil and gas, petrochemical and power generation industries. This market place
and our related services are designed to meet the unique needs of energy sector clients.

(cid:129) Our www.go-dove.com marketplace enables corporations located in the United States, Europe,
and Asia to sell manufacturing surplus and salvage capital assets. This marketplace and our
related services are designed to meet the specific needs of manufacturing sector clients by selling
their surplus assets to domestic and international buyers.

(cid:129) Our www.truckcenter.com marketplace enables corporations located in the United States to sell

surplus and salvage transportation assets. This marketplace and our related services are designed
to meet the specific needs of companies and financial institutions by selling their surplus
transportation assets to domestic and international buyers.

Our online auction marketplaces are designed to address the particular requirements and needs of

buyers and sellers. Although our buyers may access and register on a single marketplace, we use
numerous cross-marketing and cross-promotional methods to ensure that buyers are exposed to all of
our marketplaces and to all product categories in which they have expressed an interest. For example,
we display cross-search results for all our marketplaces in response to key word searches in a single
marketplace.

In addition to these leading business to business marketplaces, we recognize the need to reach end
users for some of the assets our clients have entrusted to us. Thus, we have developed the capability to
sell products on our client’s behalf directly to end-users and/or consumers using a range of existing
marketplaces. Our www.secondipity.com marketplace provides consumers a trusted source of value
products through a socially conscious online experience designed to provide ‘‘Better Value, Better
Life,’’ through donating a portion of the proceeds of every sale to charity. We also have an established
global buyer base that seeks to buy in larger quantities than are offered through our standard auction
platform. Thus, we have dedicated sales teams to support their needs and supply chain. These range
from a single truckload to ongoing flows for export anywhere in the world, where we market, handle,
and support the full disposition on behalf of our buyers. We expect to continue to meet the needs of
our clients and to access a growing range of products for all our buyers by enabling our multi-channel
strategy to ensure we create the greatest value for assets at the end of their initial product life cycle.

Our Value-Added Services for Buyers and Sellers

We have integrated value-added services to simplify the supply chain processes for our buyers and
sellers. We believe these services create the greatest operational efficiencies within this element of the
supply chain enabling the greatest value for sellers and buyers with the highest level of confidence and
transparency in the services we provide. Additionally, we believe these services improve compliance
with the various policies, regulations and sale restrictions of our corporate and government sellers while
supporting, or greatly enhancing, many corporate or government environmental initiatives.

Seller services. We offer value-added services to sellers in three areas: (1) merchandising and channel
optimization, (2) logistics and (3) settlement and customer support.

(cid:129) Merchandising and Channel Optimization efforts encompass all of the services necessary to

prepare merchandise for a successful auction and include the following:

(cid:129) Channel Optimization—we determine the marketplace and channel sales strategy that

creates the greatest value for the individual asset using our real time transaction systems
and proprietary data to support ongoing optimization.

(cid:129) Marketing and promotion—we use a variety of both online and traditional marketing

methods to promote our sellers’ merchandise and generate the greatest interest in each
asset.

(cid:129) Asset lotting and merchandising—we leverage our industry experience to organize the

merchandise we receive into size and product combinations that meet buyer preferences
within each marketplace and channel.

(cid:129) Product information enhancement—we provide digital images of the merchandise to be sold
and combine the images with relevant information. In order to increase the realized sales
value, we also research, collect and use supplemental product information to enhance
product descriptions.

(cid:129) Logistics. We provide logistics services designed to support the receipt, handling, transportation

and tracking of merchandise offered through our marketplaces, including the following:

(cid:129) Distribution centers—we provide sellers with the flexibility of either having us manage the
sales process at their location or delivering merchandise to one of our distribution centers.

(cid:129) Inventory management—sellers benefit from our management and inventory tracking system

designed so that merchandise is received, processed and delivered in a timely manner.

(cid:129) Cataloguing merchandise—we catalogue all merchandise, which enables us to provide useful

product information to buyers and sellers. In certain circumstances, we will inspect the
merchandise and provide condition descriptions to improve quality and the financial
recovery to the client.

(cid:129) Testing, data wiping, de-labeling and refurbishment—we test products, wipe electronic data,
refurbish and remove labels and product markings from merchandise prior to sale in order
to add value to the asset and protect sellers’ brand equity and distribution relationships.

(cid:129) Return to vendor or product disposition to non-sales channels—we will manage the end to
end processes for our clients ensuring that returned merchandise is disposed through a
variety of disposition requirements including the end to end management of returning
products to vendors, charities, or channels outside of our leading marketplace solutions.

(cid:129) Outbound fulfillment—we can arrange for domestic or international shipping for all

merchandise, whether it’s a small item or container load for export located in one of our
distribution centers or at a seller’s facility.

(cid:129) Settlement and customer support. Settlement and customer support services are designed for

successful and reliable completion of transactions and include:

(cid:129) Buyer qualification—we qualify buyers to ensure their compliance with applicable

government or seller mandated terms of sale, as well as to confirm their ability to complete
a transaction.

(cid:129) Collection and settlement—we collect payments on behalf of sellers prior to delivery of any
merchandise and disburse the profits to the seller after the satisfaction of all conditions of a
sale.

(cid:129) Transaction tracking and reporting—we enable sellers and buyers to track and monitor the

status of their transactions throughout the sales process. We support the successful
completion of each transaction on behalf of the buyer and seller. We provide a range of
comprehensive reporting services to sellers upon the completion of a transaction. Our
invoicing and reporting tools can be integrated with the seller’s information system,
providing a more efficient flow of data.

(cid:129) Customer support and dispute resolution—we provide full customer support throughout the

transaction process and dispute resolution for our customers if needed.

Buyer services. Many of the services we provide to sellers also benefit buyers by providing them with
the information necessary to make a more informed bid and to receive the goods they purchased. Our
buyer focused services include the following:

(cid:129) Intelligent alerts and recommendations—we notify buyers of upcoming auctions based on their

registered preferences and prior transaction history. Registered preferences can be as broad as a
product category or as specific as a part number or key word. We use this information to ensure
informed recommendations whenever we identify a product that fits a buyer’s preference. We
will alert our buyers based on their preferences when auctions are initially launched or nearing
conclusion and based on various other parameters to enable our buyers to see the most relevant
products.

(cid:129) Search and navigation tools—buyers can search our marketplaces for products based on a variety

of criteria and personalized settings, including product category, keyword, lot size, product
condition, product geographic location and auction ending date.

(cid:129) Dynamic pricing tools, product information, and shipping quotes—we offer multiple dynamic

pricing tools including outbid notification, automated bid agent and automatic auction extension.
In addition, we provide buyers the information they need to make informed decisions, including
product, seller performance, and online shipping quotes to help understand their landed cost.

(cid:129) Broad and flexible range of shipping/pick-up options—we can provide packaging and shipping
services for each transaction, whether it is a small item or container loads for export, including
buyer pick-up at our premises, for the vast majority of transactions, or support of buyer arranged
transportation. We support the most efficient solution for each transaction and each buyer.

(cid:129) Secure settlement and customer support—in addition to qualifying sellers, providing several

electronic payment options and serving as a trusted market intermediary, we verify transaction
completion, which in turn enhances buyer confidence. In addition, we provide full reliable
customer support throughout the transaction process.

Sales and Marketing

We utilize a direct sales and marketing force to acquire and manage our seller and buyer accounts.

As of September 30, 2014, we had 136 sales and 68 marketing personnel. Our sales activities are
focused primarily on acquiring new sellers and improving the value to existing sellers. Our marketing
activities are focused primarily on acquiring new buyers and increasing existing buyer participation.

Sales

Our sales personnel develop seller relationships, establish agreements to provide our services and

manage the business accounts on an on-going basis. Our sales team focuses on building long-term
relationships with sellers that we believe will generate recurring transactions. They also leverage our
years of experience and market data of completed transactions to identify which of our various services
would be beneficial to each new or existing seller.

Our sales group is organized to serve three distinct groups of sellers: large corporate accounts,

medium to small corporate accounts and government accounts. This approach is based on our
experience in understanding and serving the unique needs of each type of seller:

(cid:129) Large corporate sellers. These sellers require a customized approach, using a combination of our
industry-focused sales team and our value-added services to create a comprehensive solution.

(cid:129) Medium to small corporate sellers. These sellers are offered a turn-key solution enabling them to

self-serve in our marketplaces by accessing tools and resources to optimize their internal
processes and net recovery.

(cid:129) Government sellers. These sellers require a customized approach. Sales efforts are both

pro-active and re-active, including responding to already structured contract proposal requests
and assisting government agencies in developing the appropriate scope of work to serve their
needs.

Our sales personnel receive a salary and performance-based commissions.

Marketing

We use a variety of online and traditional marketing to attract and activate professional buyers to

maximize the number of bidders participating in our online marketplaces as well as to support our sales
team:

(cid:129) Buyer acquisition. We utilize online marketing, including paid search advertising, search engine
optimization, affiliate programs and cross promotion on all of our marketplaces to acquire new
buyers. We supplement this online marketing with special event print media, classified
advertisements and selected direct mail campaigns. Public relations campaigns, participation in
trade shows and speaking engagements also complement our overall buyer acquisition efforts.

(cid:129) Buyer participation. We use a variety of tools to increase buyer participation, including: targeted

opt-in e-mail newsletters that rely on the buyer’s stated categories of interest and past bidding or
transaction activity; special e-mail alerts highlighting specific products of interest; personalized
recommendation engines; and convenient search tools that enable a buyer or prospective buyer
to find desired items on our online marketplaces.

(cid:129) Market research. In order to better target buyers by industry segment, geographic location or
other criteria, our marketing department has gathered data and information from each of the
buyer segments we serve. In addition, the marketing department conducts regular surveys to

better understand buyers’ behavior and needs. We have a privacy policy and have implemented
security measures to protect this information.

(cid:129) Sales support. Our marketing department creates supporting documentation and research to

support our sales team in presenting our company to potential sellers and buyers, including sales
brochures, white papers and participation in selected trade shows.

All marketing activities are evaluated based on the level of auction participation in our

marketplaces and the cost effectiveness of each action.

Technology and Infrastructure

Our marketplaces are fully web-based and can be accessed from any Internet enabled device by

using a standard web browser. Our technology systems enable us to automate and streamline many of
the manual processes associated with finding, evaluating, bidding on, paying for and shipping surplus
and salvage assets. The technology and content behind our marketplaces and integrated value-added
services were developed in-house by full-time employees, providing us with control over the
marketplaces and the ability to make rapid enhancements to better fit the specific needs of our
business and customers. Our marketplaces are supported by a common database architecture and a
shared system application. This infrastructure provides:

(cid:129) an efficient channel to sell online through a variety of pricing mechanisms (standard auction,

sealed bid, Dutch auction and fixed price);

(cid:129) a scalable back office that enables buyers and sellers to efficiently manage transactions among
remote business users by utilizing account management tools, including payment collection,
invoicing management, shipping and transaction settlement; and

(cid:129) an input/output agnostic platform, including Application Programming Interface (APIs) or other
conduits that enable us to integrate seamlessly with partner enterprise applications of sellers and
third party service providers.

We have designed our websites and supporting infrastructure to be highly robust and to support new
services and increased traffic. Our servers are fully-managed and hosted in a physically secure and
network-secure environment at data centers in Ashburn, Virginia, which is managed by Equinix, Inc., in
Houston, Texas, which is managed by CyrusOne, in London, GBR, which is managed by COLT, and in
Dallas, Texas, which is managed by Equinix, Inc. Every critical piece of our application is fully
redundant, and we maintain off-site back-up systems as well as a disaster recovery facility. Our network
connectivity offers high performance and scalability to accommodate increases in website traffic. Since
January 1, 2003, we have experienced no material service interruptions on our online marketplaces.

Our applications support multiple layers of security, including password-protected log-ins,
encryption technology to safeguard information transmitted in web sessions and firewalls to help
prevent unauthorized access to our network and servers. We devote significant efforts to protecting our
systems from intrusion.

Operations

Supporting large organizations that have a recurring need to sell surplus and salvage assets

requires systematic processes to enhance the financial value and convenience received by our
customers. We believe we have integrated all of the required operational processes into our solution to
efficiently and to effectively support our buyers and sellers. Our operations group is comprised of three
functions: (1) buyer relations, (2) shipping logistics and (3) distribution center and field service
operations.

Buyer relations

Our buyer relations group supports the completion of buyer transactions by managing the buyer
registration and qualification process, answering questions and requests from buyers, collecting buyer
payments and resolving disputes. Our websites contain extensive information about buying through our
online marketplaces, including an online tutorial regarding the use of our marketplaces, answers to
frequently-asked buyer questions and an indexed help section. Buyers are able to contact a customer
service representative by live chat as well as e-mail or phone if they need additional support.

Shipping logistics

Our shipping logistics group manages and coordinates inbound and outbound shipping of

merchandise for sellers and buyers. We offer, as part of our value-added services, integrated shipping
services and price quotes through multiple shipping carriers. In addition, our shipping coordination
group personnel monitor the performance and service level of our network of carriers to help ensure
speed and quality of service.

Distribution center and field service operations

Our distribution center and field service operations group performs selected pre-sale and post-sale
value-added services at our distribution centers and at seller locations globally. These activities include
unloading, manifesting and reporting discrepancies for all received assets and sales preparation of
offered assets, including merchandising and organizing offered assets, writing product descriptions,
capturing digital images and/or video and providing additional optional value-added services such as
product delabeling, data cleaning/wiping, testing, refurbishment and repackaging. Our distribution
center and field service operations group personnel also arrange the outbound shipping or pick-up of
purchased assets with our buyers.

Competition

The online services market for auctioning or liquidating surplus and salvage assets is competitive

and growing rapidly. We currently compete with:

(cid:129) other e-commerce providers;

(cid:129) auction websites;

(cid:129) government agencies that have created websites to sell surplus and salvage assets; and

(cid:129) traditional liquidators and fixed-site auctioneers.

We expect our market to become even more competitive as traditional and online liquidators and

auctioneers continue to develop online and offline services for disposition, redeployment and
remarketing of surplus and salvage assets. In addition, manufacturers, retailers and additional
government agencies may decide to create their own websites to sell their own surplus and salvage
assets and those of third parties. Competitive pressures could harm our business, financial condition
and operating results.

Some of our other current and potential competitors have longer operating histories, larger client
bases, greater brand recognition and significantly greater financial, marketing and other resources than
we do. In addition, some of these competitors may be able to devote greater financial resources to
marketing and promotional campaigns, secure merchandise from sellers on more favorable terms, adopt
more aggressive pricing or inventory availability policies and devote substantially more resources to
website and systems development than we are able to do. Increased competition may result in reduced
operating margins and loss of market share. We may not be able to compete successfully against
current and future competitors.

Our Contracts with the U.S. Department of Defense

We have two material contracts with the DoD under which we acquire, manage and sell

government property. This relationship provides a significant supply of goods that we offer to our buyer
base through our online marketplace www.govliquidation.com. In support of these contracts, we provide
services in over 1 million square feet of military warehouse space at over 150 military bases throughout
the United States. The largest contract was originally awarded in June 2001, was renewed in December
2008, was extended in January 2014, and relates to usable surplus property of the DoD turned in to the
DLA Disposition Services and located in the United States, Puerto Rico and Guam, such as computers,
electronics, office supplies, equipment, aircraft parts, clothing and textiles (the ‘‘Surplus Contract’’).
The second contract was awarded in June 2005 and relates to substantially all scrap property of DoD
turned into the DLA Disposition Services, such as metals, alloys, and building materials. Property sold
under the contracts is ‘‘demilitarized’’ prior to sale and does not include weapons or hazardous
materials (the ‘‘Scrap Contract’’).

Under the current (second) Surplus Contract, as amended, we are obligated to purchase all DoD

surplus property at 1.8% of Disposition Services’ original acquisition value or OAV. The DoD has
broad discretion to determine what property will be made available for sale to us under the Surplus
Contract and may retrieve or restrict property previously sold to us for national security reasons or if
the property is otherwise needed to support the mission of the DoD. The Surplus Contract has a
36 month term, beginning February 2009, with two 12 month renewal options exercisable by the DoD.
The DoD has exercised both renewal options. In January 2014, the DoD awarded the Company with a
follow-on contract to extend the terms of the second Surplus Contract for a base term of ten months
with two one-month renewal option periods.

The DoD, in accordance with the award of the next (third) Surplus Contract, split the contract

into a rolling stock and a non-rolling stock contract, with bidding on these two surplus contracts held
on April 1 and 2, 2014. On April 1, 2014, the Company was the high bidder for the non-rolling stock
surplus contract with a bid equal to 4.35% of the DoD’s OAV. The non-rolling stock surplus contract
has a base term of two years with four one-year renewal options. Following the bidding event on
April 2, 2014 for the DoD rolling stock contract, the Company withdrew from the live auction bidding
for this contract. Bidding reached a level that the Company determined would be economically
unsustainable under the terms of the new contract, jeopardizing the high level of service the Company
has historically provided the agency client. The price the Company will pay for inventory under the new
non-rolling stock contract is expected to increase from 1.8% to 4.35% of OAV, resulting in significantly
higher Cost of Goods Sold (COGS) in fiscal year 2015 and beyond. Additionally, the Company expects
to cease the sale of DoD rolling stock under the new contract, which has historically accounted for
approximately 30-35% of the overall revenue for the current DoD Surplus contract, resulting in lower
revenue in future periods. The Company will continue to operate its existing DoD surplus contract to
sell all useable surplus assets of the DoD, including non-rolling stock assets for the base term ending
December 2014, with two additional one-month renewal options.

Under the Scrap Contract, we acquire scrap property at a per pound price and disburse 77% of

the profits to the DOD, which we refer to as profit-sharing distributions. As a result of these
arrangements, we recognize as revenue the gross proceeds from these sales. We also have a small
business performance incentive based on the number of scrap buyers that are small businesses that
would allow us to receive up to an additional 2% of the profit sharing distribution. The Scrap Contract
base term expired in June 2012, subject to the DoD’s right to extend for three additional one-year
terms. The DoD has exercised all three renewal options.

These contracts require us to satisfy export control and other regulatory requirements in

connection with sales. Specifically, for specified categories of property sold under the contracts that are
subject to export controls, we are required to (1) obtain an end-use certificate from the prospective
buyer describing the nature of the buyer’s business, describing the expected disposition and specific

end-use of the property, and acknowledging the applicability of pertinent export control and economic
sanctions laws and (2) confirm that each buyer has been cleared to purchase export-controlled items.
Applicable export controls include the Export Administration Regulations enforced by the Bureau of
Industry and Security (‘‘BIS’’) of the U.S. Department of Commerce, and the International Traffic In
Arms Regulations enforced by the Directorate of Defense Trade Controls (‘‘DDTC’’) of the U.S.
Department of State. Our collection, settlement tools and procedures are designed so that transactions
for these categories of property cannot be completed until we receive a completed end-use certificate
and confirmation of the buyer’s trade security controls clearance. In addition, we do not combine
export-controlled property into auction lots with property not subject to export controls.

We are also prohibited from selling property to persons or entities that appear on lists of restricted

or prohibited parties maintained by the United States or other governments, including the Specially
Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control of
the U.S. Department of Treasury and the Entity List maintained by BIS, the Denied Persons List
maintained by BIS and the Debarred Parties List maintained by DDTC. In addition, we are prohibited
from selling to countries, regimes, or nationals that are the target of applicable economic sanctions or
other embargoes. As part of each sale, we collect information from potential customers that our
systems cross reference against a list of restricted or prohibited parties and countries, regimes, or
nationals that are the target of economic sanctions or other embargoes in order to comply with these
restrictions. Failure to satisfy any of these export control and other regulatory requirements could
subject us to civil and criminal penalties and administrative sanctions, including termination of the
DLA Disposition Services contracts, forfeiture of profits, suspension of payments, fines and suspension
or debarment from doing business with U.S. federal government agencies.

The Scrap Contract may be terminated by DoD or by us if the rate of return performance ratios

do not exceed specified benchmark ratios for two consecutive quarterly periods and the preceding
twelve months. We have never failed to meet the required benchmark ratios during any of the testing
periods. DoD also has the right to audit our performance under the contracts. DoD may terminate the
contracts and seek other contract remedies in the event of material breaches, provided that it provides
us notice and a 30-day opportunity to cure such breaches. The new Surplus Contract contains a
provision providing for a mutual termination of the contract for convenience.

The Surplus Contract accounted for 27.2%, 27.7%, and 26.8% of our revenue and 15.5%, 15.0%,
and 14.3% of our gross merchandise volume for the fiscal years ended September 30, 2012, 2013 and
2014, respectively. We began operating under the Scrap Contract in August 2005, and it accounted for
16.1%, 13.5%, and 14.4% of our revenue and for 8.9%, 7.0%, and 7.7% of our gross merchandise
volume for the fiscal years 2012, 2013 and 2014, respectively. The contracts were awarded in
competitive bids conducted by DoD, and we may be required to go through a new competitive bidding
process when our existing contracts expire.

Our Contracts with Wal-Mart

In connection with our acquisition of Jacobs Trading, LLC (‘‘Jacobs’’) on October 1, 2011, we
assumed the rights and obligations under a Master Merchandise Salvage Contract (the ‘‘Wal-Mart
Agreement’’). We have the exclusive right to purchase certain consumer products from Wal-Mart that
have been removed from the sales stream of its retail operations and we believe this agreement will be
the source of a significant portion of our revenue and GMV during its term, which expires on May 16,
2016 and thereafter continues on a month to month basis. In addition, we have other contracts /
programs with Wal-Mart. For the year ended September 30, 2014, approximately 11% of our GMV was
generated from Wal-Mart under multiple contracts / programs.

Government Regulation

We are subject to federal and state consumer protection laws, including laws protecting the privacy

of customer non-public information and regulations prohibiting unfair and deceptive trade practices.

Furthermore, the growth and demand for online commerce has resulted in and may continue to result
in more stringent consumer protection laws that impose additional compliance burdens on online
companies. Many jurisdictions also regulate ‘‘auctions’’ and ‘‘auctioneers’’ and may regulate online
auction services. These consumer protection laws and regulations could result in substantial compliance
costs and could interfere with the conduct of our business.

In many states, there is currently great uncertainty about whether or how existing laws governing

issues such as property ownership, sales and other taxes, auctions and auctioneering, libel and personal
privacy apply to the Internet and commercial online services. These issues may take years to resolve.
New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do
not currently apply to our business or the application of existing laws and regulations to the Internet
and commercial online services could result in significant additional taxes or regulatory restrictions on
our business. These potential restrictions could have an adverse effect on our cash flows and results of
operations. Furthermore, there is a possibility that we may be subject to significant fines or other
payments for any past failures to comply with these requirements.

In connection with our contracts with the U.S. federal government, the U.S. federal government

has the right to audit and review our performance on our government contracts, as well as our
compliance with applicable laws and regulations. In addition, we sell merchandise under our
government contracts, such as scientific instruments, information technology equipment and aircraft
parts, that is subject to further government regulations, some of which may require us to obtain an
export license in certain circumstances or an end-use certificate from the buyer. In the United States,
the sale of this type of merchandise is further regulated by, among others, the U.S. Export
Administration Regulations, International Traffic in Arms Regulations and the economic sanctions and
embargo laws enforced by the Office of Foreign Assets Control Regulations. If a government audit
uncovers improper or illegal activities, or if we are alleged to have violated any laws or regulations
governing the products we sell under our government contracts, we may be subject to civil and criminal
penalties and administrative sanctions, including termination of contracts, denial of export privileges,
forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business
with U.S. federal government agencies. See ‘‘Risk Factors—Unfavorable findings resulting from a
government investigation or audit could subject us to a variety of penalties and sanctions, could
negatively impact our future operating results and could force us to adjust previously reported
operating results.’’

Intellectual Property

We regard our intellectual property, particularly domain names, copyrights and trade secrets, as
critical to our success. We rely on a combination of contractual restrictions and common law copyright
and trade secret laws to protect our proprietary rights, know-how, information and technology. These
contractual restrictions include confidentiality and non-compete provisions. We generally enter into
agreements containing these provisions with our employees, contractors and third parties with whom we
have strategic relationships. Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our intellectual property without our authorization. We currently are the
registered owners of several Internet domain names, including www.liquidation.com,
www.govliquidation.com, www.govdeals.com, www.networkintl.com, www.truckcenter.com,
www.secondipity.com, and www.go-dove.com. We pursue the registration of our trademarks in the U.S.
and internationally. Effective patent, copyright, trademarks, trade secret and domain name protection is
expensive to maintain and may require litigation to enforce our intellectual property rights. We seek to
protect our domain names in an increasing number of jurisdictions and may not be successful in certain
jurisdictions.

We rely on technologies that we license from third parties. These licenses may not continue to be

available to us on commercially reasonable terms in the future. As a result, we may be required to

obtain substitute technology of lower quality or at greater cost, which could materially adversely affect
our business, financial condition, results of operations and cash flows.

We do not believe that our business, sales policies or technologies infringe the proprietary rights of

third parties. However, third parties have in the past and may in the future claim that our business,
sales policies or technologies infringe their rights. We expect that participants in the e-commerce
market will be increasingly subject to infringement claims as the number of services and competitors in
the industry grows. Any such claim, with or without merit, could be time consuming, result in costly
litigation or an injunction or require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us, or at all or may be prohibited
by an injunction. As a result, any such claim of infringement against us could have a material adverse
effect upon our business, financial condition, results of operations and cash flows.

Employees

As of September 30, 2014, we had 1,049 U.S. employees, including 148 in sales and marketing,
122 in technology, 85 in customer service, 575 in operations and 119 in finance and administration. In
addition, as of that date, we had 296 international employees, including 56 in sales and marketing,
19 in technology, 10 in customer service, 173 in operations and 38 in finance and administration.

None of our U.S. employees are covered by collective bargaining agreements and 42% of our

non-U.S. employees are covered by collective bargaining agreements or statutory trade union
agreements. On June 21, 2014, we entered into a First Collective Agreement with the United Food &
Commercial Workers International Union which relates to the employment of employees at our
Toronto, Ontario location. The Agreement expires on June 20, 2017. We believe that we have good
relationships with our employees. We have never had a work stoppage.

Available Information

Our annual, quarterly and current reports, proxy statements, amendments to those reports and
other information are also made available free of charge on our website www.liquidityservicesinc.com, as
soon as reasonably practicable after we electronically file these materials with, or furnish them to, the
SEC. We use our website as a channel of distribution for material company information. Important
information, including news releases, analyst presentations and financial information regarding the
Company is routinely posted on and accessible at www.liquidityservicesinc.com.

Cautionary Note Regarding Forward-Looking Statements

This document contains forward-looking statements. These statements are only predictions. The
outcome of the events described in these forward-looking statements is subject to known and unknown
risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or
achievements to differ materially from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These risks and other factors
include but are not limited to those listed in Part I, Item 1A (‘‘Risk Factors’’) and in our other filings
with the Securities and Exchange Commission (SEC) from time to time. You can identify forward-
looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘would,’’ ‘‘expects,’’
‘‘intends,’’ ‘‘plans,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ ‘‘continues’’ or the
negative of these terms or other comparable terminology. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. There may be other factors of which we are currently unaware
or deem immaterial that may cause our actual results to differ materially from the forward-looking
statements.

