LQDT » Topics » Overview

This excerpt taken from the LQDT 10-Q filed May 6, 2009.

Overview

 

About us.  We are a leading online auction marketplace for wholesale surplus and salvage assets. We enable buyers and sellers to transact in an efficient, automated online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of wholesale surplus and salvage assets presented with digital images and other relevant product information. Additionally, we enable our 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. 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, and specialty equipment. Our online auction marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com and www.liquibiz.com. We also operate a wholesale industry portal, www.goWholesale.com that connects advertisers with buyers seeking products for resale and related business services.

 

We believe our ability to create liquid marketplaces for wholesale surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During the last 12 months, the number of registered buyers grew from approximately 892,000 to approximately 1,111,000, or 24.5%.

 

Recent initiatives.  On May 13, 2008, the DoD agreed to extend the original Surplus Contract through November 1, 2008, as well as increase our share of net proceeds under the Surplus Contract to 39.5% on property received after June 18, 2008. On November 6, 2008, the DoD extended the original Surplus Contract through December 17, 2008, thus we will receive 39.5% of the net proceeds on property received up until December 17, 2008 through the Contract wind down period, which we anticipate will extend through fiscal year 2009. We responded to a RFP from the DRMS regarding a renewal of the Surplus Contract, and have been awarded the contract.  Under the new Surplus Contract, under which we commenced operations on December 18, 2008, we are not required to distribute any portion of the profits realized under the Contract, as the new Contract structure requires a fixed 3.26% price, of the DRMS’ acquisition value, to be paid for the property and allows us to retain all of the profits from the sale of property. On February 4, 2009, the DoD agreed to amend the new Surplus Contract, such that the fixed 3.26% price, of the DRMS’ acquisition value, to be paid for the property, will be 1.8%. In addition. the new Surplus Contract performance