All forward-looking statements apply only as of the date of this Annual Report and are expressly

qualified in their entirety by the cautionary statements included in this document. Except as may be
required by law, we undertake no obligation to publicly update or revise any forward-looking statement
to reflect events or circumstances occurring after the date of this Annual Report or to reflect the
occurrence of unanticipated events.

Item 1A. Risk Factors.

You should carefully consider the risks described below, together with all of the other information in this

Annual Report, including the consolidated financial statements and related notes, before making an
investment decision with respect to our common stock. If any of the following risks occur, our business,
financial condition or operating results could suffer. As a result, the trading price of our common stock
could decline and you may lose all or part of your investment in our common stock. The risks and
uncertainties described below are not in any particular order and are not the only significant risks we may
face. Other events that we do not currently anticipate or that we currently deem immaterial also may affect
our results of operations and financial condition.

We depend on contracts with the United States Department of Defense and Wal-Mart for a significant
portion of our revenue, and if our relationships with these customers are disrupted, we would
experience a significant decrease in revenue and income.

We have two material contracts with the DLA Disposition Services under which we acquire,
manage and sell surplus and scrap property of the DoD. If our relationship with the DoD is impaired,
we are not awarded new DoD contracts when our current contracts expire, any of our DoD contracts
are terminated or the supply of assets under the contracts is significantly decreased, we would
experience a significant decrease in revenue and have difficulty generating income. The Surplus
Contract accounted for 27.2%, 27.7%, and 26.8% of our revenue and 15.5%, 15.0%, and 14.4% of our
GMV for the fiscal years ended September 30, 2012, 2013 and 2014, respectively. The Scrap Contract
accounted for 16.1%, 13.5%, and 14.4% of our revenue and 8.9%, 7.0%, and 7.7% of our GMV in
fiscal year 2012, 2013 and 2014, respectively. We believe that these contracts will continue to be the
source of a significant portion of our revenue and GMV during their respective terms. The second
Surplus Contract has a three-year base term that expired in February 2012, subject to the DoD’s right
to extend for two additional one-year terms. The DoD has exercised both extension options. The DoD
awarded the Company a follow-on contract to extend the terms of the Surplus Contract for a base term
of ten months with two one-month renewal option periods. The Scrap Contract has a seven-year base
term that expired in June 2012, subject to the DoD’s right to extend for three additional one-year
terms. The DoD has exercised its right to extend the performance period of the Scrap Contract to June
2015. The contracts were awarded by the DoD through a competitive bidding process, and we may be
required to go through a new competitive bidding process when our existing contracts expire. Under
the current (second) Surplus Contract, as amended, we are obligated to purchase all DoD surplus
property at 1.8% of Disposition Services’ original acquisition value (‘‘OAV’’). The DoD has broad
discretion to determine what property will be made available for sale to us under the next (third)
Surplus Contract and may retrieve or restrict property previously sold to us for national security
reasons or if the property is otherwise needed to support the mission of the DoD. The Surplus
Contract has a 36 month term, beginning February 2009, with two 12 month renewal options
exercisable by the DoD. The DoD has exercised both renewal options. In January 2014, the DoD
awarded the Company with a follow-on contract to extend the terms of the second Surplus Contract for
a base term of ten months with two one-month renewal option periods. The DoD, in accordance with
the award of the next (third) Surplus Contract, split the contract into a rolling stock and a non-rolling
stock contract, with bidding on these two surplus contracts held on April 1 and 2, 2014. On April 1,
2014, we were the high bidder for the non-rolling stock surplus contract with a bid equal to 4.35% of
the DoD’s OAV. The non-rolling stock surplus contract has a base term of two years with four one-year

renewal options. Following the bidding event on April 2, 2014 for the DoD rolling stock contract, we
withdrew from the live auction bidding for this contract. Bidding reached a level that we determined
would be economically unsustainable under the terms of the new contract, jeopardizing the high level
of service we have historically provided the agency client. The price that we will pay for inventory
under the new non-rolling stock contract is expected to increase from 1.8% to 4.35% of OAV, resulting
in significantly higher Cost of Goods Sold (COGS) in fiscal year 2015 and beyond. Additionally, we
expect to cease the sale of DoD rolling stock under the new contract, which has historically accounted
for approximately 30-35% of the overall revenue for the current DoD Surplus contract, resulting in
lower revenue in future periods. We will continue to operate our current DoD surplus contract to sell
all useable surplus assets of the DoD, including non-rolling stock assets for the base term ending
December 2014, with two additional one-month renewal options.

Our Surplus Contract with the DoD allows either party to terminate the contract for convenience.

Although our Scrap Contract does not allow the DoD to terminate for convenience, it requires us to
meet specified performance benchmarks. The Scrap Contract may be terminated by the DoD if rate of
return performance ratios do not exceed specified benchmark ratios for two consecutive quarterly
periods and the preceding twelve months. Although, to date, we have never failed to meet the required
benchmark ratios during any of the testing periods, we cannot assure you that we will meet the
performance benchmarks in the future. The DoD also has the right, after giving us notice and a 30-day
opportunity to cure, to terminate the contracts and seek other contract remedies in the event of
material breaches. We continue to provide services under our existing contract.

We expect that there will be significant competition to renew our DoD contracts. We may not win
any such competitive procurement, as one or more providers may offer to provide the same or similar
services at a lower cost. Even if we win the competitive procurement, we could be required to reduce
significantly the prices we charge for our services under the new contracts. The failure to win the
competitive procurement or a requirement to provide our services at significantly lower prices would
materially adversely affect our revenues and have a material adverse effect on our business, prospects,
financial condition and results of operations.

In connection with our acquisition of Jacobs Trading, LLC (‘‘Jacobs’’) on October 1, 2011, we
assumed ILJ Enterprises, LLC’s rights and obligations under the Master Merchandise Salvage Contract
(the ‘‘Wal-Mart Agreement’’) dated as of May 13, 2011 between ILJ Enterprises and Wal-Mart
Stores, Inc. We have the exclusive right to purchase certain consumer products from Wal-Mart that
have been removed from the sales stream of its retail operations and we believe this agreement will be
the source of a significant portion of our revenue and GMV during its term, which expires on May 16,
2016 and thereafter continues on a month to month basis. While our revenue for any future period
under the Wal-Mart Agreement may differ from our expectations, we believe that the Wal-Mart
Agreement will account for a significant portion of our revenue and our GMV for the 2015 fiscal year.
If we breach the Wal-Mart Agreement, Wal-Mart may unilaterally terminate the agreement. If our
relationship with Wal-Mart is impaired or the Wal-Mart Agreement is terminated, our revenue and
income would be significantly lower than currently expected. In addition, we have other contracts /
programs with Wal-Mart. For the year ended September 30, 2014, approximately 11% of our GMV was
generated from Wal-Mart under multiple contracts / programs. In addition, we acquire a significant
amount of our inventory pursuant to the Wal-Mart Agreement. If our relationship with Wal-Mart is
impaired or the Wal-Mart Agreement is terminated, the value of our inventory could be negatively
impacted, which would require us to reduce the value of our inventory and have a material adverse
effect on our results of operations.

Unfavorable findings resulting from a government audit or investigation could subject us to a variety
of penalties and sanctions, could negatively impact our future operating results and could force us to
adjust previously reported operating results.

The federal government has the right to audit our performance under our government contracts.
Any adverse findings from audits or reviews of our performance under our contracts could result in a
significant adjustment to our previously reported operating results. For example, our DoD Scrap
contract provides that we share sales profits with the government. The federal government may
disagree with our calculation of the profits realized from the sales of government assets and may
require us to increase profit-sharing payments to the government that have been made in the past. If
this occurs, our past operating margins may be reduced. The results of an audit by the government
could significantly limit the volume and type of merchandise made available to us under our contracts
with the DoD, resulting in lower gross merchandise volume, revenue, and profitability for our company.
If such a government audit uncovers improper or illegal activities, we could be subject to civil and
criminal penalties, administrative sanctions and could suffer serious harm to our reputation.
Government and law enforcement agencies may also investigate our other activities under our DoD
contracts and our company. If such an investigation alleges that we engaged in improper or illegal
activities, we could be subject to civil and criminal penalties and administrative sanctions, including
termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or
debarment from doing business with U.S. federal government agencies. If, as the result of a
government audit or investigation, or for any other reason, we are suspended or debarred from
contracting with the federal government generally, or any specific agency, if our reputation or
relationship with government agencies is impaired, or if the government otherwise ceases doing
business with us or significantly decreases the amount of business it does with us, our revenue and
profitability would substantially decrease.

The success of our business depends on our ability to successfully obtain a supply of merchandise for
our buyers and to attract and retain active professional buyers to create sufficient demand for our
sellers.

Our ability to increase our revenue and maintain profitability depends on whether we can

successfully expand the supply of merchandise available for sale on our online marketplaces and attract
and retain active professional buyers to purchase the merchandise. Our ability to attract sufficient
quantities of suitable merchandise and new buyers will depend on various factors, some of which are
out of our control. These factors include our ability to:

(cid:129) offer sellers liquid marketplaces for their surplus and salvage assets;

(cid:129) offer buyers a sufficient supply of merchandise;

(cid:129) develop and implement effective sales and marketing strategies;

(cid:129) comply with regulatory or corporate seller requirements affecting marketing and disposition of

certain categories of merchandise;

(cid:129) efficiently catalogue, handle, store, ship and track merchandise; and

(cid:129) achieve high levels of seller and buyer satisfaction with the trading experience.

We may not be able to compete successfully against existing or future competitors.

The online services market for auctioning or liquidating surplus and salvage assets is competitive

and growing rapidly. Competitive pressures could affect our ability to attract and retain customers,
which could decrease our revenue and negatively affect our operating results. We currently compete
with:

(cid:129) other e-commerce providers;

(cid:129) auction websites;

(cid:129) government agencies that have created websites to sell surplus and salvage assets; and

(cid:129) traditional liquidators and fixed-site auctioneers.

We expect our market to become even more competitive as traditional and online liquidators and

auctioneers continue to develop online and offline services for disposition, redeployment and
remarketing of surplus and salvage assets. In addition, manufacturers, retailers and government
agencies may decide to create their own websites to sell their own surplus and salvage assets and those
of third parties.

If we fail to successfully integrate our acquired businesses and operations and/or fully realize the
expected benefits of these acquisitions in the expected time frame, our future operating results may be
materially adversely affected.

The success of our acquisitions depends, in part, on our ability to successfully integrate the
acquired businesses and operations with our other businesses and fully realize the anticipated benefits
of the acquisitions. If we are not able to achieve these objectives in a cost-effective and timely manner,
we may not fully realize the anticipated benefits of the acquisition or it may take us longer to realize
the benefits of the acquisition than we expect. Our acquired operations outside the U.S. may present
unique challenges or increase our exposure to risks associated with foreign operations, including foreign
currency risks and risks associated with local regulatory regimes.

The integration process could result in the loss of key customers or key employees, increase our

operating or other costs, decrease our profit margins or disrupt our other businesses, each of which
could impair our ability to achieve the anticipated benefits of the acquisition. Our efforts to integrate
the acquired businesses will divert management’s attention and resources from our other businesses.
Any failure to timely realize the anticipated benefits of the acquisition could have a material adverse
effect on our revenues, expenses and operating results.

If we fail to manage our growth effectively, our operating results could be adversely affected.

We have expanded our operations rapidly since our inception in 1999. Although we currently do
not have specific plans for any expansion that would require significant capital investment, in the future
we plan to expand our operations further by developing new or complementary services, products, or
trading formats and enhancing the breadth and depth of our value-added services. We also plan to
continue to expand our sales and marketing, technology and client support organizations. In addition,
we will likely need to continue to improve our financial and management controls and our reporting
systems and procedures. If we are unable to effectively implement these plans and to otherwise manage
our expanding operations, we may not be able to execute our business strategy and our operating
results could significantly decrease.

Our quarterly operating results have fluctuated in the past and may do so in the future, which could
cause volatility in our stock price.

Our prior operating results have fluctuated due to changes in our business and the e-commerce

industry. Similarly, our future operating results may vary significantly from quarter to quarter due to a
variety of factors, many of which are beyond our control. You should not rely on period-to-period
comparisons of our operating results as an indication of our future performance. Factors that may
affect our quarterly operating results include the following:

(cid:129) the addition of new buyers and sellers or the loss of existing buyers and sellers;

(cid:129) entry into, or the modification, termination or expiration of, material contracts;

(cid:129) the volume, size, timing and completion rate of transactions in our marketplaces;

(cid:129) changes in the supply and demand for and the volume, price, mix and quality of our supply of

surplus and salvage assets;

(cid:129) introduction of new or enhanced websites, services or product offerings by us or our

competitors, which may impact our margins;

(cid:129) implementation of significant new contracts;

(cid:129) changes in our pricing policies or the pricing policies of our competitors;

(cid:129) changes in the conditions and economic prospects of the e-commerce industry or the economy

generally, which could alter current or prospective buyers’ and sellers’ priorities;

(cid:129) impairment of goodwill or other intangible assets;

(cid:129) technical difficulties, including telecommunication system or Internet failures;

(cid:129) changes in government regulation of the Internet and e-commerce industry;

(cid:129) event-driven disruptions such as war, terrorism, disease and natural disasters;

(cid:129) seasonal patterns in selling and purchasing activity; and

(cid:129) costs related to acquisitions of technology or equipment.

Our operating results may fall below the expectations of market analysts and investors in some

future periods. If this occurs, even temporarily, it could cause volatility in our stock price.

Our operating results depend on our websites, network infrastructure and transaction processing
systems. Service interruptions or system failures could negatively affect the demand for our services
and our ability to grow our revenue.

Any system interruptions that affect our websites or our transaction systems could impair the

services that we provide to our sellers and buyers. In addition, our systems may be vulnerable to
damage from a variety of other sources, including telecommunications failures, power outages,
malicious human acts and natural disasters. Improving the reliability and redundancy of our systems
may be expensive, reduce our margins and may not be successful in preventing system failures. Our
services are also substantially dependent on systems provided by third parties, over whom we have little
control. We have occasionally experienced interruptions to our services due to system failures unrelated
to our own systems. Any interruptions or failures of our current systems or our ability to communicate
with third party systems could negatively affect the demand for our services and our ability to grow our
revenue. Although we carry specific insurance against cybersecurity events, our insurance coverage may
be inadequate to compensate us for any related losses we incur. In addition, the implementation of our
Liquidity One Transformation plan will require substantial changes to our software and network
infrastructure, which could lead to system interruptions, affect our websites and transaction systems and

further expose us to operational disruptions, which would have a material adverse effect on our results
of operations.

If we do not respond to rapid technological changes or upgrade our systems, we could fail to grow our
business and our revenue could decrease.

To remain competitive, we must continue to enhance and improve the functionality and features of

our e-commerce business. Although we currently do not have specific plans for any upgrades that
would require significant capital investment, in the future we will need to improve and upgrade our
technology, transaction processing systems and network infrastructure in order to allow our operations
to grow in both size and scope. Without such improvements, our operations might suffer from
unanticipated system disruptions, slow transaction processing, unreliable service levels, or impaired
quality or delays in reporting accurate financial information, any of which could negatively affect our
reputation and ability to attract and retain sellers and buyers. We may also face material delays in
introducing new services, products and enhancements. The Internet and the e-commerce industry are
rapidly changing. If competitors introduce new products and services using new technologies or if new
industry standards and practices emerge, our existing websites and our proprietary technology and
systems may become obsolete. In addition, the expansion and improvement of our systems and
infrastructure may require us to commit substantial financial, operational and technical resources, with
no assurance our business will increase. If we fail to respond to technological change or to adequately
maintain, expand, upgrade and develop our systems and infrastructure in a timely fashion our ability to
grow could be limited and our revenue could decrease.

Shipment of merchandise sold in our marketplaces could be delayed or disrupted by factors beyond
our control and we could lose buyers and sellers as a result.

We rely upon third party carriers such as United Parcel Services, or UPS, for timely delivery of our

merchandise shipments. As a result, we are subject to carrier disruptions and increased costs due to
factors that are beyond our control, including labor difficulties, inclement weather, terrorist activity and
increased fuel costs. In addition, we do not have a long-term agreement with UPS or any other third
party carriers, and we cannot be sure that our relationship with UPS will continue on terms favorable
to us, if at all. If our relationship with UPS is terminated or impaired or if UPS is unable to deliver
merchandise for us, we would be required to use alternative carriers for the shipment of products to
our buyers. We may be unable to engage alternative carriers on a timely basis or on terms favorable to
us, if at all. Potential adverse consequences include:

(cid:129) reduced visibility of order status and package tracking;

(cid:129) delays in merchandise receipt and delivery;

(cid:129) increased cost of shipment; and

(cid:129) reduced shipment quality, which may result in damaged merchandise.

Any failure to receive merchandise at our distribution centers or deliver products to our buyers in

a timely and accurate manner could lead to client dissatisfaction and cause us to lose sellers and
buyers.

A significant interruption in the operations of our customer service system or our distribution centers
could harm our business and operating results.

Our business depends, to a large degree, on effective customer service and distribution center

operations. We currently staff DoD warehouse distribution space, for which we do not incur leasing
costs, as well as leased commercial warehouse distribution space. These operations could be harmed by
several factors, including any material disruption or slowdown at our distribution centers resulting from
labor disputes, changes in the terms of our underlying lease agreements or occupancy arrangements in

the case of government provided facilities, telecommunications failures, power or service outages,
human error, terrorist attacks, natural disasters or other events. In addition, space provided to us by
the DoD could be re-configured or reduced as a result of the DoD’s Base Realignment and Closure
initiative or other infrastructure reduction initiatives.

If we fail to accurately predict our ability to sell merchandise in which we take inventory risk and
credit risk, our margins may decline as a result of lower sale prices from such merchandise.

Under our profit-sharing and purchase model, we purchase merchandise and assume the risk that

the merchandise may sell for less than we paid for it. We assume general and physical inventory and
credit risk. These risks are especially significant because some of the goods we sell on our websites are
characterized by rapid technological change, obsolescence and price erosion, and because we sometimes
make large purchases of particular types of inventory. In addition, we do not receive warranties on the
goods we purchase and, as a result, we have to resell or dispose of any returned goods. Historically, the
number of disposed goods (which includes returned goods that we have not resold) has been less than
2% of the goods we have purchased. To manage our inventory successfully, we need to maintain
sufficient buyer demand and sell merchandise for a reasonable financial return. We may miscalculate
buyer demand and overpay for the acquired merchandise. In the event that merchandise is not
attractive to our buyer base, we may be required to take significant losses resulting from lower sale
prices, which could reduce our revenue and margins. For example, under the current (second) Surplus
Contract, we are obligated to purchase all DoD surplus property at 1.8% of the original acquisition
cost, which varies depending on the type of surplus property being purchased. Under the new
non-rolling stock (third) surplus contract, we will be obligated to purchase surplus DoD non-rolling
stock at 4.35% of original acquisition cost. Under the Scrap Contract, we acquire scrap property at a
per pound price. Declines in commodity prices may also reduce the profit we are able to realize in our
scrap business. For example, we may not be able to sell our inventory for amounts above its cost and
we may incur a loss in products we handle for our commercial clients. As we grow our business, we
may choose to increase the amount of merchandise we purchase directly from sellers, thus resulting in
increased inventory levels and related risk. Any such increase would require the use of additional
working capital and subject us to the additional risk of incurring losses on the sale of that inventory.

We may be unable to adequately protect or enforce our intellectual property rights, which could harm
our reputation and negatively impact the growth of our business.

We currently are the registered owners of several Internet domain names, including

www.liquidation.com, www.govliquidation.com, www.govdeals.com,www.networkintl.com,
www.truckcenter.com, www.secondipity.com, and www.go-dove.com. We pursue the registration of our
domain names in the U.S. and internationally. We currently do not have any patents or registered
copyrights, but we are pursuing patents. Effective patent, copyright, trademark, service mark, trade
secret and domain name protection is expensive to maintain and may require litigation. Our
competitors may adopt trade names or domain names similar to ours, thereby impeding our ability to
promote our marketplaces and possibly leading to client confusion. In addition, we could face trade
name or trademark or service mark infringement claims brought by owners of other registered or
unregistered trademarks or service marks, including trademarks or service marks that may incorporate
variations of our marketplace names. Any claims related to our intellectual property or client confusion
related to our marketplaces could damage our reputation and negatively impact the growth of our
business.

Our inability to use software licensed from third parties or our use of open source software under
license terms that interfere with our proprietary rights could disrupt our business.

We use software licensed from third parties, including some software, known as open source
software that we use without charge. We currently use the following open source software: Linux (an
operating system), MySql (database software), PERL (an interpreter), Apache (a web server), and Java
and we may in the future use additional open source software. In the future, these licenses to third
party software may not be available on terms that are acceptable to us, or at all. Our inability to use
third-party software could result in disruptions to our business, or delays in the development of future
services or enhancements of existing services, which could impair our business. In addition, the terms of
certain open source software licenses may require us to provide modified versions of the open source
software, which we develop, if any, or any proprietary software that incorporates all or a portion of the
open source software, if any, to others on unfavorable license terms that are consistent with the open
source license term. If we are required to license our proprietary software in accordance with the
foregoing, our competitors and other third parties could obtain access to our intellectual property,
which could harm our business.

Assertions that we infringe on intellectual property rights of others could result in significant costs
and substantially harm our business and operating results.

Other parties may assert that we have infringed on their technology or other intellectual property

rights. We use internally developed systems and licensed technology to operate our online auction
platform and related websites. Third parties could assert intellectual property infringement claims
against us based on our internally developed systems or use of licensed third party technology. Third
parties also could assert intellectual property infringement claims against parties from whom we license
technology. If we are forced to defend against any infringement claims, whether they are with or
without merit or are determined in our favor, we may face costly litigation, diversion of technical and
management personnel and/or delays in completion of sales. Furthermore, the outcome of a dispute
may be that we would need to change technology, develop non-infringing technology or enter into
royalty or licensing agreements. A switch to different technology could cause interruptions in our
business. Internal development of a non-infringing technology may be expensive and time-consuming, if
we are able to successfully develop such technology at all. Royalty or licensing agreements, if required,
may be unavailable on terms acceptable to us, or at all. Incurrence of any of these costs could
negatively impact our operating results.

If we do not retain our senior management, we may not be able to achieve our business objectives.

Our future success is substantially dependent on the continued service of our senior management,

particularly William P. Angrick, III, our chief executive officer. We do not have key-person insurance on
any of our officers or employees. The loss of any member of our existing senior management team
could damage key seller relationships, result in the loss of key information, expertise or know-how, lead
to unanticipated recruitment and training costs and make it more difficult to successfully operate our
business and achieve our business goals.

If we are unable to attract and retain skilled employees, we might not be able to sustain our growth.

Our future success depends on our ability to continue to attract, retain and motivate highly skilled

employees, particularly employees with sales, marketing, operations and technology expertise.
Competition for employees in our industry is intense. We have experienced difficulty from time to time
in attracting the personnel necessary to support the growth of our business, and we may experience
similar difficulties in the future. If we are unable to attract, assimilate and retain employees with the
necessary skills, we may not be able to grow our business and revenue.

We may need additional financing in the future, which may not be available on favorable terms, if at
all.

We may need additional funds to finance our operations, as well as to enhance our services, fund
our expansion, respond to competitive pressures or acquire complementary businesses or technologies.
However, our business may not generate the cash needed to finance such requirements. If we raise
additional funds through the issuance of equity or convertible debt securities, the percentage ownership
of our existing stockholders would be reduced, and these securities may have rights, preferences or
privileges senior to those of our common stock. If adequate funds are not available or are not available
on acceptable terms, our ability to enhance our services, fund our expansion, respond to competitive
pressures or take advantage of business opportunities would be significantly limited, and we might need
to significantly restrict our operations.

We face legal uncertainties relating to the Internet in general and to the e-commerce industry in
particular and may become subject to costly government regulation.

The laws and regulations related to the Internet and e-commerce are evolving. These laws and

regulations relate to issues such as user privacy, freedom of expression, pricing, fraud, quality of
products and services, taxation, advertising, intellectual property rights and information security. Laws
governing issues such as property ownership, copyrights and other intellectual property issues, taxation,
libel and defamation, obscenity and personal privacy could also affect our business. Laws adopted prior
to the advent of the Internet may not contemplate or address the unique issues of the Internet and
related technologies and it is not clear how they will apply. Current and future laws and regulations
could increase our cost of doing business and/or decrease the demand for our services.

Our auction business may be subject to a variety of additional costly government regulations.

Many states and other jurisdictions have regulations governing the conduct of traditional
‘‘auctions’’ and the liability of traditional ‘‘auctioneers’’ in conducting auctions, which may apply to
online auction services. In addition, certain states have laws or regulations that expressly apply to
online auction services. We expect to continue to incur costs in complying with these laws and could be
subject to fines or other penalties for any failure to comply with these laws. We may be required to
make changes in our business to comply with these laws, which could increase our costs, reduce our
revenue, cause us to prohibit the listing of certain items, or otherwise adversely affect our financial
condition or operating results.

In addition, the law regarding the potential liability of an online auction service for the activities of

its users is not clear. We cannot assure you that users of our websites will comply with our terms and
conditions or with laws and regulations applicable to them and their transactions. It is possible that we
may be subject to allegations of civil or criminal liability for any unlawful activities conducted by sellers
or buyers. Any costs we incur as a result of any such allegations, or as a result of actual or alleged
unlawful transactions using our marketplaces, or in our efforts to prevent any such transactions, may
harm our opportunities for future revenue growth. In addition, any negative publicity we receive
regarding any such transactions or allegations may damage our reputation, our ability to attract new
sellers and buyers and our business.

Certain categories of merchandise sold on our marketplaces are subject to government restrictions.

We sell merchandise, such as scientific instruments, information technology equipment and aircraft
parts, that is subject to export control and economic sanctions laws, among other laws, imposed by the
United States and other governments. Such restrictions include the U.S. Export Administration
Regulations, the International Traffic in Arms Regulations, and economic sanctions and embargo laws
administered by the Office of the Foreign Assets Control Regulations. These restrictions prohibit us

from, among other things, selling property to (1) persons or entities that appear on lists of restricted or
prohibited parties maintained by the United States or other governments or (2) countries, regimes, or
nationals that are the target of applicable economic sanctions or other embargoes. In addition, for
specified categories of property sold under our contracts with the DoD, we are required to (1) obtain
an end-use certificate from the prospective buyer describing the nature of the buyer’s business,
describing the expected disposition and specific end-use of the property, and acknowledging the
applicability of pertinent export control and economic sanctions laws and (2) confirm that each buyer
has been cleared to purchase export-controlled items.

We may incur significant costs or be required to modify our business to comply with these

requirements. If we are alleged to have violated any of these laws or regulations we may be subject to
civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture
of profits, suspension of payments, fines, and suspension or debarment from doing business with U.S.
federal government agencies. In addition, we could suffer serious harm to our reputation if allegations
of impropriety are made against us, whether or not true.

Our business may be harmed if third parties misappropriate our clients’ confidential information.

We retain highly confidential information on behalf of our clients in our systems and databases.
Although we maintain security features in our systems, our operations may be susceptible to hacker
interception, break-ins and other disruptions. These disruptions may jeopardize the security of
information stored in and transmitted through our systems. As the Department of Defense is one of
our clients, our systems may be especially targeted by such malicious attackers. We may be required to
expend significant capital and other resources to protect against such security breaches or to alleviate
problems caused by such breaches. These issues are likely to become more difficult as we expand our
operations. If any compromise of our security were to occur, we may lose clients and our reputation,
business, financial condition and operating results could be harmed by the misappropriation of
confidential client information. The loss of confidential client information could also expose us to the
risk of liability and costly litigation. In addition, if there is any perception that we cannot protect our
clients’ confidential information, we may lose the ability to retain existing clients and attract new clients
and our revenue could decline.

If we fail to comply with increasing levels of regulation relating to privacy, our business could suffer
harm.

We are subject to increasing regulation at the federal, state and international levels relating to
privacy and the use of personal user information. In addition, several states have proposed or enacted
legislation to limit uses of personal information gathered online or require online services to establish
privacy policies. Data protection regulations and enforcement efforts may restrict our ability to collect
demographic and personal information from users, which could be costly or harm our marketing
efforts. Such regulations, along with increased government or private enforcement, may increase the
cost of growing our business and require us to expend significant capital and other resources. Our
failure to comply with these federal, state and international laws and regulations could subject us to
lawsuits, fines, criminal penalties, statutory damages, adverse publicity and other costs could decrease
our profitability.

If one or more states successfully assert that we should collect sales or other taxes on the sale of our
merchandise or the merchandise of third parties that we offer for sale on our websites, our business
could be harmed.

We are currently required to collect and remit sales taxes in all states for shipment of goods from

our DoD contracts. We also collect and remit sales or other similar taxes in respect of shipments of
other goods into states in which we have a substantial presence. In addition, as we grow our business,

any new operation in states in which we currently do not collect and remit sales taxes could subject
shipments into such states to state sales taxes under current or future laws.

U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local taxes

with respect to sales made over the Internet. However, a number of states have adopted or are
considering laws that levy additional taxes on Internet access and electronic commerce transactions.
Congress is also considering legislation allowing states to require out-of-state sellers to collect sales and
use taxes for electronic commerce transactions. It is not possible to predict with any degree of certainty
the outcome of these initiatives or the impact of these initiatives on our business and marketing
strategies that we are considering or may consider in the future.

An unfavorable change in U.S. Supreme Court guidance related to sales tax, or a successful
assertion by one or more jurisdictions that our sale of merchandise in such jurisdiction is subject to
sales or other taxes may result in material tax liabilities, interest and penalties. A change in state or
federal laws, or our business model, business strategy, or marketing initiatives may require us to collect
sales tax on transactions in which we do not currently collect such tax. These developments, should they
occur, may result in a decrease in future sales, may decrease our ability to compete, increase our
compliance costs or otherwise harm our business.

Fraudulent activities involving our websites and disputes relating to transactions on our websites may
cause us to lose clients and adversely affect our ability to grow our business.

We are aware that other companies operating online auction or liquidation services have

periodically received complaints of fraudulent activities of buyers or sellers on their websites, including
disputes over the quality of goods and services, unauthorized use of credit card and bank account
information and identity theft, potential breaches of system security, and infringement of third-party
copyrights, trademarks and trade names or other intellectual property rights. We may receive similar
complaints if sellers or buyers trading in our marketplaces are alleged to have engaged in fraudulent or
unlawful activity. In addition, we may suffer losses as a result of purchases paid for with fraudulent
credit card data even though the associated financial institution approved payment. In the case of
disputed transactions, we may not be able to require users of our services to fulfill their obligations to
make payments or to deliver goods. We also may receive complaints from buyers about the quality of
purchased goods, requests for reimbursement, or communications threatening or commencing legal
actions against us. Negative publicity generated as a result of fraudulent conduct by third parties or the
failure to satisfactorily settle disputes related to transactions on our websites could damage our
reputation, cause us to lose clients and adversely affect our ability to grow our business.

False or defamatory statements transmitted through our services could harm our reputation and affect
our ability to attract clients.

The law relating to the liability of online services companies for information carried on or

disseminated through their services is currently unsettled. Claims could be made against online services
companies under both the U.S. and foreign law for defamation, libel, invasion of privacy, negligence,
copyright or trademark infringement, or other theories based on the nature and content of the
materials disseminated through their services. Our website allows users to make comments regarding
the online auction industry in general and other users and their merchandise in particular. Although all
such comments are generated by users and not by us, we are aware that claims of defamation or other
injury have been made against other companies operating auction services in the past and could be
made in the future against us for comments made by users. If we are held liable for information
provided by our users and carried on our service, we could be directly harmed and may be forced to
implement measures to reduce our liability. This may require us to expend substantial resources or
discontinue certain service offerings, which could negatively affect our operating results. In addition,

the increased attention focused upon liability issues as a result of these lawsuits and legislative
proposals could harm our reputation and affect our ability to attract clients.

Our stock price has been volatile, and your investment in our common stock could suffer a decline in
value.

The worldwide financial crisis led to an increase in the overall volatility of the stock market.
Despite improved stock market performance, the increased volatility and other broad market and
industry factors may adversely affect the market price of our common stock, regardless of our actual
operating performance. Other factors that could cause fluctuation in our stock price may include:

(cid:129) actual or anticipated variations in quarterly operating results;

(cid:129) changes in financial estimates by us or by a securities analyst who covers our stock;

(cid:129) publication of research reports about our company or industry;

(cid:129) conditions or trends in our industry;

(cid:129) stock market price and volume fluctuations of other publicly traded companies and, in particular,

those whose business involves the Internet and e-commerce;

(cid:129) announcements by us or our competitors of significant contracts (or the amendment or loss of
such contracts), acquisitions, commercial relationships, strategic partnerships or divestitures;

(cid:129) announcements by us or our competitors of technological innovations, new services or service

enhancements;

(cid:129) announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against

us;

(cid:129) the passage of legislation or other regulatory developments that adversely affect us, our clients

or our industry;

(cid:129) additions or departures of key personnel;

(cid:129) sales of our common stock, including sales of our common stock by our directors and officers or

specific stockholders; and

(cid:129) general economic conditions and slow or negative growth of related markets.

Volatility in the market price of shares may prevent investors from being able to sell their shares

of common stock at prices they view as attractive. In the past, securities class action litigation has often
been instituted against companies following periods of volatility in their stock price. This type of
litigation could result in substantial costs and divert our management’s attention and resources.

Some provisions of our charter, bylaws and Delaware law inhibit potential acquisition bids that you
may consider favorable.

Our corporate documents and Delaware law contain provisions that may enable our board of

directors to resist a change in control of our company even if a change in control were to be
considered favorable by you and other stockholders. These provisions include:

(cid:129) a staggered board of directors;

(cid:129) a prohibition on actions by our stockholders by written consent;

(cid:129) limitations on persons authorized to call a special meeting of stockholders;

(cid:129) the authorization of undesignated preferred stock, the terms of which may be established and

shares of which may be issued without stockholder approval;

(cid:129) advance notice procedures required for stockholders to nominate candidates for election as

directors or to bring matters before an annual meeting of stockholders; and

(cid:129) the requirement that board vacancies be filled by a majority of our directors then in office.

These provisions could discourage, delay or prevent a transaction involving a change in control of
our company. These provisions could also discourage proxy contests and make it more difficult for you
and other stockholders to elect directors of your choosing and cause us to take other corporate actions
you desire.

Item 1B. Unresolved Staff Comments.

Not Applicable

Item 2. Properties.

We do not own any real property. We lease the following properties:

Purpose

Location

Square Feet

Lease Expiration Date

Washington, D.C., USA
Cranbury, New Jersey, USA
Dallas, Texas, USA
Plainfield, Indiana, USA
North Las Vegas, Nevada, USA
Scottsdale, Arizona, USA
Columbus, Ohio, USA
Oklahoma City, Oklahoma, USA
Oklahoma City, Oklahoma, USA
Oklahoma City, Oklahoma, USA
Columbus, Ohio, USA
Montgomery, Alabama, USA
Houston, Texas, USA
Fontana, California, USA
Blue Mound, Texas, USA
Indianapolis, Indiana, USA
Atlanta, Georgia, USA
Wilmington, Delaware, USA

Corporate Headquarters
Warehouse
Warehouse
Warehouse
Warehouse
Administrative
Warehouse
Warehouse
Storage Lot
Storage Lot
Warehouse
Administrative
Administrative
Storage Lot
Storage Lot
Storage Lot
Storage Lot
Storage Lot
Administrative/Warehouse Hopkins, Minnesota, USA
Appleton, Minnesota, USA
Warehouse
Hayward, California, USA
Warehouse
Hazelwood, Missouri, USA
Warehouse
Atlanta, Georgia, USA
Warehouse
London, GBR
Administrative
Toronto, Canada
Administrative
Brampton, Canada
Warehouse
Calamba City, Philippines
Administrative

September 30, 2019
November 30, 2015

27,100
153,800
80,500 May 31, 2015
187,700
April 30, 2019
102,400 March 31, 2016

23,536
340,000
662,760
130,680
392,040
80,000
11,356
12,422 March 31, 2018

December 31, 2016
February 28, 2019
June 30, 2015
June 30, 2015
November 30, 2015
December 31,2014
September 30, 2017

130,700 May 31, 2018
727,500 May 31, 2018
697,000 May 31, 2018
479,200 May 31, 2018
484,000 May 31, 2018
275,720
April 30,2019
48,000 Month-to-Month
October 31, 2015
44,280
21,368
December 31, 2014
47,600 May 31, 2015
July 12, 2017
6,036
45,000
February 28, 2016
53,621 May 31, 2015
15,500

August 31, 2016

In addition, we lease various administrative spaces in North America totaling 19,459 square feet

square feet, in Europe, 8,181, square feet, and in Asia, 7,829 square feet.

Our servers are housed in data centers in Ashburn, Virginia, which is managed by Equinix, Inc., in

Houston, Texas, which is managed by CyrusOne, and in London, GRB, which is managed by COLT.

Item 3. Legal Proceedings.

From time to time, we may become involved in litigation relating to claims arising in the ordinary

course of our business. On July 14, 2014, Leonard Howard filed a putative class action complaint in the
United States District Court for the District of Columbia against the Company and its chief executive
officer, chief financial officer, and chief accounting officer, on behalf of shareholders who purchased
the Company’s common stock between February 1, 2012 and May 7, 2014. The complaint alleges that
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other
things, misrepresenting the Company’s growth initiative, growth potential, and financial and operating
conditions, thereby artificially inflating its share price, and seeks unspecified compensatory damages
and costs and expenses, including attorneys’ and experts’ fees. On October 14, 2014, the Court
appointed Caisse de D´epˆot et Placement du Qu´ebec and the Newport News Employees’ Retirement
Fund as co-lead plaintiffs. Plaintiffs are scheduled to file an amended complaint by December 15, 2014.
The Company intends to move to dismiss plaintiffs’ expected amended complaint. The Company cannot
estimate a range of the potential liability, if any, at this time.

Item 4. Mine Safety Disclosures.
Not applicable.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

PART II

of Equity Securities.

Price Range of Common Stock

Our common stock has been traded on The NASDAQ Stock Market under the symbol LQDT
since February 23, 2006. The following table sets forth the intra-day high and low per share bid price of
our common stock as reported by The NASDAQ Stock Market for the periods indicated.

Fiscal year ended September 30, 2013

Low

High

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$35.56
$28.62
$28.72
$27.26

$50.74
$44.40
$40.90
$38.31

Fiscal year ended September 30, 2014

$20.37
$20.24
$12.05
$12.41

$33.83
$27.33
$27.14
$16.00

As of October 30, 2014, there were approximately 15,350 holders of record of our common stock.

Dividend Policy

Since becoming a public company on February 22, 2006, we have not paid cash dividends on our

stock and currently anticipate that we will continue to retain any future earnings to finance the growth
of our business. In addition, the credit agreement we entered into on April 30, 2010 contains
restrictions on our ability to pay dividends.

Item 6. Selected Financial Data.

You should read the following selected consolidated financial data together with our consolidated

financial statements and the related notes, and with ‘‘Management’s Discussion and Analysis of
Financial Condition and Results of Operations,’’ included elsewhere in this Annual Report on
Form 10-K. The consolidated statement of operations data for the years ended September 30, 2012,
2013 and 2014 are derived from, and are qualified by reference to, our consolidated financial
statements that have been audited by Ernst & Young LLP, an independent registered public accounting
firm, and that are included in this Annual Report on Form 10-K. The consolidated statement of
operations data for the years ended September 30, 2010 and 2011, and the Consolidated Balance Sheet
data as of September 30, 2010, 2011 and 2012 are derived from our audited consolidated financial
statements that are not included in this Annual Report on Form 10-K. Certain reclassifications have
been made to previously reported financial data to reflect the financial condition, results of operations
and cash flows of the Company for discontinued operations.

Year ended September 30,

2010

2011

2012

2013

2014

(dollars in thousands, except per share data)

Consolidated Statement of Operations Data:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fee revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

249,337 $
23,678

297,584 $
29,794

415,829 $
59,475

404,041 $
101,815

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

273,015

327,378

475,304

505,856

Costs and expenses:

Cost of goods sold (excluding amortization) . . . . . . . . . . . .
Profit-sharing distributions . . . . . . . . . . . . . . . . . . . . . . .
Technology and operations
. . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Amortization of contract intangibles
Depreciation and amortization . . . . . . . . . . . . . . . . . . . .
Acquisition costs and related fair value adjustments . . . . . . .

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations
Interest income (expense) and other income (expense), net

. . . . . . . . . . . . . . . . . .
. . .

Income from continuing operations before income taxes . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations
. . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . .

109,376
41,310
45,700
20,381
23,606
813
3,609
524

245,319

27,696
(428)

27,268
12,194

15,074
(3,061)

126,395
49,318
52,178
23,279
26,484
813
4,881
6,702

290,050

37,328
(1,190)

36,138
15,459

20,679
(12,167)

198,123
43,242
67,553
31,252
37,107
7,943
6,223
1,695

393,138

82,166
(2,218)

79,948
31,652

48,296
—

199,494
35,944
90,052
40,170
48,950
7,265
10,109
5,921

437,905

67,951
704

68,655
27,551

41,104
—

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

12,013 $

8,512 $

48,296 $

41,104 $

Basic earnings (loss) per common share:

From continuing operations . . . . . . . . . . . . . . . . . . . . . . $
From discontinued operations

. . . . . . . . . . . . . . . . . . . .

Basic earnings per common share . . . . . . . . . . . . . . . . . . . $

Diluted earnings (loss) per common share:

From continuing operations . . . . . . . . . . . . . . . . . . . . . . $
From discontinued operations

. . . . . . . . . . . . . . . . . . . .

Diluted earnings per common share . . . . . . . . . . . . . . . . . . $

0.55 $
(0.11)

0.44 $

0.55 $
(0.11)

0.44 $

0.75 $
(0.44)

0.31 $

0.71 $
(0.42)

0.29 $

1.57 $
—

1.57 $

1.47 $
—

1.47 $

1.30 $
—

1.30 $

1.26 $
—

1.26 $

388,671
106,990

495,661

211,659
35,055
108,940
41,951
49,428
7,265
9,330
(18,384)

445,244

50,417
(370)

50,047
19,657

30,390
—

30,390

0.97
—

0.97

0.97
—

0.97

Basic weighted average shares outstanding . . . . . . . . . . . . . .

27,098,016

27,736,865

30,854,796

31,616,926

31,243,932

Diluted weighted average shares outstanding . . . . . . . . . . . . .

27,406,883

29,081,933

32,783,079

32,657,236

31,395,301

Non-GAAP Financial Measures:
EBITDA from continuing operations(1) . . . . . . . . . . . . . . . . $
Adjusted EBITDA from continuing operations(1)
Supplemental Operating Data:
Gross merchandise volume from continuing operations(2) . . . . $
Completed transactions(3) . . . . . . . . . . . . . . . . . . . . . . . .
Total registered buyers(4) . . . . . . . . . . . . . . . . . . . . . . . . .
Total auction participants(5) . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

32,118 $
40,532

43,022 $
58,860

96,332 $
110,144

85,325 $
104,625

67,012
63,013

416,314 $
522,000
1,403,000
2,247,000

548,552 $
475,000
1,604,000
1,936,000

864,226 $
501,000
2,186,000
2,105,000

973,325 $
530,000
2,424,000
2,458,000

931,556
547,000
2,615,000
2,538,000

As of September 30,

2010

2011

2012

2013

2014

(in thousands)

Consolidated Balance Sheet Data
Cash, cash equivalents and short-term investments . . . . . . . . . . . . . . . . . . $ 75,939 $128,984 $104,782 $ 95,109 $ 62,598
77,935
Working capital(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
431,718
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114,735
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
316,983
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

79,289
421,344
106,465
314,879

111,687
227,807
66,394
161,413

53,194
400,408
150,405
250,003

60,064
164,904
52,530
112,374

(1) EBITDA from continuing operations and adjusted EBITDA from continuing operations are supplemental non-GAAP

financial measures. GAAP means generally accepted accounting principles in the United States. EBITDA is equal to net
income plus (a) interest income (expense) and other income (expense), net; (b) provision for income taxes; (c) amortization
of contract intangibles; and (d) depreciation and amortization. Our definition of adjusted EBITDA is different from
EBITDA because we further adjust EBITDA for stock based compensation expense, acquisition costs such as transaction
expenses and changes in earn out estimates, and business realignment expense. For a description of our use of EBITDA
and adjusted EBITDA and a reconciliation of these non-GAAP financial measures to net income, see the discussion and
related table below.

(2) Gross merchandise volume is the total sales value of all merchandise sold through our marketplaces during a given period.

(3) Completed transactions represent the number of auctions in a given period from which we have recorded revenue.

(4) Total registered buyers as of a given date represent the aggregate number of persons or entities who have registered on one

of our marketplaces.

(5) For each auction we manage, the number of auction participants represents the total number of registered buyers who have

bid one or more times on that auction, and total auction participants for a given period is the sum of the auction
participants in each auction conducted during that period.

(6) Working capital is defined as current assets minus current liabilities.

We believe non-GAAP financial measures, such as EBITDA and adjusted EBITDA, are useful to

an investor in evaluating our performance for the following reasons:

(cid:129) The amortization of contract intangibles relates to the amortization of the Scrap Contract

beginning in June 2005, the Wal-Mart Contract beginning in October 2011, and an assumed
contract associated with the National Electronic Service Association (NESA) acquisition on
November 1, 2012. Depreciation and amortization expense primarily relates to property and
equipment. Both of these expenses are non-cash charges that have significantly fluctuated over
the past five years. As a result, we believe that adding back these non-cash charges to net
income is useful in evaluating the operating performance of our business on a consistent basis
from year-to-year.

(cid:129) As a result of varying federal and state income tax rates, we believe that presenting a financial
measure that adjusts net income for provision for income taxes is useful to investors when
evaluating the operating performance of our business.

(cid:129) Share-based payments to employees, including grants of employee stock options, are recognized
in the income statement based on their estimated fair values. This expense is a non-cash charge
that can fluctuate from year to year depending on the number of awards granted in a given year
and, among other variables, the price of the Company’s stock on the grant date. Accordingly, we
believe adjusting net income for this non-cash stock based compensation expense is useful to
investors when evaluating the operating performance of our business.

(cid:129) We believe adjusting net income for acquisition related transaction expenses and changes in

contingent consideration is useful to investors when evaluating the operating performance of our
business on a consistent basis from year-to-year.

(cid:129) We believe adjusting net income for business realignment expense is useful to investors when

evaluating the operating performance of our business on a consistent basis from year-to-year, as

these expenses are one-time in nature and have been incurred only once in the financial periods
presented.

(cid:129) We believe EBITDA and adjusted EBITDA are important indicators of our operational strength

and the performance of our business because they provide a link between profitability and
operating cash flow.

(cid:129) We also believe that analysts and investors use EBITDA and adjusted EBITDA as supplemental

measures to evaluate the overall operating performance of companies in our industry.

Our management uses EBITDA and adjusted EBITDA:

(cid:129) as measurements of operating performance because they assist us in comparing our operating

performance on a consistent basis as they remove the impact of items not directly resulting from
our core operations;

(cid:129) for planning purposes, including the preparation of our internal annual operating budget;

(cid:129) to allocate resources to enhance the financial performance of our business;

(cid:129) to evaluate the effectiveness of our operational strategies; and

(cid:129) to evaluate our capacity to fund capital expenditures and expand our business.

EBITDA and adjusted EBITDA as calculated by us are not necessarily comparable to similarly

titled measures used by other companies. In addition, EBITDA and adjusted EBITDA: (a) do not
represent net income or cash flows from operating activities as defined by GAAP; (b) are not
necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as
alternatives to net income, income from operations, cash provided by operating activities or our other
financial information as determined under GAAP.

We prepare adjusted EBITDA by adjusting EBITDA to eliminate the impact of items that we do

not consider indicative of our core operating performance. You are encouraged to evaluate these
adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical
tool, adjusted EBITDA is subject to all of the limitations applicable to EBITDA. Our presentation of
adjusted EBITDA should not be construed as an implication that our future results will be unaffected
by unusual or non-recurring items.

The table below reconciles income from continuing operations to EBITDA and adjusted EBITDA

from continuing operations for the periods presented.

Year ended September 30,

2010

2011

2012

2013

2014

(in thousands)

Net income from continuing operations . . . . . . . . . . . $15,074 $20,679 $ 48,296 $ 41,104 $ 30,390
Interest (income) expense and other (income)

expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Provision for income taxes
Amortization of contract intangibles . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . .

EBITDA from continuing operations . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . .
Acquisition costs and related fair value adjustments . .
Business realignment expense . . . . . . . . . . . . . . . . . .

428
12,194
813
3,609

32,118
7,891
524
—

1,190
15,459
813
4,881

43,022
9,136
6,702
—

2,218
31,652
7,943
6,223

96,332
12,117
1,695
—

(704)
27,551
7,265
10,109

85,325
13,379
5,921
—

370
19,657
7,265
9,330

67,012
12,605
(18,384)
1,780

Adjusted EBITDA from continuing operations . . . . . . $40,533 $58,860 $110,144 $104,625 $ 63,013

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements and

related notes and the information contained under the caption ‘‘Selected Consolidated Financial Data’’
contained elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could vary materially from those indicated,
implied, or suggested by these forward-looking statements as a result of many factors, including those
discussed under ‘‘Risk Factors’’ and elsewhere in this Annual Report on Form 10-K.

Overview

About us. We operate leading online auction marketplaces for surplus and salvage assets. We enable
buyers and sellers to transact in an efficient, online auction environment offering over 500 product
categories. Our marketplaces provide professional buyers access to a global, organized supply of surplus
and salvage assets presented with customer focused information including digital images and other
relevant product information along with services to efficiently complete the transaction. Additionally,
we enable our corporate and government sellers to enhance their financial return on excess assets by
providing liquid marketplaces and value-added services that integrate sales and marketing, logistics and
transaction settlement into a single offering. We organize our products into categories across major
industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment,
aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet
and transportation equipment and specialty equipment. Our online auction marketplaces are
www.liquidation.com, www.govliquidation.com, www.govdeals.com, www.networkintl.com,
www.truckcenter.com, www.secondipity.com, and www.go-dove.com.

We believe our ability to create liquid marketplaces for surplus and salvage assets generates a
continuous flow of goods from our corporate and government sellers. This valuable and reliable flow of
goods in turn attracts an increasing number of professional buyers to our marketplaces. During fiscal
year 2014, the number of registered buyers grew from approximately 2,424,000 to approximately
2,615,000, or 7.9%. During the past three fiscal years, we have conducted over 1,578,000 online
transactions generating approximately $2.8 billion in gross merchandise volume or GMV. We believe
the continuous flow of goods in our marketplaces attracts a growing buyer base which creates a virtual
cycle for our buyers and sellers.

Our history. We were incorporated in Delaware in November 1999 as Liquidation.com, Inc. and
commenced operations in early 2000. During 2000, we developed our online auction marketplace
platform and began auctioning merchandise primarily for small commercial sellers and government
agencies. In 2001, we changed our name to Liquidity Services, Inc. In June 2001, we were awarded our
first major DoD contract, the Surplus Contract. Under this agreement, we became the exclusive
contractor with the DLA Disposition Services, for the sale of usable DoD surplus assets in the United
States. In June 2005, we were awarded an additional exclusive contract with the DLA Disposition
Services to manage and sell substantially all DoD scrap property. During 2005, we opened our first
distribution center in Dallas, Texas and began serving the reverse logistics needs of top 100 retailers.

Recent initiatives. On January 17, 2014, we were awarded a sole source follow-on contract that
extended the performance period of the Surplus Contract for an additional ten month base period with
two one-month renewal option periods, thus, extending the term of the second Surplus Contract until
February 2015, assuming both renewal options are included. The surplus property flow from the DoD
continues to be higher than historical levels. The mix of property has shifted to lower value smaller unit
items, requiring us to rent more space, increase the number of shifts in our distribution centers, and
increase our staff. The DoD, in accordance with the award of the next (third) surplus contract, split the
contract into a rolling stock and a non-rolling stock contract; with bidding on these two surplus
contracts held on April 1 and 2, 2014. On April 1, 2014, we were the high bidder for the non-rolling

stock surplus contract with a bid equal to 4.35% of the DoD’s original acquisition value (OAV). The
non-rolling stock surplus contract has a base term of two years with four one-year renewal options.
Following the bidding event on April 2, 2014 for the DoD rolling stock contract, we withdrew from the
live auction bidding for this contract. Bidding reached a level that we determined would be
economically unsustainable under the terms of the new contract, jeopardizing the high level of service
we have historically provided the agency client. The price for the non-rolling stock contract is expected
to increase from 1.8% to 4.35% of OAV, resulting in significantly higher Cost of Goods Sold (COGS)
in fiscal year 2015 and beyond. Additionally, we expect to cease the sale of DoD rolling stock under
the new contract, which has historically accounted for approximately 30-35% of the overall revenue for
the current DoD Surplus contract, resulting in lower revenue in future periods. Together, this will result
in a material impact to our EBITDA in fiscal year 2015 and beyond. We will continue to operate our
existing DoD surplus contract to sell all useable surplus assets of the DoD, including non-rolling stock
assets for the base term ending December 2014, with two additional one-month renewal options.

As discussed in the beginning of fiscal year 2014, we have undertaken a significant initiative, the

LiquidityOne transformation plan, to fully integrate and enhance our marketplaces. We have spent
approximately $7.0 million on this effort and other technology and marketplace-related enhancements
during fiscal year 2014. We currently are on plan to create these benefits for our selling clients and
buying customers, while increasing efficiencies in operations across all of our marketplace platforms. A
significant amount of this product development was completed this fiscal year with the total initiative
continuing through fiscal year 2016. We expect our Universal Buyer Registration to be deployed and
our data warehouse, which centralizes data collection throughout our marketplaces, to be in production
in the first quarter of fiscal year 2015.

On October 1, 2014, we announced that we have realigned our workforce in response to the new

terms and scope of our new (third) Surplus Contract for non-rolling stock, and to adjust for the
efficiencies realized in our commercial business through ongoing integration efforts to support our
future vision and growth. The business realignment includes employee reductions in fiscal year 2015
across the organization, and includes positions related to the support of the DoD surplus business,
capital asset and retail supply chain operations, and corporate functions. The business realignment
expenses incurred during the fiscal year ended September 30, 2014 include cash costs of $1.8 million in
employee severance and benefit costs. These actions address the new scope of our DoD surplus
program and advance our future vision of building an integrated global business and marketplace
platform with a singular and superior user experience backed by focused leadership and innovative
products and services.

Our revenue. We offer our sellers three primary transaction models: a profit-sharing model, a
consignment model and a purchase model.

(cid:129) Profit-sharing model. Under our profit-sharing model, we purchase inventory from our suppliers
and share with them a portion of the profits received from a completed sale in the form of a
distribution. Distributions are calculated based on the value received from the sale after
deducting allowable costs, such as sales and marketing, technology and operations and other
general and administrative costs. Because we are the primary obligor, and take general and
physical inventory risks and credit risk under this transaction model, we recognize as revenue the
sale price paid by the buyer upon completion of a transaction. Revenue from our profit-sharing
model accounted for approximately 16.1%, 13.5%, and 14.4% of our total revenue for the fiscal
years ended September 30, 2012, 2013 and 2014, respectively. The merchandise sold under our
profit-sharing model accounted for approximately 8.9%, 7.0%, and 7.7% of our GMV for the
fiscal years ended September 30, 2012, 2013 and 2014, respectively.

(cid:129) Consignment model—fee revenue. Under our consignment model, we recognize commission
revenue from sales of merchandise in our marketplaces that is owned by others. These

commissions, which we refer to as seller commissions, represent a percentage of the sale price
the buyer pays upon completion of a transaction. We vary the percentage amount of the seller
commission depending on the various value-added services we provide to the seller to facilitate
the transaction. For example, we generally increase the percentage amount of the commission if
we take possession, handle, ship and / or provide enhanced product information for the
merchandise. We collect the seller commission by deducting the appropriate amount from the
sales proceeds prior to their distribution to the seller after completion of the transaction.
Revenue from our consignment model, as well as other fee revenue, accounted for
approximately 12.5%, 20.1%, and 21.6% of our total revenue for the fiscal years ended
September 30, 2012, 2013 and 2014, respectively, and is recorded as fee revenue in the
Consolidated Statement of Operations. The merchandise sold under our consignment model
accounted for approximately 52.3%, 59.1%, and 57.7% of our GMV for the fiscal years ended
September 30, 2012, 2013 and 2014, respectively.

(cid:129) Purchase model. Under our purchase model, we offer our sellers a fixed amount or the option to
share a portion of the proceeds received from our completed sales in the form of a distribution.
Distributions are calculated based on the value we receive from the sale after deducting a
required return to us that we have negotiated with the seller. Because we are the primary
obligor, and take general and physical inventory risks and credit risk under this transaction
model, we recognize as revenue the sale price paid by the buyer upon completion of a
transaction. Revenue from our purchase model accounted for approximately 71.4%, 66.5%, and
64.0% of our total revenue for the fiscal years ended September 30, 2012, 2013 and 2014,
respectively. The merchandise sold under our purchase model accounted for approximately
38.8%, 33.9%, and 34.6% of our GMV, for the fiscal years ended September 30, 2012, 2013 and
2014, respectively.

We collect a buyer premium on substantially all of our transactions under all of our transaction

models. Buyer premiums are calculated as a percentage of the sale price of the merchandise sold and
are paid to us by the buyer. Buyer premiums are in addition to the price of the merchandise. Under
our profit-sharing model, we typically share the proceeds of any buyer premiums with our sellers.

Industry trends. We believe there are several industry trends impacting the growth of our business
including: (1) the increase in the adoption of the Internet by businesses to conduct e-commerce both in
the United States and abroad; (2) in the near term the decrease in the volume, innovation, and price of
consumer electronic products, resulting in lower supply from our retail clients and lower per unit prices
and margins in our retail goods marketplace, although in the long term product we expect innovation
in the retail supply chain will increase the pace of product obsolescence and, therefore, the supply of
surplus assets; (3) the increase in the volume of returned merchandise handled by both online and
offline retailers; (4) the increase in government regulations and the need for corporations to have
sustainability solutions is necessitating verifiable recycling and remarketing of surplus assets; (5) the
increase in outsourcing by corporate and government organizations of disposition activities for surplus
and end-of-life assets as they focus on reducing costs, improving transparency, compliance and working
capital flows, and increasingly prefer service providers with a proven track record, innovative scalable
solutions and the ability to make a strategic impact in the reverse supply chain, which we expect to
increase our seller base; and (6) an increase in buyer demand for surplus merchandise as consumers
trade down by purchasing less expensive goods and seek greater value from their purchases, which
results in lower per unit prices and margins in our retail goods vertical.

Our Seller Agreements

Our DoD agreements. We have two material contracts with the DoD pursuant to which we acquire,
manage and sell excess property:

(cid:129) Surplus Contract. In June 2001, we were awarded the first Surplus Contract, a competitive-bid
exclusive contract under which we acquire, manage and sell all usable DoD surplus personal
property turned into the DLA Disposition Services. Surplus property generally consists of items
determined by the DoD to be no longer needed, and not claimed for reuse by, any federal
agency, such as computers, electronics, office supplies, scientific and medical equipment, aircraft
parts, clothing and textiles. We responded to a RFP from the DLA Disposition Services
regarding a renewal of the Surplus Contract, and we were awarded the contract. We executed
the second Contract on December 18, 2008. The second Surplus Contract was to expire in
February 2014. In January 2014, the DoD awarded the Company with a follow-on contract to
extend the terms of the second Surplus Contract for a base term of ten months with two
one-month renewal option periods. The DoD, in accordance with the award of the next (third)
surplus contract, split the contract into a rolling stock and a non-rolling stock contract, with
bidding on these two surplus contracts held on April 1 and 2, 2014. On April 1, 2014, we were
the high bidder for the non-rolling stock surplus contract with a bid equal to 4.35% of the
DoD’s original acquisition value (OAV). The non-rolling stock surplus contract has a base term
of two years with four one-year renewal options. Following the bidding event on April 2, 2014
for the DoD rolling stock contract, we withdrew from the live auction bidding for this contract.
Bidding reached a level that we determined would be economically unsustainable under the
terms of the new contract, jeopardizing the high level of service we have historically provided
the agency client.

Revenue from our Surplus Contract (including buyer premiums) accounted for approximately
27.2%, 27.7%, and 26.8% of our total revenue for the fiscal years ended September 30, 2012, 2013 and
2014, respectively. The property sold under our Surplus Contract accounted for approximately 15.5%,
15.0%, and 14.3% of our GMV for the fiscal years ended September 30, 2012, 2013 and 2014,
respectively.

Under the current Surplus Contract, as amended, we are obligated to purchase all DoD surplus
property at 1.8% of Disposition Services’ original acquisition value. The DoD has broad discretion to
determine what property will be made available for sale to us under the second Surplus Contract and
may retrieve or restrict property previously sold to us for national security reasons or if the property is
otherwise needed to support the mission of the DoD. The Surplus property flow from the DoD
continues to be higher than historical levels. The mix of property has shifted to lower value smaller unit
items, requiring us to rent more space, increase the number of shifts in our distribution centers, and
increase our staff.

(cid:129) Scrap Contract. In June 2005, we were awarded a competitive-bid exclusive contract under which
we acquire, manage and sell substantially all scrap property of the DoD turned into the DLA
Disposition Services. Scrap property generally consists of items determined by the DoD to have
no use beyond their base material content, such as metals, alloys, and building materials.
Revenue from our Scrap Contract (including buyer premiums) accounted for approximately
16.1%, 13.5%, and 14.4% of our total revenue for the fiscal years ended September 30, 2012,
2013 and 2014, respectively. The property sold under our Scrap Contract accounted for
approximately 8.9%, 7.0%, and 7.7% of our GMV for the fiscal years ended September 30,
2012, 2013 and 2014, respectively. We were required to pay $5.7 million to the DoD in fiscal
2005 for the right to manage the operations and remarket scrap material in connection with the
Scrap Contract. The Scrap Contract base term expired in August 2012, subject to DoD’s right to

extend it for three additional one-year terms. The DoD has exercised all three of the renewal
options.

Under the Scrap Contract, we acquire scrap property at a per pound price and we are entitled to

23% of the profits of sale (defined as gross proceeds of sale less allowable operating expenses) and
distribute the remaining profits to DoD. We refer to these disbursement payments to DoD as profit-
sharing distributions. As a result of this arrangement, we recognize as revenue the gross proceeds from
these sales. DoD also reimburses us for actual costs incurred for packing, loading and shipping
property under the Scrap Contract that we are obligated to pick up from non-DoD locations.

Under the second Surplus Contract, executed on December 18, 2008, we are not required to

distribute any portion of the profits realized under the Contract, as the second Contract contains a
higher fixed percentage price of 1.8% of the DLA Disposition Services’ acquisition value to be paid for
the property. The DoD has broad discretion to determine what property will be made available for sale
to us under the Surplus Contract and may retrieve or restrict property previously sold to us for national
security reasons or if the property is otherwise needed to support the mission of the DoD.

Under the Scrap Contract, we also have a small business performance incentive based on the
number of scrap buyers that are small businesses that would allow us to receive up to an additional 2%
of the profit sharing distribution. The profit-sharing distribution for the Scrap Contract is 23% and
includes inventory assurance processes and procedures with respect to the mutilation of demilitarized
scrap property sold.

Our Commercial Agreements.

During fiscal year 2014, we had over 600 corporate clients who each sold in excess of $10,000 of

surplus and salvage assets in our marketplaces. Our agreements with these clients are generally
terminable at will by either party.

Key Business Metrics

Our management periodically reviews certain key business metrics for operational planning

purposes and to evaluate the effectiveness of our operational strategies, allocation of resources and our
capacity to fund capital expenditures and expand our business. These key business metrics include:

Gross merchandise volume. Gross merchandise volume, or GMV, is the total sales value of all
merchandise sold through our marketplaces during a given period. We review GMV because it provides
a measure of the volume of goods being sold in our marketplaces and thus the activity of those
marketplaces. GMV also provides a means to evaluate the effectiveness of investments that we have
made and continue to make, including in the areas of customer support, value-added services, product
development, sales and marketing, and operations. The GMV of goods sold in our marketplace during
fiscal year 2014 totaled $931.6 million.

Completed transactions. Completed transactions represents the number of auctions in a given period
from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key
business metric because it provides an additional measurement of the volume of activity flowing

through our marketplaces. During the fiscal year ended September 30, 2014, we completed
approximately 547,000 transactions.

Total registered buyers. We grow our buyer base through a combination of marketing and promotional
efforts. A person becomes a registered buyer by completing an online registration process on one of
our marketplaces. As part of this process, we collect business and personal information, including
name, title, company name, business address and contact information, and information on how the
person intends to use our marketplaces. Each prospective buyer must also accept our terms and
conditions of use. Following the completion of the online registration process, we verify each
prospective buyer’s e-mail address and confirm that the person is not listed on any banned persons list
maintained internally or by the U.S. federal government. After the verification process, which is
completed generally within 24 hours, the registration is approved and activated and the prospective
buyer is added to our registered buyer list.

Total registered buyers, as of a given date, represents the aggregate number of persons or entities

who have registered on one of our marketplaces. We use this metric to evaluate how well our
marketing and promotional efforts are performing. Total registered buyers excludes duplicate
registrations, buyers who are suspended from utilizing our marketplaces and those buyers who have
voluntarily removed themselves from our registration database. In addition, if we become aware of
registered buyers that are no longer in business, we remove them from our database. As of
September 30, 2014, we had approximately 2,615,000 registered buyers.

Total auction participants. For each auction we manage, the number of auction participants represents
the total number of registered buyers who have bid one or more times in that auction. As a result, a
registered buyer who bids, or participates, in more than one auction is counted as an auction
participant in each auction in which he or she participates. Thus, total auction participants for a given
period is the sum of the auction participants in each auction conducted during that period. We use this
metric to allow us to compare our online auction marketplaces to our competitors, including other
online auction sites and traditional on-site auctioneers. In addition, we measure total auction
participants on a periodic basis to evaluate the activity level of our base of registered buyers and to
measure the performance of our marketing and promotional efforts. For the fiscal year ended
September 30, 2014, approximately 2,538,000 total auction participants participated in auctions on our
marketplaces.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our

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

Revenue recognition. For transactions in our marketplaces, which generate substantially all of our
revenue, we recognize revenue when all of the following criteria are met:

(cid:129) a buyer submits the winning bid in an auction and, as a result, evidence of an arrangement exists

and the sale price has been determined;

(cid:129) the buyer has assumed risks and rewards of ownership; and

(cid:129) collection is reasonably assured.

Most of our sales are recorded subsequent to payment authorization being received, utilizing credit

cards, wire transfers and PayPal, an Internet based payment system, as methods of payments. As a
result, we are not subject to significant collection risk, as goods are generally not shipped before
payment is received.

Revenue is also evaluated for reporting revenue of gross proceeds when we act as the principal in

the arrangement or net of commissions when we act as an agent. In arrangements in which we are
deemed to be the primary obligor, bear physical and general inventory risk, and credit risk, we
recognize as revenue the gross proceeds from the sale, including buyer’s premiums. Arrangements in
which we act as an agent or broker on a consignment basis, without taking general or physical
inventory risk, revenue is recognized based on the sales commissions that are paid to us by the sellers
for utilizing our services; in this situation, sales commissions represent a percentage of the gross
proceeds from the sale that the seller pays to us upon completion of the transaction.

We have evaluated our revenue recognition policy related to sales under our profit-sharing model
and determined it is appropriate to account for these sales on a gross basis. The following factors were
most heavily relied upon in our determination:

(cid:129) We are the primary obligor in the arrangement, and we have general inventory risk.

(cid:129) We are the seller in substance and in appearance to the buyer; the buyer contacts us if there is a

problem with the purchase. Only we and the buyer are parties to the sales contract and the
buyer has no recourse to the supplier. If the buyer has a problem, he or she looks to us, not the
supplier.

(cid:129) The buyer does not and cannot look to the supplier for fulfillment or for product acceptability

concerns.

(cid:129) We take title to the inventory upon paying the amount set forth in the contract with the

supplier. Such amount is generally a percentage of the supplier’s original acquisition cost under
our Surplus Contract and certain commercial contracts, a percentage of the supplier’s last retail
price under certain commercial contracts and varies depending on the type of the inventory
purchased or a fixed price per pound under our Scrap Contract.

(cid:129) We are at risk of loss for all amounts paid to the supplier in the event the property is damaged
or otherwise becomes unsaleable. In addition, as payments made for inventory are excluded
from the calculation for the profit-sharing distribution under our DoD contracts, we effectively
bear inventory risk for the full amount paid to acquire the property (i.e., there is no sharing of
inventory risk).

In fiscal year 2014, approximately 10.1% of our revenue was generated outside of the U.S.

Business Combinations. We recognize all of the assets acquired, liabilities assumed, contractual
contingencies, and contingent consideration at their fair value on the acquisition date. Acquisition-
related costs are recognized separately from the acquisition and expensed as incurred. Restructuring
costs incurred in periods subsequent to the acquisition date are expensed and changes to the fair value
of contingent consideration are recorded in the statement of operations subsequent to the acquisition

date. Subsequent changes to the purchase price (i.e., working capital adjustments) or other fair value
adjustments determined during the measurement period are recorded as an adjustment to goodwill. All
subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired
company and existed at the acquisition date that occur both within the measurement period and as a
result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to
goodwill. All other changes in valuation allowances are recognized as a reduction or increase to income
tax expense.

Valuation of goodwill and other intangible assets. We identify and value intangible assets that we
acquire in business combinations, such as customer arrangements, customer relationships and
non-compete agreements, that arise from contractual or other legal rights or that are capable of being
separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged. The
fair value of identified intangible assets is based upon an estimate of the future economic benefits
expected to result from ownership, which represents the amount at which the assets could be bought or
sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

We test our goodwill and other intangible assets for impairment annually or more frequently if
events or circumstances indicate impairment may exist. Examples of such events or circumstances could
include a significant change in business climate, a loss of significant customers, or a significant decline
in stock price. We make a qualitative evaluation about the likelihood of goodwill impairment to
determine whether we should calculate the fair value of a reporting unit. If our evaluation indicates a
likelihood of goodwill impairment, we apply a two-step fair value-based test to assess goodwill for
impairment. The first step compares the fair value of a reporting unit to its carrying amount, including
goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step is then
performed. The second step compares the carrying amount of the reporting unit’s goodwill to the fair
value of the goodwill. If the fair value of the goodwill is less than the carrying amount, an impairment
loss would be recorded in our statements of operations. Intangible assets with definite lives are
amortized over their estimated useful lives and are also reviewed for impairment if events or changes in
circumstances indicate that their carrying amount may not be realizable.

Our management makes certain estimates and assumptions in order to determine the fair value of
net assets and liabilities, including, among other things, an assessment of market conditions, projected
cash flows, cost of capital and growth rates, which could significantly impact the reported value of
goodwill and other intangible assets. Estimating future cash flows requires significant judgment, and our
projections may vary from cash flows eventually realized. The valuations employ a combination of
present value techniques to measure fair value, corroborated by comparisons to estimated market
multiples. These valuations are based on a discount rate determined by our management to be
consistent with industry discount rates and the risks inherent in our current business model.

We cannot predict the occurrence of certain future events that might adversely affect the reported
value of goodwill and other intangible assets, which totaled $226.8 million at September 30, 2014. Such
events may include strategic decisions made in response to economic and competitive conditions, the
impact of the economic environment on our base of buyers and sellers or material negative changes in
our relationships with material customers.

Income taxes. We account for income taxes using the 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. A valuation allowance is provided to reduce the
deferred tax assets to a level that we believe will more likely than not be realized. The resulting net
deferred tax asset reflects management’s estimate of the amount that will be realized.

We provide for income taxes based on our estimate of federal and state tax liabilities. These
estimates include, among other items, effective rates for state and local income taxes, estimates related

to depreciation and amortization expense allowable for tax purposes, and the tax deductibility of certain
other items. Our estimates are based on the information available to us at the time we prepare the
income tax provision. We generally file our annual income tax returns several months after our fiscal
year-end. Income tax returns are subject to audit by federal, state and local governments, generally
years after the returns are filed. These returns could be subject to material adjustments or differing
interpretations of the tax laws.

We apply the authoritative guidance related to uncertainty in income taxes. We concluded that

there were no uncertain tax positions identified during our analysis.

Stock-based compensation. We recognize in the statements of operations all share-based payments to
employees, including grants of employee stock options, to be recognized in the income statement based
on their estimated fair values. We use the Black-Scholes option pricing model to estimate the fair
values of share-based payments.

The above list is not intended to be a comprehensive list of all of our accounting estimates. In
many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with
little need for management’s judgment in their application. There are also areas in which
management’s judgment in selecting any available alternative would not produce a materially different
result. See our audited financial statements and related notes, which contain accounting policies and
other disclosures required by GAAP.

Components of Revenue and Expenses

Revenue. We generate substantially all of our revenue from sales of merchandise held in inventory and
by retaining a percentage of the proceeds from the sales. Our revenue recognition practices are
discussed in more detail in the section above entitled ‘‘Critical Accounting Estimates.’’

Cost of goods sold (excluding amortization). Cost of goods sold includes the costs of purchasing and
transporting property for auction, as well as credit card transaction fees.

Profit-sharing distributions. Our Scrap Contract with the DoD has been structured as a profit-sharing
arrangements in which we purchase and take possession of all goods we receive from the DoD at a
contractual price per pound. After deducting allowable operating expenses, we disburse to the DoD on
a monthly basis a percentage of the profits of the aggregate monthly sales. We retain the remaining
percentage of these profits after the DoD’s disbursement. We refer to these disbursement payments to
the DoD as profit-sharing distributions.

Technology and operations. Technology expenses consist primarily of personnel costs related to our
programming staff who develop and deploy new marketplaces and continuously enhance existing
marketplaces. These personnel also develop and upgrade the software systems that support our
operations, such as sales processing. Because our marketplaces and support systems require frequent
upgrades and enhancements to maintain viability, we have determined that the useful life for
substantially all of our internally developed software is less than one year. As a result, we expense these
costs as incurred.

Operations expenses consist primarily of operating costs, including buyer relations, shipping

logistics and distribution center operating costs.

Sales and marketing. Sales and marketing expenses include the cost of our sales and marketing
personnel as well as the cost of marketing and promotional activities. These activities include online
marketing campaigns such as paid search advertising.

General and administrative. General and administrative expenses include all corporate and
administrative functions that support our operations and provide an infrastructure to facilitate our

future growth. Components of these expenses include executive management and staff salaries, bonuses
and related taxes and employee benefits; travel; headquarters rent and related occupancy costs; and
legal and accounting fees. The salaries, bonus and employee benefits costs included as general and
administrative expenses are generally more fixed in nature than our operating expenses and do not vary
directly with the volume of merchandise sold through our marketplaces.

Amortization of contract intangibles. Amortization of contract intangibles expense consists of the
amortization of our Scrap Contract award during June 2005 and our contract intangibles associated
with the Jacobs Trading acquisition on October 1, 2011 and the NESA acquisition on November 1,
2012. The Scrap Contract required us to purchase the rights to operate the scrap operations of the
DoD during the seven year base term of the contract. The intangible asset created from the
$5.7 million purchase was being amortized over 84 months on a straight-line basis and was fully
amortized as of September 30, 2012. The amortization period is correlated to the base term of the
contract, exclusive of renewal periods. The intangible asset created in conjunction with the Jacobs
Trading acquisition is valued at $33.3 million and is being amortized over 55 months on a straight-line
basis. The amortization period is correlated to the base term of the Wal-Mart contract from the
acquisition date, exclusive of renewal periods. The vendor contract intangible asset created in
conjunction with the NESA acquisition was valued at $3.9 million, was amortized over 20 months on a
straight-line basis, and was fully amortized as of June 30, 2014. The amortization period was correlated
to the base term of the contract, from the acquisition date, exclusive of renewal periods.

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

Acquisition costs. Acquisition costs consist of expenses incurred to complete a business combination
and adjustments to the fair value of earn-outs.

Interest income and other expense (income), net.
Interest income and other income (expense), net
consists primarily of interest income on cash and short-term investments and interest expense on
borrowings under our notes payable and realized gains or losses on short-term investments.

Income taxes. During fiscal years 2012, 2013 and 2014, we had an effective income tax rate for
continuing operations of approximately 40%, 40% and 39%, respectively, which included federal, state
and foreign income taxes. We estimate that our future effective income tax rate will be approximately
40%.

Results of Operations

The following table sets forth, for the periods indicated, selected statement of operations data

expressed as a percentage of revenue.

Year ended September 30,

2012

2013

2014

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Costs and expenses:

Cost of goods sold (excluding amortization) . . . . . . . . . . .
Profit-sharing distributions . . . . . . . . . . . . . . . . . . . . . . . .
Technology and operations . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . .
Amortization of contract intangibles . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . .

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other expense (income), net . . . . . . . . . . . . . . .

Income from operations before provision for income taxes . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

41.7
9.1
14.2
6.6
7.8
1.7
1.3
0.3

82.7

17.3
0.5

16.8
6.6

39.5
7.1
17.8
7.9
9.7
1.4
2.0
1.2

86.6

13.4
(0.2)

13.6
5.5

42.7
7.1
22.0
8.4
10.0
1.4
1.9
(3.7)

89.8

10.2
0.1

10.1
4.0

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.2% 8.1% 6.1%

Year Ended September 30, 2014 Compared to Year Ended September 30, 2013

Revenue. Revenue decreased $10.2 million, or 2.0%, to $495.7 million for the year ended
September 30, 2014 from $505.9 million for the year ended September 30, 2013. This decrease was
primarily due to (1) a 9.8% decrease, or $5.4 million, in our capital asset marketplaces, which primarily
utilize the consignment model, as a result of softness in the energy and transportation verticals and
(2) a 2.0% decrease, or $4.1 million, in our DoD contracts, which utilize our purchase and profit-
sharing models, as the result of increased property flows of lower value product. The amount of gross
merchandise volume decreased $41.8 million, or 4.3%, to $931.6 million for the year ended
September 30, 2014 from $973.3 million for the year ended September 30, 2013, primarily due to
decreases in our capital assets marketplaces.

Cost of goods sold (excluding amortization). Cost of goods sold (excluding amortization) increased
$12.2 million, or 6.1%, to $211.7 million for the year ended September 30, 2014 from $199.5 million for
the year ended September 30, 2013. As a percentage of revenue, these expenses increased to 42.7%
from 39.5%. These increases are primarily due to (1) increased sales of lower value product under our
Surplus contract and (2) increased sales in our commercial retail marketplaces with clients using the
purchase model.

Profit-sharing distributions. Profit-sharing distributions decreased $0.8 million, or 2.5%, to $35.1 million
for the year ended September 30, 2014 from $35.9 million for the year ended September 30, 2013. As a
percentage of revenue, these expenses were consistent at 7.1%. These decreases are not significant.

Technology and operations expenses. Technology and operations expenses increased $18.9 million, or
21.0%, to $108.9 million for the year ended September 30, 2014 from $90.1 million for the year ended
September 30, 2013. As a percentage of revenue, these expenses increased to 22.0% from 17.8%. These
increases are primarily due to (1) expenses of $11.0 million in staff and temporary wages, including
stock based compensation, and consultant fees associated with technology marketplace integration and

enhancement projects; (2) expenses of $7.1 million for additional warehouse space due to the increase
in our inventory; and (3) expenses of $0.8 million in business realignment costs.

Sales and marketing expenses. Sales and marketing expenses increased $1.8 million, or 4.4%, to
$42.0 million for the year ended September 30, 2014 from $40.2 million for the year ended
September 30, 2013. As a percentage of revenue, these expenses increased to 8.4% from 7.9%. These
increases are primarily due to (1) expenses of $1.3 million in marketing activities; and (2) expenses of
$0.5 million in severance costs related to the business realignment.

General and administrative expenses. General and administrative expenses increased $0.5 million, or
1.0%, to $49.4 million for the year ended September 30, 2014 from $48.9 million for the year ended
September 30, 2013. As a percentage of revenue, these expenses increased to 10.0% from 9.7%. These
increases are primarily due to expenses of $0.5 million in business realignment costs.

Amortization of contract intangibles. Amortization of contract intangibles was consistent at $7.3 million
for the years ended September 30, 2014 and September 30, 2013 and is primarily related to the
contract intangible assets created in conjunction with the Jacobs Trading acquisition which was valued
at $33.3 million and is being amortized over 55 months on a straight-line basis.

Depreciation and amortization expenses. Depreciation and amortization expenses decreased
$0.8 million, or 7.7%, to $9.3 million for the year ended September 30, 2014 from $10.1 million for the
year ended September 30, 2013, primarily due to a decrease in amortization expenses of intangible
assets during 2014.

Acquisition costs. Acquisition costs decreased $24.3 million to $18.4 million of income for the year
ended September 30, 2014 from $5.9 million of expense for the year ended September 30, 2013,
primarily as a result of the reversal of the NESA earn-out liability. On November 1, 2012, we acquired
the assets and liabilities of NESA in an all cash transaction. The acquisition price included an upfront
cash payment of approximately $18.3 million and an earn-out payment. Our estimate of the fair value
of the earn-out as of the date of acquisition was $18.0 million out of a possible total earn-out payment
of $37.7 million. Upon a review of the estimate as of June 30, 2014, and based on revised estimates
and unfavorable developments in the business, we determined that the fair value of the earn-out from
the NESA acquisition was zero and have reversed the liability of $18.6 million.

Interest and other expense (income), net.
$1.1 million, or 152.5%, to $0.4 million of expense for the year ended September 30, 2014 from
$0.7 million of income for the year ended September 30, 2013, primarily due to the payoff of the
$40 million Jacobs Trading acquisition seller subordinated note in November 2012 for which we
received a $1.0 million early payment discount that was recorded as a gain.

Interest and other expense (income), net, increased

Provision for income tax expense.
Income tax expense decreased $7.9 million, or 28.7%, to
$19.7 million for the year ended September 30, 2014 from $27.6 million for the year ended
September 30, 2013, primarily due to the decrease in income before provision for income taxes from
operations.

Net income. Net income decreased $10.7 million, or 26.1%, to $30.4 million for the year ended
September 30, 2014 from $41.1 million for the year ended September 30, 2013.

Year Ended September 30, 2013 Compared to Year Ended September 30, 2012

Revenue. Revenue increased $30.6 million, or 6.4%, to $505.9 million for the year ended
September 30, 2013 from $475.3 million for the year ended September 30, 2012. This increase was
primarily due to (1) a 10.0% increase, or $24.1 million, in our commercial marketplaces as a result of
the acquisitions of GoIndustry in July 2012, and NESA on November 1, 2012; (2) a 28.5% increase, or
$3.5 million, in our state and local government (GovDeals) marketplace; and (3) a 9.3% increase, or
$11.8 million increase in our Surplus Contract as a result of increased property flow from the DoD.
These increases were offset in part by a 10.9% decrease, or $8.4 million in our DoD Scrap Contract as
a result of decreasing property flow from the DoD. The amount of gross merchandise volume increased
$109.1 million, or 12.6%, to $973.3 million for the year ended September 30, 2013 from $864.2 million
for the year ended September 30, 2012, primarily due to (1) the acquisition of GoIndustry in July 2012;
and (2) a 16.7% increase, or $22.0 million in our state and local government marketplace.

Cost of goods sold (excluding amortization). Cost of goods sold (excluding amortization) increased
$1.4 million, or 0.7%, to $199.5 million for the year ended September 30, 2013 from $198.1 million for
the year ended September 30, 2012. As a percentage of revenue, these expenses decreased to 39.5%
from 41.7%, primarily as a result of the acquisition of GoIndustry which primarily utilizes the
consignment model.

Profit-sharing distributions. Profit-sharing distributions decreased $7.3 million, or 16.9%, to
$35.9 million for the year ended September 30, 2013 from $43.2 million for the year ended
September 30, 2012. As a percentage of revenue, these expenses decreased to 7.1% from 9.1%. These
decreases were primarily due to decreasing property flow from the DoD Scrap contract and lower
commodity prices.

Technology and operations expenses. Technology and operations expenses increased $22.5 million, or
33.3%, to $90.1 million for the year ended September 30, 2013 from $67.6 million for the year ended
September 30, 2012. As a percentage of revenue, these expenses increased to 17.8% from 14.2%. These
increases are primarily due to (1) expenses of $14.6 million related to the activity of GoIndustry and
NESA; and (2) expenses of $7.9 million in staff and temporary wages, including stock based
compensation, and consultant fees associated with technology infrastructure projects.

Sales and marketing expenses. Sales and marketing expenses increased $8.9 million, or 28.5%, to
$40.2 million for the year ended September 30, 2013 from $31.3 million for the year ended
September 30, 2012. As a percentage of revenue, these expenses increased to 7.9% from 6.6%. These
increases are primarily due to expenses of $8.1 million related to the activity of GoIndustry and NESA.

General and administrative expenses. General and administrative expenses increased $11.8 million, or
31.9%, to $48.9 million for the year ended September 30, 2013 from $37.1 million for the year ended
September 30, 2012. As a percentage of revenue, these expenses increased to 9.7% from 7.8%. These
increases are primarily due to (1) expenses of $9.3 million related to the activity of GoIndustry and
NESA; and (2) $2.4 million of expenses associated with increases in general corporate expenses.

Amortization of contract intangibles. Amortization of contract intangibles decreased $0.6 million, or
8.5%, to $7.3 million for the year ended September 30, 2013 from $7.9 million for the year ended
September 30, 2012, as a result of the contract intangible associated with the DoD contract being fully
amortized during 2013.

Depreciation and amortization expenses. Depreciation and amortization expenses increased $3.9 million,
or 62.4%, to $10.1 million for the year ended September 30, 2013 from $6.2 million for the year ended
September 30, 2012, primarily due to additional depreciation expense resulting from the purchases of
$5.5 million and $6.8 million of property and equipment during the fiscal years ended September 30,
2013 and 2012, respectively.

Acquisition costs. Acquisition costs increased $4.2 million to $5.9 million for the year ended
September 30, 2013 from $1.7 million for the year ended September 30, 2012, primarily due to the
increase of $5.1 million for the fair value of the Jacobs Trading earn out liability.

Interest and other expense (income), net.
$2.9 million, or 131.7%, to $0.7 million of income for the year ended September 30, 2013 from
$2.2 million of expense for the year ended September 30, 2012, primarily due to the payoff of the
$40 million Jacobs Trading acquisition seller subordinated note which bears interest at 5% for which we
received a $1.0 million early payment discount that was recorded as a gain.

Interest and other expense (income), net, increased

Provision for income tax expense.
Income tax expense decreased $4.1 million, or 13.0%, to
$27.6 million for the year ended September 30, 2013 from $31.7 million for the year ended
September 30, 2012, primarily due to the decrease in income before provision for income taxes from
operations.

Net income. Net income decreased $7.2 million, or 14.9%, to $41.1 million for the year ended
September 30, 2013 from $48.3 million for the year ended September 30, 2012 for the reasons noted
above.

Liquidity and Capital Resources

Historically, our primary cash needs have been working capital (including capital used for

inventory purchases), which we have funded primarily through cash generated from operations. As of
September 30, 2014, we had approximately $62.6 million in cash and cash equivalents and $64.9 million
available under our $75.0 million senior credit facility, due to issued letters of credit for $10.1 million;
$1.0 million of our availability under this facility is set aside as a contractual obligation under our DoD
Scrap Contract. In fiscal year 2013, we utilized $41.0 million to repay the seller subordinated 5.0%
note, including accrued interest, associated with the Jacobs Trading acquisition and $18.3 million to
close the NESA acquisition.

Our Board of Directors has approved the repurchase of up to $101.9 million in shares under a

share repurchase program. Under the program, we are authorized to repurchase our issued and
outstanding shares of common stock. Share repurchases may be made through open market purchases,
privately negotiated transactions or otherwise, at times and in such amounts as management deems
appropriate. The timing and actual number of shares repurchased will depend on a variety of factors
including price, corporate and regulatory requirements and other market conditions. The repurchase
program may be discontinued or suspended at any time, and will be funded using our available cash.
Our Board of Directors reviews the share repurchase program periodically, the last such review having

occurred in February 2014. A summary of our share repurchase activity from fiscal year 2009 to the
year ended September 30, 2014 is as follows:

Fiscal Year Period

2009 . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . .

Total
Number of
Shares
Purchased

707,462
1,225,019
229,575
505,067
—
2,962,978

Average
Price Paid
per Share

$ 5.50
$11.53
$15.39
$59.41
—
$15.90

Total Cash
Paid for
Shares
Purchased

$ 3,874,000
14,471,000
3,541,000
30,000,000
—
$44,873,000

Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs(1)

$ 6,126,000
1,655,000
18,114,000
18,114,000
31,000,000
$ 5,127,000

(1) On December 2, 2008, our Board of Directors approved a share repurchase program,
under which we were authorized to repurchase up to $10.0 million of the issued and
outstanding shares of common stock. On each of February 2, 2010, November 30, 2010
and May 31, 2011, our Board of Directors approved an additional $10.0 million for the
share repurchase program. On May 17, 2012, our Board of Directors approved an
additional $30.0 million for the share repurchase program. On December 12, 2013, our
Board of Directors approved an additional approximately $12.9 million for the share
repurchase program. On February 5, 2014, our Board of Directors approved an additional
$19.0 million for the share repurchase program.

Senior credit facility. We maintain a $75.0 million senior credit facility due May 31, 2015. The senior
credit facility bears an annual interest rate of 30 day LIBOR plus 1.25%. As of September 30, 2014, we
had no outstanding indebtedness under our senior credit facility and our borrowing availability was
$64.9 million due to issued letters of credit for $10.1 million; $1.0 million of our availability under this
facility is set aside as a contractual obligation under our DoD Scrap Contract. The obligations under
our senior credit facility are unconditionally guaranteed by us and each of our existing and
subsequently acquired or organized subsidiaries (other than our subsidiary organized to service our
DoD Scrap contract) and secured on a first priority basis by security interests (subject to permitted
liens) in substantially all assets owned by us, and each of our other domestic subsidiaries, subject to
limited exceptions. The Agreement contains certain financial and non-financial restrictive covenants
including, among others, the requirements to maintain a minimum level of earnings before interest,
income taxes, depreciation and amortization (EBITDA) and a minimum debt coverage ratio. Our credit
agreement contains a number of affirmative and restrictive covenants including limitations on mergers,
consolidations and dissolutions, sales of assets, investments and acquisitions, indebtedness and liens,
and dividends and other restricted payments. As of September 30, 2014, we were in full compliance
with the terms and conditions of our credit agreement.

Subordinated note.
subordinated 5% unsecured note. We repaid this note in November 2012.

In conjunction with the Jacobs Trading acquisition, we issued a $40,000,000 seller

Substantially all of our sales are recorded subsequent to receipt of payment authorization, utilizing
credit cards, wire transfers and PayPal, an Internet based payment system, as methods of payments. As
a result, we are not subject to significant collection risk, as goods are generally not shipped before
payment is received.

Changes in Cash Flows: 2014 Compared to 2013

Net cash provided by operating activities from decreased $34.1 million to $11.9 million for the year

ended September 30, 2014 from $46.7 million for the year ended September 30, 2013. For the year
ended September 30, 2014, net cash provided by operating activities primarily consisted of net income
of $30.4 million, depreciation and amortization expense of $16.6 million, stock compensation expense of
$12.6 million and a net increase in accounts payable, accrued expenses and other liabilities of
$20.6 million, offset in part by the NESA earn-out liability reversal of $18.4 million, a net increase in
accounts receivable, inventory and prepaid expense of $47.4 million, and provisions for inventory
allowance, doubtful accounts, deferred tax benefit, and incremental tax from exercises of common stock
options of $2.6 million, net. For the year ended September 30, 2013, net cash provided by operating
activities primarily consisted of net income of $41.1 million, depreciation and amortization expense of
$17.4 million, stock compensation expense of $13.4 million, offset in part by net decreases in accounts
payable, accrued expenses and other liabilities of $6.5 million (including $9.2 million for the payment of
the Jacobs Trading earn-out), provisions for inventory allowance, doubtful accounts, deferred tax
benefit, and incremental tax from exercises of common stock options of $17.0 million, net, a net
increase in accounts receivable, inventory and prepaid expense of $0.7 million, and $1.0 million from
early extinguishment of debt.

Net cash used in investing activities was $7.7 million for the year ended September 30, 2014 and

$20.2 million for the year ended September 30, 2013. Net cash used in investing activities in fiscal 2014
consisted primarily of net cash paid for acquisitions and an increase of goodwill and intangibles of
$0.2 million, and capital expenditures of $7.5 million for purchases of equipment and leasehold
improvements. Net cash used in investing activities in fiscal 2013 consisted primarily of net cash paid
for acquisitions net of cash acquired and an increase of goodwill and intangibles of $14.7 million, and
capital expenditures of $5.5 million for purchases of equipment and leasehold improvements.

Net cash used in financing activities was $36.9 million for the year ended September 30, 2014,
$36.1 million for the year ended September 30, 2013. Net cash used in financing activities in fiscal 2014
consisted primarily of $44.9 million in stock repurchases, offset in part by proceeds from the exercise of
common stock options and the incremental tax benefit from the exercise of common stock options of
$8.0 million. Net cash used by financing activities in fiscal 2013 consisted primarily of $39.0 million for
the repayment of the Jacobs Trading note payable and $8.2 million for the payment of the Jacobs
Trading earn-out, offset in part by $2.5 million from exercises of common stock options and the tax
benefit of $8.6 million.

Changes in Cash Flows: 2013 Compared to 2012

Net cash provided by operating activities from continuing operations decreased $5.9 million to

$46.7 million for the year ended September 30, 2013 from $52.6 million for the year ended
September 30, 2012. For the year ended September 30, 2013, net cash provided by operating activities
from continuing operations primarily consisted of income from continuing operations of $41.1 million,
depreciation and amortization expense of $17.4 million, stock compensation expense of $13.4 million,
offset in part by a net decreases in accounts payable, accrued expenses and other liabilities of
$6.5 million (including $9.2 million for the payment of the Jacobs Trading earn-out), provisions for
inventory allowance, doubtful accounts, deferred tax benefit, and incremental tax from exercises of
common stock options of $17.0 million, net, a net increase in accounts receivable, inventory and
prepaid expense of $0.7 million, and $1.0 million from early extinguishment of debt. For the year ended
September 30, 2012, net cash provided by operating activities from continuing operations primarily
consisted of income from continuing operations of $48.3 million, depreciation and amortization expense
of $14.1 million, stock compensation expense of $12.1 million, a net increase in accounts receivable,
inventory and prepaid expense of $16.2 million, offset in part by a net decrease in accounts payable,
accrued expenses and other liabilities of $20.4 million, and a net increase in the provision for doubtful

accounts, inventory allowance, deferred tax benefit, and incremental tax from exercise of common stock
options of $17.7 million.

Net cash used in investing activities was $20.2 million for the year ended September 30, 2013 and
$78.6 million for the year ended September 30, 2012. Net cash used in investing activities in fiscal 2013
consisted primarily of net cash paid for acquisitions net of cash acquired and an increase of goodwill
and intangibles of $14.7 million, and capital expenditures of $5.5 million for purchases of equipment
and leasehold improvements. Net cash used in investing activities in fiscal 2012 consisted primarily of
net cash paid for acquisitions net of cash acquired and an increase of goodwill and intangibles of
$71.8 million, and capital expenditures of $6.8 million for purchases of equipment and leasehold
improvements.

Net cash used in financing activities was $36.1 million for the year ended September 30, 2013, and

net cash provided by financing activities was $2.4 million for the year ended September 30, 2012. Net
cash used by financing activities in fiscal 2013 consisted primarily of $39.0 million for the repayment of
the Jacobs Trading note payable and $8.2 million for the payment of the Jacobs Trading earn-out, offset
in part by $2.5 million from exercises of common stock options and the tax benefit of $8.6 million. Net
cash provided by financing activities in fiscal 2012 consisted primarily of $15.5 million from exercises of
common stock options and the tax benefit of $16.9 million, offset in part by $30.0 million for stock
repurchases.

Capital Expenditures. Our capital expenditures consist primarily of computers and purchased software,
office equipment, furniture and fixtures, and leasehold improvements. The timing and volume of such
capital expenditures in the future will be affected by the addition of new customers or expansion of
existing customer relationships. We expect capital expenditures to range from $6.0 million to
$7.0 million in the fiscal year ending September 30, 2014. We intend to fund those expenditures
primarily from operating cash flows. Our capital expenditures for the year ended September 30, 2013
were $5.5 million. As of September 30, 2013, we have no outstanding commitments for capital
expenditures.

We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated

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

Contractual and Commercial Commitments

The table below represents our significant commercial commitments as of September 30, 2014.

Operating leases, which represent commitments to rent office and warehouse space in the United
States, are not reflected on our balance sheets.

Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . .

$30,065

(in thousands)
$13,012

$10,457

$6,596

Total contractual cash obligations . . . . . . . . . . . . . . .

$30,065

$10,457

$13,012

$6,596

$—

Total

Less than
1 year

1 to 3
years

3 to 5
Years

5+ years

Off-Balance Sheet Arrangements

We do not have any transactions, obligations or relationships that could be considered material

off-balance sheet arrangements.

Inflation

Inflation generally affects us by increasing our cost of labor and equipment. We do not believe that

inflation had any material effect on our results of operations during the fiscal years ended
September 30, 2012, 2013 and 2014.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard that will

change the way we recognize revenue and significantly expand the disclosure requirements for revenue
arrangements. The new standard will be effective for us beginning on October 1, 2017, and may be
adopted either retrospectively or on a modified retrospective basis whereby the new standard would be
applied to new and existing arrangements with remaining performance obligations as of the effective
date, with a cumulative catch-up adjustment recorded to retained earnings at the effective date for
existing arrangements with remaining performance obligations. Early adoption is not permitted. We are
currently evaluating the methods of adoption allowed by the new standard and the effect that adoption
of the standard is expected to have on our consolidated financial statements and related disclosures. As
a result, our evaluation of the effect of the new standard will likely extend over several future periods.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220)—Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amends existing guidance
by requiring that additional information be disclosed about items reclassified out of accumulated other
comprehensive income. The additional information includes separately stating the total change for each
component of other comprehensive income and separately disclosing both current-period other
comprehensive income and reclassification adjustments. Entities are also required to present, either on
the face of the income statement or in the note to the financial statements, significant amounts
reclassified out of accumulated other comprehensive income as separate line items of net income but
only if the entire amount reclassified must be reclassified to net income in the same reporting period.
For amounts that are not required to be reclassified in their entirety to net income, an entity must
cross-reference to other disclosures that provide additional detail about those amounts. ASU 2013-02
was effective for interim and annual periods beginning after December 15, 2012, which for the
Company was our fiscal 2014 first quarter. We do not believe the adoption of this update will have a
material impact on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest rate sensitivity. We had $40.0 million of fixed 5% unsecured subordinated debt as of
September 30, 2012, which we repaid in fiscal year 2013, and thus do not have any related interest rate
exposure. Our investment policy requires us to invest funds in excess of current operating requirements.
The principal objectives of our investment activities are to preserve principal, provide liquidity and
maximize income consistent with minimizing risk of material loss.

Exchange rate sensitivity. We consider our exposure to foreign currency exchange rate fluctuations to
be minimal, as approximately ten percent of our sales are denominated in foreign currencies. We have
not engaged in any hedging or other derivative transactions to date.

Item 8. Financial Statements and Supplemental Data.

Annual Financial Statements and Selected Financial Data: The consolidated financial statements

and accompanying notes listed in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K are
included elsewhere in this Annual Report.

Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Attached as exhibits to this Form 10-K are certifications of our Chief Executive Officer and Chief
Financial Officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of
1934, as amended. This ‘‘Controls and Procedures’’ section includes information concerning the controls
and controls evaluation referred to in the certifications. The report of Ernst & Young LLP, our
independent registered public accounting firm, regarding management’s assessment of internal control
over financial reporting, and its audit of our internal control over financial reporting is set forth below
in this section. This section should be read in conjunction with the certifications and the Ernst &
Young LLP report for a more complete understanding of the topics presented.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our ‘‘disclosure

controls and procedures’’ as of the end of the period covered by this Form 10-K. The controls
evaluation was conducted under the supervision and with the participation of management, including
our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer. Disclosure controls
are controls and procedures designed to reasonably assure that information required to be disclosed in
our reports filed under the Securities Exchange Act of 1934, such as this Form 10-K, is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls are also designed to reasonably assure that such information is accumulated and
communicated to our management, including the Chief Executive Officer, Chief Financial Officer, and
Chief Accounting Officer, as appropriate to allow timely decisions regarding required disclosure. Our
quarterly evaluation of disclosure controls includes an evaluation of some components of our internal
control over financial reporting, and internal control over financial reporting is also separately
evaluated on an annual basis for purposes of providing the management report which is set forth
below.

The evaluation of our disclosure controls included a review of the controls’ objectives and design,

our implementation of the controls and their effect on the information generated for use in this
Form 10-K. In the course of the controls evaluation, we reviewed identified data errors, control
problems or indications of potential fraud and, where appropriate, sought to confirm that appropriate

corrective actions, including process improvements, were being undertaken. This type of evaluation is
performed on a quarterly basis so that the conclusions of management, including the Chief Executive
Officer, Chief Financial Officer, and Chief Accounting Officer, concerning the effectiveness of the
disclosure controls can be reported in our periodic reports on Form 10-Q and Form 10-K. 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. Our intent is to maintain the disclosure controls as dynamic
systems that change as conditions warrant.

Based upon the controls evaluation, our Chief Executive Officer, Chief Financial Officer, and
Chief Accounting Officer have concluded that, as of the end of the period covered by this Form 10-K,
our disclosure controls were effective to provide reasonable assurance that information required to be
disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified by the SEC, and that material information related to Liquidity
Services and our consolidated subsidiaries is made known to management, including the Chief
Executive Officer, Chief Financial Officer, and Chief Accounting Officer, particularly during the period
when our periodic reports are being prepared. We reviewed the results of management’s evaluation
with the Audit Committee of our Board of Directors.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over

financial reporting to provide reasonable assurance regarding the reliability of our financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. Internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. generally accepted accounting principles; and (iii) provide reasonable assurance regarding
authorization to effect the acquisition, use or disposition of company assets, as well as the prevention
or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could
have a material effect on the financial statements.

Management assessed our internal control over financial reporting as of September 30, 2014, the
end of our fiscal year. Management based its assessment on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 Framework). Management’s assessment included evaluation of such elements as the
design and operating effectiveness of key financial reporting controls, process documentation,
accounting policies and our overall control environment. This assessment is supported by testing and
monitoring performed by our finance organization.

Based on this assessment, management has concluded that our internal control over financial
reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external reporting
purposes in accordance with U.S. generally accepted accounting principles.

Our independent registered public accounting firm, Ernst & Young LLP, independently assessed
the effectiveness of the company’s internal control over financial reporting. Ernst & Young LLP has
issued an attestation report, which is included at the end of this section.

Inherent Limitations on Effectiveness of Controls

A control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met. The design of a control system

must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Other inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

On a quarterly basis we evaluate any changes to our internal control over financial reporting to

determine if material changes occurred. There were no changes in our internal controls over financial
reporting during the quarterly period ended September 30, 2014 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Stockholders of
Liquidity Services, Inc. and Subsidiaries

We have audited Liquidity Services, Inc. and subsidiaries’ internal control over financial reporting

as of September 30, 2014, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework)
(the COSO criteria). Liquidity Services, Inc. and subsidiaries’ management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or

detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, Liquidity Services, Inc. and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of September 30, 2014, based on the COSO
criteria.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Liquidity Services, Inc. and
subsidiaries as of September 30, 2014 and 2013, and the related consolidated statements of operations,
comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in
the period ended September 30, 2014 of Liquidity Services, Inc. and subsidiaries and our report dated
November 21, 2014 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

McLean, Virginia
November 21, 2014

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Incorporated by reference from the Company’s Proxy Statement relating to its 2014 Annual

Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2014.

Code of Ethics, Governance Guidelines and Committee Charters

We have adopted a Code of Business Conduct and Ethics that applies to all Liquidity Services

employees. The Code of Business Conduct and Ethics is available on our website.

Item 11. Executive Compensation.

Incorporated by reference from the Company’s Proxy Statement relating to its 2015 Annual

Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2014.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholders Matters.

Incorporated by reference from the Company’s Proxy Statement relating to its 2015 Annual

Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2014.

Item 13. Certain Relationship and Related Transactions, and Director Independence.

Incorporated by reference from the Company’s Proxy Statement relating to its 2015 Annual

Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2014.

Item 14. Principal Accounting Fees and Services.

Incorporated by reference from the Company’s Proxy Statement relating to its 2015 Annual

Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2014.

Item 15. Exhibits and Financial Statement Schedules.

PART IV

(a)(1) The following financial statements are filed as part of this report:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements covered by the Report of Independent Registered Public Accounting

Firm:

Consolidated Balance Sheets as of September 30, 2014 and 2013 . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended September 30, 2014, 2013

and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Comprehensive Income for the years ended September 30,

2014, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Changes in Stockholders’ Equity for the years ended

September 30, 2014, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the years ended September 30, 2014, 2013

and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

64
65

(a)(2) The following financial statement schedule is filed as part of this report:

Schedules for the three years ended September 30, 2012, 2013 and 2014:

II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

All other schedules for which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required or are inapplicable and therefore have been
omitted.

(a)(3) The documents required to be filed as exhibits to this report under Item 601 of Regulation S-K
are listed in the Exhibit Index included elsewhere in this report, which list is incorporated herein by
reference.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
Liquidity Services, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Liquidity Services, Inc. and
subsidiaries as of September 30, 2014 and 2013, and the related consolidated statements of operations,
comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in
the period ended September 30, 2014. Our audits also included the financial statement schedule listed
in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Liquidity Services, Inc. and subsidiaries at September 30, 2014
and 2013, and the consolidated results of their operations and their cash flows for each of the three
years in the period ended September 30, 2014, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material respects the information
set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting

Oversight Board (United States), Liquidity Services, Inc. and subsidiaries’ internal control over financial
reporting as of September 30, 2014, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992
framework) and our report dated November 21, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

McLean, Virginia
November 21, 2014

Liquidity Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)

September 30,

2014

2013

Assets
Current assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $1,042 and

$891 in 2014 and 2013, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 62,598

$ 95,109

21,688
78,478
16,777
5,156

184,697
12,283
17,099
209,656
7,983

24,050
29,261
11,243
4,802

164,465
10,380
28,205
211,711
6,583

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$431,718

$421,344

Liabilities and stockholders’ equity
Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Profit-sharing distributions payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition earn out payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:

Common stock, $0.001 par value; 120,000,000 shares authorized; 29,668,150
shares issued and outstanding at September 30, 2014; 31,811,764 shares
issued and outstanding at September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,994
44,484
4,740
41,544

106,762
—
7,973

$ 16,539
34,825
4,315
29,497

85,176
18,390
2,899

114,735

106,465

28
204,704
(3,451)
115,702

31
206,861
518
107,469

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

316,983

314,879

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$431,718

$421,344

See accompanying notes to the consolidated financial statements.

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

Year ended September 30,

2014

2013

2012

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fee revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

388,671 $
106,990

404,041 $
101,815

Total revenue from operations . . . . . . . . . . . . . . . . . . . . . . . . . .

495,661

505,856

Costs and expenses from operations:

Cost of goods sold (excluding amortization) . . . . . . . . . . . . . .
Profit-sharing distributions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of contract intangibles . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

211,659
35,055
108,940
41,951
49,428
7,265
9,330
(18,384)

Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .

445,244

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other expense (income), net . . . . . . . . . . . . . . . . . .

Income before provision for income taxes . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50,417
370

50,047
19,657

199,494
35,944
90,052
40,170
48,950
7,265
10,109
5,921

437,905

67,951
(704)

68,655
27,551

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

30,390 $

41,104 $

Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . . $

Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . $

0.97 $

1.30 $

1.26 $

415,829
59,475

475,304

198,123
43,242
67,553
31,252
37,107
7,943
6,223
1,695

393,138

82,166
2,218

79,948
31,652

48,296

1.57

1.47

Basic weighted average shares outstanding . . . . . . . . . . . . . . . . .

31,243,932

31,616,926

30,854,796

Diluted weighted average shares outstanding . . . . . . . . . . . . . . .

31,395,301

32,657,236

32,783,079

See accompanying notes to the consolidated financial statements.

Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income:

Defined benefit pension plan—unrecognized amounts, net of taxes . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive (loss) income, net of taxes . . . . . . . . . . . . . . . . . .

Year ended September 30,

2014

2013

2012

$30,390

$41,104

$48,296

(927)
(3,042)

(3,969)

563
(1,291)

584
610

(728)

1,194

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$26,421

$40,376

$49,490

See accompanying notes to the consolidated financial statements.

Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(In Thousands Except Share Data)

Treasury Stock

Common Stock

Amount

Additional
Paid-in
Capital

Accumulated
Other

Comprehensive Retained
Income (Loss) Earnings

Total

Balance at September 30, 2011 . . . . (2,162,056) $(21,884) 31,192,608
—

(505,067)
2,667,123

$29
—
(29,999)
51,883 (2,667,123) —

Common stock repurchase . . . . .
Common stock retired . . . . . . . .
Exercise of common stock options
and restricted stock . . . . . . . .

Stock consideration paid for

acquisition . . . . . . . . . . . . . .

Compensation expense and

incremental tax benefit from
grant of common stock options
and restricted stock . . . . . . . .
Net income . . . . . . . . . . . . . .
Defined benefit pension plan—
unrecognized amounts, net of
taxes . . . . . . . . . . . . . . . . .
Foreign currency translation . . . .

Balance at September 30, 2012 . . . .
Exercise of common stock options
and restricted stock . . . . . . . .

Compensation expense and

Foreign currency translation and

—

—
—

—

—
—

— 1,712,455

—

900,171

—
—

—

—
—

—

— 31,138,111

— 673,653

—
—

—

—
—

$124,886

(11,622)

15,490

24,537

29,070
—

—

182,361

2,532

21,968
—

52
—

—

—
—

584
610

1,246

—

—
—

563

$ 58,330 $161,413
— (29,999)
—

(40,261)

— 15,491

— 24,538

— 29,070
48,296

48,296

—

584
610

66,365

250,003

—

2,532

— 21,968
41,104

41,104

563

other . . . . . . . . . . . . . . . . .

—

(1,291)

— (1,291)

Balance at September 30, 2013 . . . .

—
Common stock repurchase . . . . . (2,962,978)
Common stock retired . . . . . . . .
2,962,978
Exercise of common stock options
and restricted stock . . . . . . . .

—

Compensation expense and

—
—

—

—
—

—

Balance at September 30, 2014 . . . .

— $

— 29,668,150

— 31,811,764
—

$31
(3)
(44,870)
44,870 (2,962,978) —

$206,861
—
(22,713)

518
—

$107,469 $314,879
— (44,873)
—

(22,157)

— 819,364

—

4,146

—

—
—

—

4,146

— 16,410
30,390

30,390

—
—

16,410
—

—

(927)
(3,042)

(927)
— (3,042)

$204,704

$(3,451)

$115,702 $316,983

—

$28

See accompanying notes to the consolidated financial statements.

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

Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on early extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of earn out liability . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for inventory allowance . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incremental tax benefit from exercise of common stock options and restricted
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and deferred taxes, current . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit-sharing distributions payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer payables
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition earn out payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by operating activities from continuing operations
. . . . . . . .
Net cash used by operating activities from discontinued operations . . . . . . . . . .

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities
Cash paid for acquisitions and increase in goodwill and intangibles . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities
Principal repayments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of common stock options (net of tax) . . . . . . . . . . . . . .
Incremental tax benefit from exercise of common stock options and restricted

stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of acquisition contingent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate differences on cash and cash equivalents . . . . . . . . . . .

Net (decrease) increase in cash and cash equivalents
. . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . .

2014

2013

2012

$ 30,390

$ 41,104

$ 48,296

16,595
—
(18,390)
12,605
271
151
828

17,374
(1,000)
5,437
13,379
(1,122)
(357)
(6,852)

14,166
—
(664)
12,117
884
117
(1,719)

(3,805)

(8,588)

(16,953)

2,211
(49,488)
(2,829)
2,735
(545)
9,659
425
12,046

(7,466)
(7,470)
14,243
(26)
6,542
(2,341)
274
(4,768)
— (11,422)
(198)

(1,003)

11,856
—

11,856

46,743
—

46,743

(1,596)
(132)
17,432
458
(7,570)
(8,534)
(3,226)
2,510
(3,162)
205

52,629
(483)

52,146

(141)
(7,539)

(14,730)
(5,463)

(71,796)
(6,793)

(7,680)

(20,193)

(78,589)

— (39,000)

—
— (29,999)
15,491

2,532

(44,873)
4,146

3,805
—

(36,922)
235

(32,511)
95,109

8,588
(8,185)

(36,065)
(158)

(9,673)
104,782

16,953
—

2,445
(309)

(24,307)
129,089

Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 62,598

$ 95,109

$104,782

Supplemental disclosure of cash flow information
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note payable issued in connection with acquisition . . . . . . . . . . . . . . . . . . . . .
Contingent purchase price accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 18,108
—
—
—

$ 16,760
2,034
—
18,390

$ 14,482
117
40,000
7,438

See accompanying notes to the consolidated financial statements.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Organization

Liquidity Services, Inc. and subsidiaries (LSI or the Company) is a leading online auction
marketplace for surplus and salvage assets. LSI enables buyers and sellers to transact in an efficient,
automated online auction environment offering over 500 product categories. The Company’s
marketplaces provide professional buyers access to a global, organized supply of surplus and salvage
assets presented with digital images and other relevant product information. Additionally, LSI enables
its corporate and government sellers to enhance their financial return on excess assets by providing a
liquid marketplace and value-added services that integrate sales and marketing, logistics and transaction
settlement into a single offering. LSI organizes its products into categories across major industry
verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace
parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and
transportation equipment and specialty equipment. The Company’s online auction marketplaces are
www.liquidation.com, www.govliquidation.com, www.govdeals.com, www.networkintl.com,
www.truckcenter.com, www.secondipity.com, and www.go-dove.com. LSI has one reportable segment
consisting of operating auction marketplaces for sellers and buyers of surplus, salvage and scrap assets.
In fiscal year 2014, approximately 10.1% of the Company’s revenue was generated outside of the U.S.

The Company’s operations are subject to certain risks and uncertainties 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, its susceptibility to rapid technological
change, actual and potential competition by entities with greater financial resources, and the potential
for the U.S. Government agencies from which the Company has derived a significant portion of its
inventory to change the way they conduct their surplus disposition or to otherwise not renew their
contracts with the Company.

The Company has evaluated subsequent events through the date that these financial statements

were issued and filed with the Securities and Exchange Commission.

2. Summary of Significant Accounting Policies

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. Actual results could differ from those
estimates.

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company and its

wholly-owned subsidiaries. Certain prior period amounts have been reclassified to conform to the
current year’s presentation. 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 Securities and Exchange Commission. 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)

2. Summary of Significant Accounting Policies (Continued)

Discontinued Operations

In determining whether a group of assets disposed (or to be disposed) of should be presented as

discontinued operations, the Company makes a determination of whether the group of assets being
disposed of comprises a component of the entity; that is, whether it has historical operations and cash
flows that can be clearly distinguished (both operationally and for financial reporting purposes). The
Company also determines whether the cash flows associated with the group of assets have been
significantly (or will be significantly) eliminated from the ongoing operations of the Company as a
result of the disposal transaction and whether the Company has no significant continuing involvement
in the operations of the group of assets after the disposal transaction. If these determinations can be
made affirmatively, the results of operations of the group of assets being disposed of (as well as any
gain or loss on the disposal transaction) are aggregated for separate presentation apart from continuing
operating results of the Company in the consolidated financial statements.

Business Combinations

The Company recognizes all of the assets acquired, liabilities assumed, contractual contingencies,

and contingent consideration at their fair value on the acquisition date. Acquisition-related costs are
recognized separately from the acquisition and expensed as incurred. Restructuring costs incurred in
periods subsequent to the acquisition date are expensed when incurred. Subsequent changes to the
purchase price (i.e., working capital adjustments) or other fair value adjustments determined during the
measurement period are recorded as an adjustment to goodwill, with the exception of contingent
consideration, which is recognized in the statement of operations in the period it is modified. All
subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired
company and existed at the acquisition date that occur both within the measurement period and as a
result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to
goodwill. 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.

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.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and are non-interest bearing. The

Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible
receivables. Allowances are based on management’s judgment, which considers historical experience
and specific knowledge of accounts where collectability may not be probable. The Company makes
provisions based on historical bad debt experience, a specific review of all significant outstanding
invoices and an assessment of general economic conditions.

Inventory

Inventory consists of property obtained for resale, generally through the online auction process,

and is stated at the lower of cost or market. Cost is determined using the specific identification
method. Charges for unsellable inventory are included in cost of goods sold in the period in which they
have been determined to occur.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Property and Equipment

Property and equipment is recorded at cost, and depreciated and amortized on a straight-line basis

over the following estimated useful lives:

Computers and purchased software
Office equipment
Furniture and fixtures
Leasehold improvements

One to five years
Three years
Five to seven years
Shorter of lease term or useful life

Intangible Assets

Intangible assets primarily consist of contract acquisition costs, covenants not to compete, and
other intangible assets associated with acquisitions (see Note 4). Intangible assets are amortized using
the straight-line method over their estimated useful lives, ranging from three to seven years.

Impairment of Long-Lived Assets

Long-lived assets, including amortizable intangible assets, are reviewed for impairment whenever

events or changes in circumstances indicate that the carrying amount of an asset may not be fully
recoverable. If an impairment indicator is present, the Company evaluates recoverability by comparing
the carrying amount of the assets to future undiscounted net cash flows expected to be generated by
the assets. 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.

Goodwill

Goodwill is reviewed for impairment annually or more frequently if events or circumstances
indicate impairment may exist. Examples of such events or circumstances could include a significant
change in business climate or the loss of a significant customer. In evaluating goodwill for impairment,
the Company first assesses qualitative factors to determine whether it is more than likely than not (that
is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying
amount. If the Company concludes that it is not more likely than not that the fair value of the
reporting unit is less than its carrying value, no further testing of goodwill assigned to the reporting
unit is required. However, if the Company concludes that it is more likely than not that the fair value
of a reporting unit is less than its carrying value, the Company applies a two-step fair value-based test
to assess goodwill for impairment. The first step compares the fair value of a reporting unit to its
carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value,
the second step is then performed. The second step compares the carrying amount of the reporting
unit’s goodwill to the fair value of the goodwill. If the fair value of the goodwill is less than the
carrying amount, an impairment loss would be recorded in the statement of operations.

Revenue Recognition

The Company recognizes revenue when all of the following criteria are met:

(cid:129) a buyer submits the winning bid in an auction and, as a result, evidence of an arrangement exists

and the sale price has been determined;

(cid:129) the buyer has assumed the risks and rewards of ownership; and

(cid:129) collection is reasonably assured.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Revenue is also evaluated for reporting revenue of gross proceeds as the principal in the

arrangement or net of commissions as an agent. In arrangements in which the Company is deemed to
be the primary obligor, bears physical and general inventory risk, and credit risk, LSI recognizes as
revenue the gross proceeds from the sale, including buyer’s premiums. The Company has evaluated its
revenue recognition policy related to sales under LSI’s profit-sharing model and determined it is
appropriate to account for these sales on a gross basis. In the Company’s evaluation, the Company
relied most heavily upon its status as primary obligor in the sales relationship and the fact that the
Company has general inventory risk.

In arrangements in which the Company acts as an agent or broker on a consignment basis, without
taking physical or general inventory risk, revenue is recognized based on the sales commissions that are
paid to the Company by the sellers for utilizing LSI’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. Such revenue as well as other fee revenue is presented as Fee Revenue
in the Consolidated Statements of Operations.

The Company collects and remits sales taxes on merchandise that it purchases and sells, and

reports such amounts under the net method in its Consolidated Statements of Operations.

Cost of Goods Sold

Cost of goods sold includes the costs of purchasing and transporting property for auction as well as

credit card transaction fees. The Company purchases the majority of its inventory at a percentage of
the supplier’s original acquisition cost under the Surplus and certain commercial contracts, a percentage
of the supplier’s last retail price under certain commercial contracts and varies depending on the type
of the inventory purchased or a fixed price per pound under the Scrap Contract. Title for the inventory
passes to the Company at the time of purchase and the Company bears the risks and rewards of
ownership. The Company does not have title to assets sold on behalf of its commercial or government
customers when it receives only sales commission revenue and, as such, recognizes no cost of goods
sold associated with those sales. Cost of goods sold also includes shipping and handling costs and
amounts paid by customers for shipping and handling.

Risk Associated with Certain Concentrations

The Company does not perform credit evaluations for the majority of its buyers. However,

substantially all sales are recorded subsequent to payment authorization being received. As a result, the
Company is not subject to significant collection risk, as most goods are not shipped before payment is
received.

For consignment sales transactions, funds are collected from buyers and are held by the Company
on the sellers’ behalf. The funds are included in cash and cash equivalents in the consolidated financial
statements. The Company releases the funds to the seller, less the Company’s commission and other
fees due, after the buyer has accepted the goods or within 30 days, depending on the state where the
buyer and seller conduct business. The amount of cash held on behalf of the sellers is recorded as
customer payables 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, and accounts receivable.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

The Company deposits its cash with financial institutions that the Company considers to be of high
credit quality.

For the years ended September 30, 2014, 2013, and 2012, approximately 11%, 11%, and 20% of

the Company’s Gross Merchandise Volume (GMV) was generated from Wal-Mart under multiple
contracts / programs.

Income Taxes

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. A valuation allowance is provided to reduce the
deferred tax assets to a level that the Company believes will more likely than not be realized. The
resulting net deferred tax asset reflects management’s estimate of the amount that will be realized.

The Company applies the authoritative guidance related to uncertainty in income taxes. The
Company has concluded that there were no uncertain tax positions identified during its analysis.

Stock-Based Compensation

The Company estimates the fair value of share-based awards on the date of grant. The fair value

of stock options is determined using the Black-Scholes option-pricing model. The fair value of
restricted stock awards is based on the closing price of the Company’s common stock on the date of
grant. The determination of the fair value of the Company’s stock option awards and restricted stock
awards is based on a variety of factors including, but not limited to, the Company’s common stock
price, expected stock price volatility over the expected life of awards based on historical realized
volatility, and actual and projected exercise behavior. Additionally, the Company has estimated
forfeitures for share-based awards at the dates of grant based on historical experience, adjusted for
future expectation. The forfeiture estimate is revised as necessary if actual forfeitures differ from
materially these estimates.

The Company issues restricted stock awards where restrictions lapse upon either the passage of
time (service vesting), achieving performance targets, or some combination of these restrictions. For
those restricted stock awards with only service conditions, the Company recognizes compensation cost
on a straight-line basis over the explicit service period. For awards with both performance and service
conditions, the Company starts recognizing compensation cost over the remaining service period, when
it is probable the performance condition will be met. For stock awards that contain performance vesting
conditions, the Company excludes these awards from diluted earnings per share computations until the
contingency is met as of the end of that reporting period. For awards to non-employees (who are not
directors), the Company records compensation cost when the performance condition is met. The
Company presents the cash flows resulting from the tax benefits resulting from tax deductions in excess
of the compensation cost recognized for those options (excess tax benefits) as a financing activity with a
corresponding operating cash outflow in the Consolidated Statements of Cash Flows.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Advertising Costs

Advertising expenditures are expensed as incurred. Advertising costs charged to expense were

$7,229,000, $4,560,000, and $4,939,000 for the years ended September 30, 2014, 2013 and 2012,
respectively.

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable, profit-sharing distributions
payable, and customer payables reported in the Consolidated Balance Sheets approximate their fair
values.

Foreign Currency Translation

The functional currency of the Company’s foreign subsidiaries is the local currency. The translation

of the subsidiary’s financial statements into U.S. dollars is performed for balance sheet accounts using
exchange rates in effect at the balance sheet date and for revenue and expense accounts using an
average exchange rate during the period. The resulting translation adjustments are recognized in
accumulated other comprehensive income, a separate component of stockholders’ equity. Realized
foreign currency transaction gains and losses for 2012, 2013 and 2014 are included in interest expense
and other expense (income), net in the consolidated statements of operations.

Earnings per Share

Basic net income attributable to common stockholders per share is computed by dividing net
income attributable to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted net income attributable to common stockholders per share includes
the potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The Company had 1,399,609 unvested restricted shares,
which were issued at prices ranging from $7.48 - $52.55, during the years ended September 30, 2012,
2011, 2010, and 2009, of which all have been included in the calculation of diluted income per share for
the year ended September 30, 2012. The Company had 1,543,869 unvested restricted shares, which were
issued at prices ranging from $7.48 - $52.55, during the years ended September 30, 2013, 2012, 2011,
2010, and 2009, of which 383,831 have been included in the calculation of diluted income per share for
the year ended September 30, 2013. The Company had 1,897,827 unvested restricted shares, which were
issued at prices ranging from $7.48 - $52.55, during the years ended September 30, 2014, 2013, 2011,
2010, and 2009, of which 341,137 have been included in the calculation of diluted income per share for
the year ended September 30, 2014. The Company has also not included the following stock options in
the calculation of diluted income per share because the option exercise prices were greater than the
average market prices for the applicable periods:

(a) for the fiscal year ended September 30, 2014 - 836,303 options;

(b) for the fiscal year ended September 30, 2013 - 151,291 options; and

(c)

for the fiscal year ended September 30, 2012 - 0 options.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

The following summarizes the potential outstanding common stock of the Company as of the dates

set forth below:

September 30,

2014

2013

2012

(dollars in thousands except
per share and share data)

Weighted average shares calculation:
Basic weighted average shares outstanding . . . . . . . . . . . . . .
Treasury stock effect of options and restricted stock . . . . . . .

31,243,932
151,369

31,616,926
1,040,310

30,854,796
1,928,283

Diluted weighted average common shares outstanding . . . . .

31,395,301

32,657,236

32,783,079

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Basic income per common share . . . . . . . . . . . . . . . . . . . . .

Diluted income per common share . . . . . . . . . . . . . . . . . . .

30,390

0.97

41,104

1.30

1.26

48,296

1.57

1.47

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard that will

change the way the Company recognizes revenue and significantly expand the disclosure requirements
for revenue arrangements. The new standard will be effective for the Company beginning on
October 1, 2017, and may be adopted either retrospectively or on a modified retrospective basis
whereby the new standard would be applied to new and existing arrangements with remaining
performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to
retained earnings at the effective date for existing arrangements with remaining performance
obligations. Early adoption is not permitted. The Company is currently evaluating the methods of
adoption allowed by the new standard and the effect that adoption of the standard is expected to have
on the consolidated financial statements and related disclosures. As a result, the Company’s evaluation
of the effect of the new standard will likely extend over several future periods.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

cross-reference to other disclosures that provide additional detail about those amounts. ASU 2013-02
was effective for interim and annual periods beginning after December 15, 2013, which for the
Company was its fiscal 2014 first quarter. The Company does not believe the adoption of this update
had a material impact on its financial statements.

3. Significant Contracts

DLA Disposition Services

The Company has a Surplus Contract with the DLA Disposition Services in which the base term

expired in February 2012 with two one year renewal options. The DoD has exercised both renewal
options. In January 2014, the DoD awarded the Company with a follow-on contract to extend the terms
of the Surplus Contract for a base term of ten months with two one-month renewal option periods.
Under the current (second) Surplus Contract, the Company is required to purchase all usable surplus
property offered to the Company by the Department of Defense at a fixed percentage equal to 1.8% of
the DoD’s original acquisition value (OAV). The Company retains 100% of the profits from the resale
of the property and bears all of the costs for the merchandising and sale of the property. Included in
Accrued expenses and other current liabilities in the Consolidated Balance Sheet, the Company has a
liability to the DoD of approximately $19,545,000 and $9,257,000 for inventory as of September 30,
2014 and 2013, respectively. The Surplus Contract contains a provision providing for a mutual
termination of the contract for convenience.

As a result of the current (second) Surplus Contract, the Company is the sole remarketer of all

DoD surplus turned into the DLA Disposition Services available for sale within the United States,
Puerto Rico, and Guam. Revenue from the current (second) Surplus Contract accounted for 27.2%,
27.7%, and 26.8% of our consolidated revenue for the fiscal years ended September 30, 2012, 2013,
and 2014, respectively.

The DoD, in accordance with the award of the next (third) Surplus Contract, split the contract

into a rolling stock and a non-rolling stock contract, with bidding on these two surplus contracts held
on April 1 and 2, 2014. On April 1, 2014, the Company was the high bidder for the non-rolling stock
surplus contract with a bid equal to 4.35% of the DoD’s OAV. The non-rolling stock surplus contract
has a base term of two years with four one-year renewal options. Following the bidding event on
April 2, 2014 for the DoD rolling stock contract, the Company withdrew from the live auction bidding
for this contract. Bidding had reached a level that the Company determined would be economically
unsustainable under the terms of the new contract, jeopardizing the high level of service the Company
has historically provided the agency client. The price the Company will pay for inventory under the new
non-rolling stock contract is expected to increase from 1.8% to 4.35% of OAV, resulting in significantly
higher Cost of Goods Sold (COGS) in fiscal year 2015 and beyond. Additionally, the Company expects
to cease the sale of DoD rolling stock under the new contract, which has historically accounted for
approximately 30-35% of the overall revenue for the current second Surplus Contract, resulting in
lower revenue in future periods. The Company continues to operate the current DoD surplus contract
to sell all useable surplus assets of the DoD, including non-rolling stock assets for the base term ending
December 2014, with two additional one-month renewal options.

The Company has a Scrap Contract with the DLA Disposition Services in which the base term
expired in June 2012 with three one year renewal options. The DoD has exercised all three renewal
options. Under the terms of the Scrap Contract, the Company is required to purchase all scrap

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

3. Significant Contracts (Continued)

government property referred to it by the DLA Disposition Services. The Company distributes to the
DLA Disposition Services 77% of the profits realized from the ultimate sale of the inventory, after
deduction for allowable expenses, as provided for under the terms of the contract. The Contract also
has a performance incentive that allows it to receive up to an additional 2% of the profit sharing
distribution. This incentive is measured annually on June 30th, and is applied to the prior 12 months.
The Company earned a performance incentive for the years ended September 30, 2014, 2013 and 2012
of approximately $1,326,000, $1,265,000, and $1,651,000, respectively. For the years ended
September 30, 2014, 2013 and 2012, profit-sharing distributions to the DLA Disposition Services under
the Scrap Contract were $34,935,000, $35,944,000, and $43,242,000, including accrued amounts, as of
September 30, 2014, 2013, and 2012, of $4,740,000, $4,315,000, and $4,041,000, respectively. The Scrap
Contract may be terminated by either the Company or the DLA Disposition Services if the rate of
return performance ratio does not exceed specified benchmark ratios for two consecutive quarterly
periods and the preceding twelve months. The Company has performed in excess of the benchmark
ratios throughout the contract period through September 30, 2014.

As a result of the Scrap Contract, the Company is the sole remarketer of all U.S. Department of

Defense scrap turned into the DLA Disposition Services available for sale within the United States,
Puerto Rico, and Guam. Revenue from the Scrap Contract accounted for 16.1%, 13.5%, and 14.4% of
our consolidated revenue for the fiscal years ended September 30, 2012, 2013, and 2014, respectively.

4. Acquisitions

Jacobs Trading Acquisition

On October 1, 2011, LSI completed its acquisition of the assets of Jacobs Trading, LLC. The

acquisition price included an upfront cash payment of $80.0 million, a seller subordinated 5%
unsecured note of $40.0 million, which the Company paid in full in November 2012, the issuance of
900,171 shares of restricted stock (valued at $24.5 million by applying a 15% discount to the Company’s
closing share price on September 30, 2011) and an earn-out payment. The stock consideration
contained a restriction that it is not freely tradable for six months following the acquisition date and
the Company used the put option analysis method to fair value the stock. Under the terms of the
agreement, the earn-out is based on EBITDA earned by Jacobs during the trailing 12 months ending
December 31, 2012 and 2013. The Company’s estimate of the fair value of the earn-out as of
October 1, 2011 was $8.3 million out of a possible total earn out payment of $30.0 million. During
2012, based on the performance of the business and revised projections, the Company accrued an
additional $6.2 million for the earn-out. As of September 30, 2012, the fair value of the earn-out was
$14.5 million. During the three months ended December 31, 2012, based on the performance of the
business and revised projections, the Company accrued an additional $5.1 million and paid out
$17.4 million. During the three months ended March 31, 2013, the Company paid out the remaining
$2.2 million earn-out out under the 2012 target. Based on the performance of the business and
projections in comparison to the elevated earn-out targets for calendar year 2013 relative to the targets
for calendar year 2012, the Company believes the fair value of the calendar year 2013 earn-out as of
September 30, 2013 is zero.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

4. Acquisitions (Continued)

The total estimated purchase price is allocated to Jacobs’ net tangible and intangible assets

acquired and liabilities assumed based on their estimated fair values as of October 1, 2011, the effective
date of the acquisition of Jacobs. The purchase price was allocated as follows:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vendor contract intangible asset
Covenants not to compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consideration
Amount

(in thousands)
$ 4,710
6,059
120
110,226
33,300
2,400
847
(1,837)
(3,101)

Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$152,724

Goodwill, which is deductible for tax purposes due to the asset purchase structure, was created as

part of the acquisition as the Company acquired an experienced and knowledgeable workforce. The
amount of revenue included in the 2013 and 2014 consolidated statement of operations related to
JacobsTrading was $99.8 million and $93.3 million, respectively. The related supplemental pro forma
information was not significant and it is impracticable for the Company to determine and disclose the
amount of earnings for this acquisition.

GoIndustry Acquisition

In July 2012, the Company completed its purchase of GoIndustry-DoveBid plc, a public limited
company incorporated under the laws of England and Wales (‘‘GoIndustry’’), for 73 pence per share
($11.6 million). GoIndustry is a global provider of surplus asset management, auction and valuation
services operating in over 25 countries in North America, Europe and Asia. The acquisition expands
the Company’s client roster with leading global manufacturers across the aerospace, consumer packaged
goods, electronics, pharmaceutical, technology and transportation industry verticals.

The total purchase price is allocated to GoIndustry’s net tangible and intangible assets acquired

and liabilities assumed based on their estimated fair values as of July 1, 2012, the effective date of the

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

4. Acquisitions (Continued)

acquisition of GoIndustry. Based on management’s estimate of the fair value of tangible and intangible
assets acquired and liabilities assumed, the purchase price was allocated as follows:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brand and technology intangible assets . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consideration
Amount

(in thousands)
$ 10,091
3,987
297
1,075
34,152
4,877
354
(5,788)
(11,087)
(6,468)
(19,017)
(846)

Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 11,627

Goodwill was created as part of the acquisition as the Company acquired an experienced and
knowledgeable workforce, of which approximately $5.5 million of the goodwill and all of the intangible
assets are expected to be tax deductible, as a result of the structure of the transaction. The amount of
revenue included in the 2013 and 2014 consolidated statement of operations related to GoIndustry was
$38.6 million and $36.8 million, respectively. The related supplemental pro forma information was not
significant and it is impracticable for the Company to determine and disclose the amount of earnings
for this acquisition.

National Electronic Service Association (NESA)

On November 1, 2012, the Company acquired the assets and assumed liabilities of National
Electronic Service Association (NESA) in an all cash transaction. The acquisition price included an
upfront cash payment of approximately $18.3 million and an earn-out payment. Under the terms of the
agreement, the earn-out is based on EBITDA earned by NESA during the 36-48 months after closing.
EBITDA growth used in the calculation is capped at 20% of prior period. The Company’s estimate for
the total payout ranges from zero to a maximum of $37.7 million. The Company’s estimate of the fair
value of the earn-out as of the date of acquisition was $18.0 million. Based upon revised projections,
the Company determined that the fair value of the earn-out as of June 30, 2104 was zero and reversed
the liability of $18.6 million with a corresponding reduction (credit) in the Acquisition Costs line in the
Consolidated Statement of Operations for the year ended September 30, 2014. The Company continues
to believe the fair value of the earn-out is zero as of September 30, 2014. NESA is a Canadian provider
of returns management, refurbishment and reverse logistics services for high-value consumer products.
NESA provides expertise and focused services to Fortune 1000 companies in the management of
Consumer Electronics, Telecommunications, and Information Technology products.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

4. Acquisitions (Continued)

Under the acquisition method of accounting, the total estimated purchase price is allocated to

NESA’s net tangible and intangible assets acquired based on their estimated fair values as of
November 1, 2012. Based on management’s valuation of the fair value of tangible and intangible assets
acquired and liabilities assumed, the purchase price was allocated as follows:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Vendor contract intangible asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covenants not to compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consideration
Amount

(in thousands)
$ 3,760
27,009
3,936
1,400
225
234
(204)

Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$36,360

Goodwill was created as part of the acquisition as the Company acquired an experienced and

knowledgeable workforce, 75% of which is expected to be tax deductible as a result of the asset
purchase structure of the transaction. The amount of revenue from NESA since the acquisition date
and related supplemental pro forma information is not significant and it is impracticable for us to
determine the amount of earnings for NESA.

5. Property and Equipment

Property and equipment, including equipment under capital lease obligations, consists of the

following:

September 30,

2014

2013

(in thousands)

Computers and purchased software . . . . . . . . . . . . . . . . . . . . .
Office/Operational equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 23,185
6,502
1,467
1,006
4,729

$ 17,953
5,391
1,408
992
4,319

Less: Accumulated depreciation and amortization . . . . . . . . . .

36,889
(24,606)

30,063
(19,683)

$ 12,283

$ 10,380

Depreciation and amortization expense related to property and equipment for the years ended

September 30, 2014, 2013 and 2012 was $5,623,000, $5,696,000, and $4,714,000, respectively.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

6. Goodwill

The goodwill of acquired companies is primarily related to the acquisition of an experienced and

knowledgeable workforce. The following summarizes our goodwill activity for the periods indicated:

Balance at September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill

(in thousands)
$185,771
27,009
(1,069)

Balance at September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

211,711
(2,055)

Balance at September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$209,656

Accumulated goodwill impairment losses as of September 30, 2014, were $13.4 million and were

the result of ceasing operations of the Company’s business in the United Kingdom.

7. Intangible Assets

Intangible assets at September 30, 2014 and September 30, 2013 consisted of the following:

September 30, 2014

September 30, 2013

Gross

Net

Gross

Net

(in years) Amount Amortization Amount

Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount

Useful
Life

Contract intangibles . . . . . . . . . . . .
Brand and technology . . . . . . . . . .
Covenants not to compete . . . . . . .
Patent and trademarks . . . . . . . . . .

2 - 5
3 - 5
3 - 5
3 - 10

$33,300
5,947
4,330
672

(dollars in thousands)
$(21,796) $11,504 $37,236
5,965
4,440
509

(2,852)
(2,245)
(257)

3,095
2,085
415

Total intangible assets, net . . . . . . .

$17,099

$(16,696) $20,540
4,299
3,001
365

(1,666)
(1,439)
(144)

$28,205

Future expected amortization of intangible assets at September 30, 2014 was as follows:

Years ending September 30,

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 and after . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization

(in thousands)
$ 8,378
6,278
1,435
875
133

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17,099

Amortization expense related to intangible assets for the years ended September 30, 2014, 2013

and 2012 was $10,972,000, $11,678,000, and $9,451,000, respectively.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

8. Debt

Senior Credit Facility

In 2010, the Company entered into a senior credit facility (the Agreement) with a bank, which
provides for borrowings up to $75.0 million, as amended. On March 11, 2014, the Company amended
this credit facility extending the term to May 31, 2015. Borrowings under the Agreement bear interest
at an annual rate equal to the 30 day LIBOR rate plus 1.25% (1.402% at September 30, 2014) due
monthly. As of September 30, 2014, the Company had no outstanding borrowings under the
Agreement, and the Company’s borrowing availability was $64.9 million due to issued letters of credit
for $10.1 million. Borrowings under the Agreement are secured by substantially all of the assets of the
Company. The Agreement contains certain financial and non-financial restrictive covenants including,
among others, the requirements to maintain a minimum level of earnings before interest, income taxes,
depreciation and amortization (EBITDA) and a minimum debt coverage ratio. As of September 30,
2014, the Company was in compliance with these covenants.

Subordinated Note

In conjunction with the Jacobs Trading acquisition during 2011, the Company issued a $40,000,000

seller subordinated 5% unsecured note. The note was repaid in November 2012. In conjunction with
the repayment, the Company received a $1.0 million discount on the principal. This gain on the early
extinguishment of debt has been reflected in interest and other expense (income) in the Consolidated
Statement of Operations.

9. Commitments

Leases

The Company leases certain office space and equipment under non-cancelable operating lease
agreements, which expire at various dates through 2019. 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 $1,113,000 and $893,000, at September 30,
2014 and 2013, respectively. Future minimum payments under the leases as of September 30, 2014 are
as follows:

Years ending September 30,

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating
Lease
Payments

(in thousands)
$10,457
7,582
5,430
4,177
2,419
—

Total future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . .

$30,065

Rent expense for the years ended September 30, 2014, 2013 and 2012 was $12,099,000,

$11,236,000, and $8,639,000, respectively.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

10. 401(k) Benefit Plan

The Company has a retirement plan (the Plan), which is intended to be a qualified plan under

Section 401(k) of the Internal Revenue Code. The Plan is a defined contribution plan available to all
eligible employees and allows participants to contribute up to the legal maximum of their eligible
compensation, not to exceed the maximum tax-deferred amount allowed by the Internal Revenue
Service. The Plan also allows the Company to make discretionary matching contributions. For the years
ended September 30, 2014, 2013 and 2012, the Company contributed and recorded expense of
approximately $2,680,000, $2,382,000, and $1,113,000, respectively, to the Plan.

11. Income Taxes

The components of the provision for income taxes of continuing operations are as follows:

Current tax provision:
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax (benefit) expense:
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended September 30,

2014

2013

2012

(in thousands)

$14,328
2,613
1,888

$27,611
5,035
1,757

$28,124
5,129
118

18,829

34,403

33,371

(2,886)
(526)
4,240

(6,012)
(1,096)
256

(1,454)
(265)
—

828

(6,852)

(1,719)

Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$19,657

$27,551

$31,652

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

11. Income Taxes (Continued)

Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of

assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows:

Deferred tax assets:
Net operating losses—Foreign . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating losses—US . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued vacation and bonus . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

September 30,

2014

2013

(in thousands)

$ 6,426
1,674
2,040
7,328
105
291
10,259
9,071
790
273

$ 4,572
2,107
2,342
4,048
565
252
8,036
6,666
852
352

Total deferred tax assets before valuation allowance . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38,257
(7,216)

29,792
(5,424)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Amortization of goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31,041

24,368

16,022
754

7,339
1,235

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$16,776

$ 8,574

Net deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,265

$15,794

The net current deferred tax asset of approximately $12,321,000, and $10,558,000 is recorded in

prepaid and deferred taxes on the consolidated balance sheet as of September 30, 2014 and 2013,
respectively. The net non-current deferred tax asset of approximately $6,160,000 and $5,236,000 is
recorded in deferred taxes and other assets on the consolidated balance sheet as of September 30, 2014
and 2013, respectively. The net non-current deferred tax liability of approximately $4,217,000 is
recorded in other liabilities on the consolidated balance sheet as of September 30, 2014.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

11. Income Taxes (Continued)

The reconciliation of the U.S. federal statutory rate to the effective rate for continuing operations

is as follows:

Year ended
September 30,

2014

2013

2012

U.S. statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net foreign rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . .

35.0% 35.0% 35.0%
0.6
3.9
(0.7)
1.3

—
3.9
(0.8)
1.5

0.5
2.7
(2.5)
3.6

Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39.3% 40.1% 39.6%

At September 30, 2014 and 2013, the Company had deferred tax assets related to available foreign

net operating loss (NOL) carryforwards of approximately $6,426,000 and $4,572,000, respectively. All
but approximately $547,000 of our NOLs maintain an indefinite carryforward life. The NOLs with
limited carryforward periods will expire beginning in 2017 through 2034. Due to historic losses of those
foreign entities, the Company does not believe that it is more likely than not that the related deferred
tax assets will be realized and a full valuation allowance has been recorded. In addition, the Company
also recorded a deferred tax asset of $1,674,000 related to NOL carryforwards related to its acquisition
of Network International, Inc. in 2010. These NOL carryforwards expire in 2023. The Company will
adjust these NOL carryforwards and the related valuation allowance as the related tax returns are filed.

The Company has not recorded a provision for deferred U.S. tax expense on the undistributed
earnings of foreign subsidiaries since the Company intends to indefinitely reinvest the earnings of these
foreign subsidiaries outside the U.S. The amount of such undistributed foreign earnings was
approximately $8.0 million as of September 30, 2014. As of September 30, 2014 and 2013,
approximately $9.3 million and $10.5 million, respectively, of cash and cash equivalents was held
overseas and not available to fund domestic operations without incurring taxes upon repatriation.

The Company applies the authoritative guidance related to uncertainty in income taxes. The
Company has concluded that there were no uncertain tax positions identified during its analysis. The
Company’s policy is to recognize interest and penalties in the period in which they occur in the income
tax provision. 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 U.K.
Currently, the Company is subject to income tax examinations for fiscal 2011 and 2012. The Company
anticipates no material tax liability to arise from this examination. The statute of limitations for years
prior to fiscal 2011 is now closed. However, certain tax attribute carryforwards that were generated
prior to fiscal 2011 may be adjusted upon examination by tax authorities if they are utilized.

12. Stockholders’ Equity

2006 Omnibus Long-Term Incentive Plan

In conjunction with the Company’s initial public offering, the board of directors and the

Company’s shareholders approved the 2006 Omnibus Long-Term Incentive Plan, or the 2006 Plan, on

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

12. Stockholders’ Equity (Continued)

December 2, 2005. The 2005 Stock Option and Incentive Plan was terminated when the 2006 Plan
became effective, immediately after the closing of the initial public offering.

A portion of the options and restricted shares granted to employees vest based on certain
performance conditions being satisfied by the Company. Performance-based stock options are tied to
the Company’s annual performance against pre-established internal targets and the actual payout under
these awards may vary from zero to 100% of an employee’s target payout, based upon the Company’s
actual performance during the previous twelve months. The performance-based stock options are also
subject to vesting requirements and generally vest when the performance condition has been satisfied.
The fair value for stock options granted during the period was estimated at the grant date using the
Black-Scholes option pricing model, as described in Note 2, and the fair value of restricted shares
granted is based on the closing price of the shares on the grant date. Compensation cost is recognized
when the performance condition has been satisfied or when it becomes probable that the performance
condition will be satisfied.

Under the 2006 Plan, as amended, 10,000,000 shares were available for issuance. At September 30,
2009, there were 5,189,996 shares remaining reserved for issuance in connection with awards under the
2006 Plan. During fiscal year 2010, the Company granted options to purchase 624,566 shares to
employees and directors with exercise prices between $9.05 and $13.96, and options to purchase 75,467
shares were forfeited. During fiscal year 2010, the Company granted 699,410 restricted shares to
employees and directors at prices ranging from $9.05 to $13.96, and 45,026 restricted shares were
forfeited. At September 30, 2010, there were 3,986,513 shares remaining reserved for issuance in
connection with awards under the 2006 Plan. During fiscal year 2011, the Company granted options to
purchase 321,072 shares to employees and directors with exercise prices between $14.30 and $17.02,
and options to purchase 73,591 shares were forfeited. During fiscal year 2011, the Company granted
736,340 restricted shares to employees and directors at prices ranging from $12.88 to $25.52, and
150,112 restricted shares were forfeited. During fiscal year 2012, the Company granted options to
purchase 181,783 shares to employees and directors with exercise prices between $31.37 and $42.31,
and options to purchase 78,148 shares were forfeited. During fiscal year 2012, the Company granted
633,647 restricted shares to employees and directors at prices ranging from $31.37 to $52.55, and
138,052 restricted shares were forfeited. During the twelve months ended September 30, 2012, the
Company issued 100,000 restricted shares to a non-employee that vest based on performance
conditions. During fiscal year 2013, the Company granted options to purchase 171,994 shares to
employees and directors with exercise prices between $29.47 and $46.72, and options to purchase
32,244 shares were forfeited. During fiscal year 2013, the Company granted 997,857 restricted shares to
employees and directors at prices ranging from $29.47 to $42.47, and 403,083 restricted shares were
forfeited. During the twelve months ended September 30, 2013, the Company issued 335,000 restricted
shares and cancelled 281,500 restricted shares to a non-employee that vest based on performance
conditions. During fiscal year 2014, the Company granted options to purchase 437,755 shares to
employees and directors with exercise prices between $21.53 and $31.37, and options to purchase
181,094 shares were forfeited. During fiscal year 2014, the Company granted 1,040,748 restricted shares
to employees and directors at prices ranging from $13.11 to $38.09, and 250,586 restricted shares were
forfeited. At September 30, 2014, there were 772,227 shares remaining reserved for issuance in
connection with awards under the 2006 Plan. The maximum number of shares subject to options or
stock appreciation rights that can be awarded under the 2006 Plan to any person is 1,000,000 per year.
The maximum number of shares that can be awarded under the 2006 Plan to any person, other than

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

12. Stockholders’ Equity (Continued)

pursuant to an option or stock appreciation right, is 700,000 per year. These shares and options
generally vest over a period of one to four years conditioned on continued employment for the
incentive period.

The 2006 Plan permits the granting of options to purchase shares of common stock intended to

qualify as incentive stock options under the Internal Revenue Code and stock options that do not
qualify as incentive stock options (‘‘non-qualified stock options’’). The exercise price of each stock
option may not be less than 100% of the fair market value of the common stock on the date of grant.
However, if a grant recipient, who holds at least 10% of the common stock of the Company, receives
an incentive stock option, the exercise price of such incentive stock option may not be less than 110%
of the fair market value of the common stock on the date of grant. The term of each stock option is
fixed by the compensation committee and may not exceed 10 years from the date of grant.

The compensation committee may also award under the 2006 Plan:

(cid:129) restricted stock, which are shares of common stock subject to restrictions;

(cid:129) stock units, which are common stock units subject to restrictions;

(cid:129) dividend equivalent rights, which are rights entitling the recipient to receive credits for dividends

that would be paid if the recipient had held a specified number of shares of common stock;

(cid:129) stock appreciation rights, which are rights to receive a number of shares or, in the discretion of
the compensation committee and subject to applicable law, an amount in cash or a combination
of shares and cash, based on the increase in the fair market value of the shares underlying the
right during a stated period specified by the compensation committee;

(cid:129) unrestricted stock, which are shares of common stock granted without restrictions as a bonus;

and

(cid:129) performance and annual incentive awards, ultimately payable in common stock or cash, as

determined by the compensation committee (the compensation committee may grant multi-year
and annual incentive awards subject to achievement of specified goals tied to business criteria
set forth in the 2006 Plan).

Share Repurchase Program

The Company’s Board of Directors has approved the repurchase of up to $101.9 million in shares
under a share repurchase program. Under the program, the Company is authorized to repurchase the
issued and outstanding shares of common stock. 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 available cash. The Company’s Board of Directors reviews the share repurchase program

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

12. Stockholders’ Equity (Continued)

periodically, the last such review having occurred in February 2014. A summary of the Company’s share
repurchase activity from fiscal year 2009 to the year ended September 30, 2014 is as follows:

Fiscal Year Period

2009 . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . .

Total Number
of Shares
Purchased

Average Price
Paid per
Share

707,462
1,225,019
229,575
505,067
—
2,962,978

$ 5.50
$11.53
$15.39
$59.41
—
$15.90

Total Cash
Paid for
Shares
Purchased

$ 3,874,000
14,471,000
3,541,000
30,000,000
—
$44,873,000

Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs(1)

$ 6,126,000
1,655,000
18,114,000
18,114,000
31,000,000
$ 5,127,000

(1) On December 2, 2008, the Company’s Board of Directors approved a share repurchase

program, under which the Company was authorized to repurchase up to $10.0 million of
the issued and outstanding shares of Company common stock. On each of February 2,
2010, November 30, 2010 and May 31, 2011, the Company’s Board of Directors approved
an additional $10.0 million for the share repurchase program. On May 17, 2012, the
Company’s Board of Directors approved an additional $30.0 million for the share
repurchase program. On December 12, 2013, the Company’s Board of Directors approved
an additional approximately $12.9 million for the share repurchase program. On
February 5, 2014, the Company’s Board of Directors approved an additional $19.0 million
for the share repurchase program.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

12. Stockholders’ Equity (Continued)

Stock Option Activity

A summary of the Company’s stock option activity for the years ended September 30, 2014, 2013,

and 2012 is as follows:

Options outstanding at September 30, 2011 . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options outstanding at September 30, 2012 . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options outstanding at September 30, 2013 . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Options

2,894,547
181,783
(1,322,387)
(78,148)

1,675,795
171,994
(223,139)
(32,244)

1,592,406
437,755
(383,160)
(181,094)

Options outstanding at September 30, 2014 . . . . . . . . . . .

1,465,907

Options exercisable at September 30, 2014 . . . . . . . . . . . .

890,103

Weighted-
Average
Exercise Price

$11.55
34.42
11.72
12.72

13.84
35.76
11.35
18.67

16.46
22.41
10.83
18.14

19.50

16.15

The following table summarizes information about options outstanding at September 30, 2014:

Range of Exercise Price

$3.00 - 8.00 . . . . . . . . . . . . . . . . . . . . . . .
$8.23 - $46.72 . . . . . . . . . . . . . . . . . . . . .

Options Outstanding

Weighted-
Average
Remaining
Contractual Life

Weighted-
Average
Exercise Price

4.20
6.52

6.10

$ 7.38
20.87

19.50

Number
Outstanding

148,448
1,317,459

1,465,907

The following table summarizes information about options exercisable at September 30, 2014:

Range of Exercise Price

Options Exercisable

Weighted-
Average
Remaining
Contractual Life

Weighted-
Average
Exercise Price

Number
Exercisable

$3.00 - $46.72 . . . . . . . . . . . . . . . . . . . . . .

890,103

4.38

$16.15

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

12. Stockholders’ Equity (Continued)

The following table summarizes information about assumptions used in valuing options granted:

Year ended September 30

2014

2013

2012

Dividend yield . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . .
Expected forfeiture rate . . . . . . . . . . . . . . .

—

— —

50.9% - 60.6% 51.8% - 60.6% 60.4%
0.1% - 1.0% 0.6%
19.7% 19.0%

0.1% - 1.2%
19.7% - 22.8%

The intrinsic value of outstanding and exercisable options at September 30, 2014 was
approximately $1,797,000 and $1,658,000, respectively, based on a stock price of $13.75 on
September 30, 2014.

The weighted average grant date fair value of options granted during 2014, 2013 and 2012 was

$7.89, $12.98, and $13.77, respectively.

The intrinsic value of options exercised at September 30, 2014, 2013, and 2012 was $1,119,000,

$4,943,000, and $50,899,000, respectively.

Restricted Share Activity

A summary of the Company’s restricted share activity for the years ended September 30, 2014,

2013, and 2012 is as follows:

Unvested restricted shares at September 30, 2011 . . . . . . . . . .
Restricted shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares vested . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares canceled . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unvested restricted shares at September 30, 2012 . . . . . . . . . .
Restricted shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares vested . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares canceled . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unvested restricted shares at September 30, 2013 . . . . . . . . . .
Restricted shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares vested . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares canceled . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restricted
Shares

1,294,082
633,647
(390,068)
(138,052)

1,399,609
997,857
(450,514)
(403,083)

1,543,869
1,040,748
(436,204)
(250,586)

Unvested restricted shares at September 30, 2014 . . . . . . . . . .

1,897,827

Weighted-
Average
Fair Value

$13.13
34.05
12.53
15.70

22.51
36.97
21.18
35.39

28.89
18.78
24.72
23.87

24.96

For the years ended September 30, 2014, 2013 and 2012, the Company recorded stock-based
compensation of $12,605,000, $13,379,000, and $12,117,000, respectively. The total costs related to
unvested awards, not yet recognized, as of September 30, 2014 was $41,214,000, which will be
recognized over the weighted average vesting period of 25.8 months.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

13. Fair Value Measurement

The Company measures and records in the accompanying consolidated financial statements certain
liabilities at fair value on a recurring basis. Authoritative guidance issued by the FASB establishes a fair
value hierarchy for those instruments measured at fair value that distinguishes between assumptions
based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The
hierarchy consists of three levels:

Level 1 Quoted market prices in active markets for identical assets or liabilities;
Level 2

Inputs other than Level 1 inputs that are either directly or indirectly
observable; and

Level 3 Unobservable inputs developed using estimates and assumptions developed

by the Company, which reflect those that a market participant would use.

As of September 30, 2014 and 2013, the Company had no Level 1 or Level 2 assets or liabilities

measured at fair value. As of September 30, 2014 and 2013, the Company’s liability for earn-outs
related to the NESA and Jacobs Trading Company acquisitions of zero and $18,390,000, respectively, is
the only liability measured at fair value on a recurring basis and is classified as Level 3 within the fair
value hierarchy. The changes in liabilities measured at fair value for which the Company has used
Level 3 inputs to determine fair value for the year ended September 30, 2014 are as follows ($ in
thousands):

Balance at September 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . . . . . . . . . . . . . . . . . .

Balance at September 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of contingent consideration . . . . . . . . . . . . . . . . . . .

Level 3
Liabilities

$ 14,511
18,050
(19,608)
5,437

18,390
—
—
(18,390)

Balance at September 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

When valuing its Level 3 liabilities, the Company gives consideration to operating results, financial

condition, economic and/or market events, and other pertinent information that would impact its
estimate of the expected earn-out payment. The valuation procedures are primarily based on
management’s projection of EBITDA for the acquired businesses and applying a discount to the
expected earn out payments to estimate fair value. Discount rates range from 2.0% to 6.0% and are
based on the Company’s cost of borrowing. Given the short-term nature of the earn-out periods,
changes in the discount rate are not expected to have a material impact on the fair value of these
liabilities. Because of the inherent uncertainty, this estimated value may differ significantly from the
value that would have been used had a ready market for the liability existed, and it is reasonably
possible that the difference could be material. Changes in fair value of the Company’s Level 3 liabilities
are recorded in Acquisition Costs in the Consolidated Statements of Operations.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

13. Fair Value Measurement (Continued)

The Company’s financial assets not measured at fair value are cash and cash equivalents (which

includes cash and commercial paper with original maturities of less than 90 days). The Company
believes the carrying value approximates fair value due to the short term maturity of these instruments.

14. Defined Benefit Pension Plan

Certain employees of GoIndustry, which the Company acquired in July 2012, are covered by a

qualified defined benefit pension plan.

The Company recognizes the funded status of its postretirement benefit plans, with a

corresponding noncash adjustment to accumulated other comprehensive income (loss), net of tax, in
stockholders’ equity. The funded status is measured as the difference between the fair value of the
plan’s assets and the benefit obligation of the plan.

The net periodic benefit cost recognized for the year ended September 30, 2014 and 2013,

included the following components:

Qualified Defined Benefit Pension Plan

Service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . .

—
$ 1,125
(1,324)

—
$ 1,055
(1,055)

Total net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . .

(199)

—

Year ended
September 30,

2014

2013

(in thousands)

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

14. Defined Benefit Pension Plan (Continued)

The following table provides a reconciliation of benefit obligations, plan assets, and unfunded

status related to the Company’s qualified defined benefit pension plan for the years ended
September 30, 2014 and September 30, 2013:

Qualified Defined Benefit Pension Plan

Service cost

Change in benefit obligation
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions/divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain)/loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange rate changes . . . . . . . . . . . . . . .
Participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended
September 30,

2014

2013

(in thousands)

$25,558
—
—
1,125
(1,104)
1,924
—
24
—

$25,106
—
—
1,055
(617)
(33)
—
47
—

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,527

$25,558

Qualified Defined Benefit Pension Plan

Change in plan assets
Beginning balance at fair value . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions/divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer’s contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency exchange rate changes . . . . . . . . . . . . . . . . .

Year ended
September 30,

2014

2013

(in thousands)

$22,006
—
2,321
(1,104)
1,727
—
(4)

$19,320
—
1,566
(617)
1,632
—
105

Ending balance at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . .

$24,946

$22,006

Underfunded status of the plan . . . . . . . . . . . . . . . . . . . . . . . . .

$ (2,581) $ (3,552)

The accrued pension liability of $2.6 million is recorded in Other long-term liabilities in the
Consolidated Balance Sheet. Because the plan is closed to new participants, the accumulated benefit
obligation (ABO) is equal to the projected benefit obligation (PBO), and totals $27,527,000 and
$25,558,000 at September 30, 2014 and September 30, 2013, respectively.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

14. Defined Benefit Pension Plan (Continued)

The amount recognized in other comprehensive loss related to the Company’s qualified defined
benefit pension plan, net of tax, for the year ended September 30, 2014 and September 30, 2013, is
shown in the following table:

Qualified Defined Benefit Pension Plan

Year ended
September 30,

2014

2013

(in thousands)

Accumulated OCI
Accumulated OCI at beginning of year . . . . . . . . . . . . . . . . . . . .
New actuarial (gains)/losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(1,147) $ (584)
(563)

927

Accumulated OCI at end of year . . . . . . . . . . . . . . . . . . . . . . . .

$ (220) $(1,147)

Estimated amounts to be amortized from accumulated other comprehensive income (loss) into net

periodic benefit cost during 2015 based on September 30, 2014 plan measurements are $0. The plan
complies with the funding provisions of the UK Pensions Act 2004 and the Occupational Pension
Schemes Regulations Act 2005. In 2015, the Company expects to contribute $1.7 million to the plan. In
addition, the Company expects to make the following pension plan contributions over the next 10 years:

Plan Contributions

(in thousands)

Year ending September 30,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 through 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,693
1,693
1,693
1,693
425
—

$7,197

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

14. Defined Benefit Pension Plan (Continued)

Actuarial Assumptions

The actuarial assumptions used to determine the benefit obligations at September 30, 2014 and

September 30, 2013, and to determine the net periodic benefit cost for the year were as follows:

Qualified Defined Benefit Pension Plan

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases to non-GMP pensions in payment accrued pre 4/6/97 . . . . . .
Increases to non-GMP pensions in payment accrued post 4/6/97 . . . . .
Rate of increases to deferred CPI linked benefits . . . . . . . . . . . . . . . .
Rate of increases to deferred RPI linked benefits . . . . . . . . . . . . . . . .

2014

2013

3.80% 4.40%
5.00% 5.80%
0.00% 0.00%
2.30% 2.50%
2.30% 2.50%
3.30% 3.40%

Mortality—90% of S1NxA tables, projected in line with 2013 CMI projection model and 1.0% pa

long-term rate of improvement.

Estimated Future Benefit Payments

The Company’s pension plan expects to make the following benefit payments to participants over

the next 10 years:

Pension Benefits

(in thousands)

Year ending September 30,
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 through 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 820
686
1,092
822
831
4,515

$8,766

Fair Value Measurements

The investment policy and strategy of the plan assets, as established by the Trustees of the plan,
strive to maximize the likelihood of achieving primary objectives of the investment policy established
for the plan. The primary objectives are:

1) Funding—to ensure that the Plan is fully funded using assumptions that contain a modest

margin for prudence. Where an actuarial valuation reveals a deficit, a recovery plan will be
put in place which will take into account the financial covenant of the employer;

Stability—to have due regard to the likely level and volatility of required contributions when
setting the Plan’s investment strategy; and

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

14. Defined Benefit Pension Plan (Continued)

Security—to ensure that the solvency position of the Plan is expected to improve. The
Trustees will take into account the strength of employer’s covenant when determining the
expected improvement in the solvency position of the Plan.

Assets were initially invested based on the target allocations stated below. The assets are allocated
among equity investments and fixed income securities. The Trustees review the investment policy on an
ongoing basis, to determine whether a change in the policy or asset allocation targets is necessary. The
assets are not rebalanced and consisted of the following as of September 30, 2014:

Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed-income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

70% 45.9%
30% 53.6%
0.5%

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.0% 100.0%

Target
Allocation

Actual
2014

The class of equity securities consists of one pooled fund whose strategy is to invest in

approximately 70% UK company shares (domestic) and 30% international equity securities. The class
of fixed-income securities consists of one pooled fund whose strategy is to invest in a limited number of
government and corporate bonds.

The expected long-term rate of return for the plan’s total assets is based on the expected returns

of each of the above categories, weighted based on the current target allocation for each class. The
Trustees evaluate whether adjustments are needed based on historical returns to more accurately reflect
expectations of future returns.

The Company is required to present certain fair value disclosures related to its postretirement
benefit plan assets, even though those assets are not included on the Company’s Consolidated Balance
Sheets. The following table presents the fair value of the assets of the Company’s qualified defined
benefit pension plan by asset category and their level within the fair value hierarchy, which has three
levels based on reliability of the inputs used to determine fair value. Level 1 refers to fair values
determined based on quoted prices in active markets for identical assets, Level 2 refers to fair values
estimated using significant other observable inputs, and Level 3 includes fair values estimated using
significant unobservable inputs.

Balance as of September 30, 2014

Level 1

Level 2

Level 3

Total

Equity securities . . . . . . . . . . . . . . . . . . . . . . .
Fixed-income securities . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . .

— $11,450 — $11,450
13,371
— 13,371 —
125
— —

$125

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$125

$24,821 — $24,946

(in thousands)

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

14. Defined Benefit Pension Plan (Continued)

Balance as of September 30, 2013

Level 1

Level 2

Level 3

Total

Equity securities . . . . . . . . . . . . . . . . . . . . . . .
Fixed-income securities . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . .

— $10,871 — $10,871
11,003
— 11,003 —
132
— —

$132

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$132

$21,874 — $22,006

(in thousands)

Valuation Techniques

The Company relies on pricing inputs from investment fund managers to value investments. The

fund manager prices the underlying securities using independent external pricing sources, or
determined according to approved pricing policies in circumstances where independent sources are not
available.

15. Business Realignment Expenses

On October 1, 2014, the Company announced that it has realigned its workforce in response to the

new terms and scope of its DoD (third) Surplus Contract for non-rolling stock and to adjust for the
efficiencies realized in its commercial business through ongoing integration efforts to support the future
vision and growth of the Company. The business realignment includes employee reductions across the
organization, and includes positions related to the support of the DoD surplus business, capital asset
and retail supply chain operations, and corporate functions. The business realignment expenses during
the fiscal year ended September 30, 2014 include cash costs of $1.8 million in employee severance and
benefit costs.

The table below sets forth the significant components and activity in the business realignment

initiatives during the fiscal year ended September 30, 2014

Liability
Balance at
September 30,
2013

Business
Realignment
Expenses

Cash
Payments

(in thousands)

Liability
Balance at
September 30,
2014

Employee severance and benefit

costs . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . .

—

$1,780

—

$1,780

The benefits are expected to be paid during fiscal year 2015. The business realignment expenses
are recorded in costs and expenses from operations in the statement of operations for the year ended
September 30, 2014, and in accrued expenses and other current liabilities on the balance sheet as of
September 30, 2014.

Liquidity Services, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

16. Legal Proceedings

On July 14, 2014, Leonard Howard filed a putative class action complaint in the United States

District Court for the District of Columbia against the Company and its chief executive officer, chief
financial officer, and chief accounting officer, on behalf of shareholders who purchased the Company’s
common stock between February 1, 2012 and May 7, 2014. The complaint alleges that defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other things,
misrepresenting the Company’s growth initiative, growth potential, and financial and operating
conditions, thereby artificially inflating its share price, and seeks unspecified compensatory damages
and costs and expenses, including attorneys’ and experts’ fees. On October 14, 2014, the Court
appointed Caisse de D´epˆot et Placement du Qu´ebec and the Newport News Employees’ Retirement
Fund as co-lead plaintiffs. Plaintiffs are scheduled to file an amended complaint by December 15, 2014.
The Company intends to move to dismiss plaintiffs’ expected amended complaint. The Company cannot
estimate a range of the potential liability, if any, at this time.

17. Quarterly Results (Unaudited)

The following table sets forth for the eight most recent quarters the selected unaudited quarterly

consolidated statement of operations data. The unaudited quarterly consolidated statement of
operations data has been prepared on the same basis as the Company’s audited consolidated financial
statements and, in the opinion of management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of this data.

Dec. 31,
2012

Mar. 31,
2013

June 30,
2013

Sept. 30,
2013

Dec. 31,
2013

Mar. 31,
2014

June 30,
2014

Sept. 30,
2014

(in thousands, except share and per share data)

Three months ended

Revenue from

operations . . . . . . . . $

122,205 $

130,324 $

124,199 $

129,128 $

121,948 $

128,329 $

126,965 $

118,419

Income before provision
for income taxes from
operations . . . . . . . . $

Net income (loss) from

11,181 $

21,522 $

18,813 $

17,139 $

11,843 $

9,463

28,588 $

523

operations . . . . . . . . $

6,709 $

12,698 $

11,288 $

10,409 $

7,093 $

5,631 $

18,373 $

(707)

Basic earnings (loss) per

common share . . . . . $

0.21 $

0.40 $

0.36 $

0.33 $

0.22 $

0.17 $

0.59 $

(0.02)

Diluted earnings (loss)

per common share . . . $

0.20 $

0.39 $

0.35 $

0.32 $

0.22 $

0.17 $

0.59 $

(0.02)

Basic weighted average

shares outstanding . . .

31,482,853

31,561,412

31,651,061

31,772,379

32,143,064

32,231,011

30,937,394

29,664,259

Diluted weighted
average shares
outstanding . . . . . . .

33,054,264

32,331,686

32,540,187

32,702,807

32,658,070

32,321,482

30,937,394

29,664,259

LIQUIDITY SERVICES, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)

Balance at
beginning
of period

Charged to
expense

Reductions

Balance at
end of
period

Deferred tax valuation allowance (deducted from net

deferred tax assets)

Year ended September 30, 2012 . . . . . . . . . . . . . . . . . . .
Year ended September 30, 2013 . . . . . . . . . . . . . . . . . . .
Year ended September 30, 2014 . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts (deducted from accounts

receivable)

Year ended September 30, 2012 . . . . . . . . . . . . . . . . . . .
Year ended September 30, 2013 . . . . . . . . . . . . . . . . . . .
Year ended September 30, 2014 . . . . . . . . . . . . . . . . . . .
Inventory allowance (deducted from inventory)
Year ended September 30, 2012 . . . . . . . . . . . . . . . . . . .
Year ended September 30, 2013 . . . . . . . . . . . . . . . . . . .
Year ended September 30, 2014 . . . . . . . . . . . . . . . . . . .

$3,341
4,558
5,424

$ 514
1,248
891

$ 990
2,574
1,452

$1,217
866
1,792

$ 962
337
240

$1,584
147
271

—
—
—

$ 228
694
89

$ —
1,269
—

$4,558
5,424
7,216

$1,248
891
1,042

$2,574
1,452
1,723

Exhibit No.

2.1

2.2

2.3

2.4

2.5

2.6

3.1

3.2

4.1

4.2

EXHIBIT INDEX

Description

Share Purchase Agreements, dated as of April 5, 2008 and April 6, 2008, by and between
Liquidity Services, Inc., and its wholly-owned subsidiary, Liquidity Services, Ltd., on the one
hand, and David Mark Jacobs, Simon Jacobs, Darren Lee Innocent and Darren Malcolm
Dorrington, on the other, incorporated herein by reference to Exhibit 2.1 to the Company’s
Quarterly Report on Form 10-Q filed with the SEC on August 8, 2008.

Agreement and Plan of Merger, dated June 8, 2010, by and among Liquidity Services, Inc.,
Leon Kennedy Acquisition Corp., Network International, Inc. and Eton Venture
Services, Ltd. Co. incorporated herein by reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on June 21, 2010.

Asset Purchase Agreement, dated May 24, 2011, among Youk Acquisition Partners, LLC,
TruckCenter.com, LLC, Corey P. Schlossmann, Samantha Schlossmann, Jessica Schlossmann
and Katie Schlossmann, incorporated herein by reference to Exhibit 2.1 to the Company’s
Quarterly Report on Form 10-Q, filed with the SEC on August 9, 2011.

Asset Purchase Agreement dated as of September 1, 2011, among Liquidity Services, Inc.,
Profar Acquisition Partners, LLC and Jacobs Trading, LLC, incorporated herein by
reference to the Company’s Current Report on Form 8-K, filed with the SEC on
September 1, 2011.

Scheme of Arrangement dated May 23, 2012 relating to a cash acquisition by Liquidity
Services Limited of GoIndustry-DoveBid plc effected under Part 26 of the United Kingdom
Companies Act of 2006, incorporated herein by reference to the Company’s Annual Report
on Form 10-K filed with the SEC on November 21, 2013.

Asset Purchase Agreement, dated as of November 1, 2012, among Liquidity Services
Canada Ltd., 683949 Ontario Limited, Dominic Renda Holdings Incorporated, Chiku
Holdings Ltd., Dominic Renda and Pankaj Dave, incorporated herein by reference to the
Company’s Annual Report on Form 10-K filed with the SEC on November 21, 2013.

Fourth Amended and Restated Certificate of Incorporation, incorporated herein by
reference to Exhibit 3.1 to Amendment No. 2 to the Company’s Registration Statement on
Form S-1 (Registration No. 333-129656), filed with the SEC on January 17, 2006.

Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.2 to
Amendment No. 2 to the Company’s Registration Statement on Form S-1 (Registration
No. 333-129656), filed with the SEC on January 17, 2006.

Form of Certificate of Common Stock of the Company, incorporated herein by reference to
Exhibit 4.1 to Amendment No. 5 to the Company’s Registration Statement on Form S-1
(Registration No. 333-129656), filed with the SEC on February 21, 2006.

Registration Rights Agreement, dated September 3, 2004, by and between the Company
and ABS Capital Partners IV, L.P., ABS Capital Partners IV-A, L.P., ABS Capital Partners
IV Offshore L.P. and ABS Capital Partners IV Special Offshore L.P., incorporated herein
by reference to Exhibit 4.2 to Amendment No. 2 to the Company’s Registration Statement
on Form S-1 (Registration No. 333-129656), filed with the SEC on January 17, 2006.

10.1

Defense Logistics Agency, Multi-Year Sale of Surplus Scrap Material at Locations
Nationwide, Defense Reutilization and Marketing Service, Invitation for Bids, No. 99-4001,
December 7, 2004, incorporated herein by reference to Exhibit 10.2 to the Company’s
Registration Statement on Form S-1 (Registration No. 333-129656), filed with the SEC on
November 14, 2005.

Exhibit No.

10.2.1

10.2.2

10.2.3

10.3.1

10.3.2

10.4.1

10.4.2

10.5.1

10.5.2

10.6

10.7

10.8

10.9

Description

Executive Employment Agreement, dated September 2, 2004, between the Company and
William P. Angrick, III, incorporated herein by reference to Exhibit 10.3.1 to Amendment
No. 3 to the Company’s Registration Statement on Form S-1 (Registration No. 333-129656),
filed with the SEC on February 1, 2006.#

Amendment to Executive Employment Agreement between the Company and William P.
Angrick, III, dated January 26, 2006, incorporated herein by reference to Exhibit 10.3.2 to
Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration
No. 333-129656), filed with the SEC on February 1, 2006.#

Amendment to Executive Employment Agreement between the Company and William P.
Angrick, III, dated January 9, 2007, incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed with the SEC on January 16, 2007.#

Executive Employment Agreement, dated September 2, 2004, between the Company and
Jaime Mateus-Tique, incorporated herein by reference to Exhibit 10.4.1 to Amendment
No. 3 to the Company’s Registration Statement on Form S-1 (Registration No. 333-129656),
filed with the SEC on February 1, 2006.#

Amendment to Executive Employment Agreement between the Company and Jaime
Mateus-Tique, dated January 25, 2006, incorporated herein by reference to Exhibit 10.4.2 to
Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration
No. 333-129656), filed with the SEC on February 1, 2006.#

Executive Employment Agreement, dated January 27, 2005, between the Company and
James M. Rallo, incorporated herein by reference to Exhibit 10.6.1 to Amendment No. 3 to
the Company’s Registration Statement on Form S-1 (Registration No. 333-129656), filed
with the SEC on February 1, 2006.#

Amendment to Executive Employment Agreement between the Company and James M.
Rallo, dated January 25, 2006, incorporated herein by reference to Exhibit 10.6.2 to
Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration
No. 333-129656), filed with the SEC on February 1, 2006.#

Executive Employment Agreement, dated November 11, 2005, between the Company and
James E. Williams, incorporated herein by reference to Exhibit 10.8.1 to Amendment No. 3
to the Company’s Registration Statement on Form S-1 (Registration No. 333-129656), filed
with the SEC on February 1, 2006.#

Amendment to Executive Employment Agreement between the Company and James E.
Williams, dated January 26, 2006, incorporated herein by reference to Exhibit 10.8.2 to
Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration
No. 333-129656), filed with the SEC on February 1, 2006.#

Executive Employment Agreement, dated August 25, 2008, between the Company and
G. Charles Roy, incorporated herein by reference to Exhibit 99.1 to the Company’s Current
Report on Form 8-K, filed with the SEC on September 8, 2008.#

Executive Employment Agreement, dated as of January 2, 2013, by and between the
Company and Leoncio Casusol, incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed with the SEC on February 4, 2013.#

2005 Stock Option and Incentive Plan, incorporated herein by reference to Exhibit 10.8 to
the Company’s Registration Statement on Form S-1 (Registration No. 333-129656), filed
with the SEC on November 14, 2005.#

2006 Omnibus Long-Term Incentive Plan, incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 6, 2009.#

Exhibit No.

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

Description

Form of Indemnification Agreement for directors and officers, incorporated herein by
reference to Exhibit 10.11 to Amendment No. 3 to the Company’s Registration Statement
on Form S-1 (Registration No. 333-129656), filed with the SEC on February 1, 2006.#

LSI Non-Employee Director Compensation Plan, incorporated herein by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
August 9, 2006.

Form of Notice of Stock Option Grant, incorporated herein by reference to Exhibit 99.1 to
the Company’s Current Report on Form 8-K, filed with the SEC on April 4, 2006.#

Amendment No. 1 to Sales Contract Number 99-4001-0004, dated as of May 21, 2007,
between DOD Surplus, LLC (a wholly-owned subsidiary of Liquidity Services, Inc.) and the
Defense Reutilization and Marketing Service of the U.S. Department of Defense,
incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed with the SEC on May 29, 2007.

Amendment No. 2 to Sales Contract Number 99-4001-0004, dated as of May 21, 2007,
between DOD Surplus, LLC (a wholly-owned subsidiary of Liquidity Services, Inc.) and the
Defense Reutilization and Marketing Service of the U.S. Department of Defense,
incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed with the SEC on May 29, 2007.

Surplus Usable Property Sales Contract (Sales Contract Number 08-0001-0001) between
Liquidity Services, Inc. and the Defense Reutilization and Marketing Service of the U.S.
Department of Defense, incorporated herein by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the SEC on August 6, 2008.

Supplemental Agreement 1 (Sales Contract Number 08-0001-0001), incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the
SEC on February 5, 2009.

Supplemental Agreement No. 6 relating to Surplus Usable Property Sales Contract (Sales
Contract Number 08-0001-0001) between Liquidity Services, Inc. and the Defense
Reutilization and Marketing Service of the U.S. Department of Defense, incorporated
herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
with the SEC on September 17, 2012.

Form of Notice of Restricted Stock Grant, incorporated herein by reference to
Exhibit 10.27 to the Company’s Annual Report on Form 10-K filed with the SEC on
December 8, 2008.#

Financing and Security Agreement, dated April 30, 2010, by and between Liquidity
Services, Inc. and Bank of America, N.A., incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K, filed with the SEC on May 6, 2010.

First Amendment to Financing and Security Agreement dated as of September 1, 2011
between Liquidity Services, Inc. and Bank of America, N.A., incorporated herein by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the
SEC on September 1, 2011.

Revolving Credit Note, dated April 30, 2010, issued by Liquidity Services, Inc. to Bank of
America, N.A., incorporated herein by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K, filed with the SEC on May 6, 2010.

Guaranty of Payment Agreement, dated April 30, 2010, by GovDeals, Inc. for the benefit of
Bank of America, N.A., incorporated herein by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K, filed with the SEC on May 6, 2010.

Exhibit No.

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

21.1

23.1

24.1

31.1

Description

Security Agreement, dated April 30, 2010, by GovDeals, Inc. for the benefit of Bank of
America., N.A., incorporated herein by reference to Exhibit 10.4 to the Company’s Current
Report on Form 8-K, filed with the SEC on May 6, 2010.

Pledge, Assignment and Security Agreement (GovDeals), dated April 30, 2010, by Liquidity
Services, Inc. for the benefit of Bank of America, N.A., incorporated herein by reference to
Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the SEC on May 6,
2010.

Guaranty of Payment Agreement, dated April 30, 2010, by Surplus Acquisition
Venture, LLC for the benefit of Bank of America, N.A., incorporated herein by reference
to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the SEC on
May 6, 2010.

Security Agreement, dated April 30, 2010, by Surplus Acquisition Venture, LLC for the
benefit of Bank of America., N.A., incorporated herein by reference to Exhibit 10.7 to the
Company’s Current Report on Form 8-K, filed with the SEC on May 6, 2010.

Pledge, Assignment and Security Agreement (Surplus Acquisition Venture), dated April 30,
2010, by Liquidity Services, Inc. for the benefit of Bank of America, N.A., incorporated
herein by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed
with the SEC on May 6, 2010.

Shareholders’ Agreement dated as of September 1, 2011 among Liquidity Services, Inc.,
Jacobs Trading, LLC, WGD, Inc., Irwin L. Jacobs and Howard Grodnick, incorporated
herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed
with the SEC on September 1, 2011.

Supplemental Agreement to Contract for Multi-Year Sale of Surplus Scrap Material at
Locations Nationwide (Contract Number 99-4001-0004), dated as of September 22, 2011,
between Liquidity Services, Inc. and the Defense Logistics Agency Disposition Services,
incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K, filed with the SEC on September 26, 2011.

Master Merchandise Salvage Contract between Profar Partners, LLC and Wal-Mart
Stores, Inc., incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on
Form 10-K filed with the SEC on December 9, 2011.

Letter from DLA Disposition Services, dated November 5, 2012, relating to Contract for
Multi-Year Sale of Surplus Scrap Material at Locations Nationwide (Contract
Number 99-4001-0004), effective as of June 9, 2005 between the Company and DLA
Disposition Services, incorporated herein by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the SEC on November 7, 2012.

Amended and Restated Executive Employment Agreement, dated October 1, 2014, by and
between the Company and Thomas B. Burton.#†*

Executive Employment Agreement, dated September 10, 2014, by and between the
Company and Gardner Dudley.#†

List of Subsidiaries.

Consent of Ernst & Young LLP.

Power of Attorney (included on signature page).

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.

Exhibit No.

Description

31.2

31.3

32.1

32.2

32.3

101

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.

Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.

Certification of Chief Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

The following materials from the Registrant’s Annual Report on Form 10-K for the year
ended September 30, 2014, formatted in Extensible Business Reporting Language (XBRL):
(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations,
(iii) Consolidated Statements of Changes in Stockholders’ Equity, (iv) Consolidated
Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.

# Designates management or compensation plans.

†

Filed herewith.

Confidential treatment has been requested for portions of this document. The omitted portions of
this document have been filed with the Securities and Exchange Commission.

100

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on November 21, 2014.

SIGNATURES

LIQUIDITY SERVICES, INC.

By: /s/ WILLIAM P. ANGRICK, III

William P. Angrick, III
Chairman of the Board of Directors
and Chief Executive Officer

We, the undersigned directors and officers of Liquidity Services, Inc., hereby severally constitute
William P. Angrick, III and James E. Williams, and each of them singly, our true and lawful attorneys
with full power to them and each of them to sign for us, in our names in the capacities indicated
below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and
Exchange Commission.

Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by

the following persons on behalf of the registrant and in the capacities indicated on November 21, 2014.

Signature

Title

/s/ WILLIAM P. ANGRICK, III

William P. Angrick, III

Chairman of the Board of Directors and Chief
Executive Officer (Principal Executive Officer)

/s/ JAMES M. RALLO

James M. Rallo

/s/ KATHRYN A. DOMINO

Kathryn A. Domino

/s/ JAIME MATEUS-TIQUE

Jaime Mateus-Tique

/s/ PHILLIP A. CLOUGH

Phillip A. Clough

/s/ PATRICK W. GROSS

Patrick W. Gross

/s/ DAVID A. PERDUE, JR.

David A. Perdue, Jr.

/s/ GEORGE H. ELLIS

George H. Ellis

/s/ BEATRIZ V. INFANTE

Beatriz V. Infante

Chief Financial Officer and Treasurer (Principal
Financial Officer)

Chief Accounting Officer (Principal Accounting
Officer)

Director

101

(This page has been left blank intentionally.)

CorPorATe
INformATIoN

Executive Officers

William P.
Angrick, III
CEO and
Chairman of the
Board of Directors

James M.
Rallo
President, Retail
Supply Chain Group
CFO and Treasurer

Gardner
Dudley

President, Capital
Assets Group

Roger
Gravley

President,
GovDeals

Thomas B.
Burton

Executive Vice
President, Federal
Sector

Leoncio
Casusol

Chief Information
Officer

Kathy
Domino

Mike
Lutz

Chief Accounting
Officer

Vice President,
Human Resources

Rachel
Russell

James E.
Williams

Vice President of
Marketing and Business
Development

Vice President,
General Counsel, and
Corporate Secretary

Board of
Directors

William P. Angrick, III
Chairman of the Board

Phillip A. Clough
Director

George H. Ellis
Director

Patrick W. Gross
Director

Beatriz Infante
Director

Jaime Mateus-Tique
Director

David A. Perdue
Director

Additional Information
InvEsToR RELATIons
Julie Davis
Senior Director of Investor Relations
Phone: 202.558.6234
julie.davis@liquidityservices.com

sToCK TRAnsfER AGEnT
Computershare Trust
Company, n.A.
PO Box 43010
Providence, RI 02940-3010
Phone: 781.575.4238
www.computershare.com

CoRPoRATE sECRETARy
James E. Williams
Vice President, General Counsel, and
Corporate Secretary

InDEPEnDEnT
REGIsTERED PuBLIC
ACCounTInG fIRM
Ernst & young LLP
8484 Westpark Drive
McLean, VA, 22102
Phone: 703.747.1000

Comparison of 5-Year Cumulative Total Return*
Among Liquidity Services, the Russell 2000 Index, the S&P Smallcap 600 Index, and a Peer Group

Liquidity services

Russell 2000

s&P smallcap 600

Business services

$500

$400

$300

$200

$100

9/09 12/09 3/10 6/10 9/10 12/10 3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12 3/13 6/13 9/13 12/13 3/14 6/14 9/14

*$100 invested on 9/30/09 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.
Copyright © 2014 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. Copyright © 2014 Russell Investment Group. All rights reserved.

Corporate InformatIonState of Georgia

We’ve partnered with the State of Georgia since 2004
to sell over 4,000 surplus items, from a passenger ferry to

scrap metal, generating over $5 million in recovery.

World’s Largest Shipment and Logistics Company

Targeted marketing campaigns and a series of online auctions

featuring compelling descriptions and photos helped us generate
bids 300% above historic minimum levels for specialized trucks.

Multinational Hardware and Electronics
Corporation

The refurbished product program we created for this client
sold over 500,000 units its first year, increasing recovery by more

than 20% and significantly expanding the client’s buyer base.

Global Leader in Mineral Resource Exploration

We supported this client throughout a mine decommissioning
by managing every aspect of asset disposition, mitigating

all environmental and safety risks, and selling assets

for recovery nearly 50% over expectations.

Corporate Headquarters
1920 L St. NW, 6th Floor
Washington, DC 20036

U.S.: +1 800 310 4604
Int’l: +1 202 467 6868

www.liquidityservices.com

Stock Information
Liquidity Services, Inc. is publicly traded on the NASDAQ Global Market under the ticker symbol LQDT.

Government
Liquidation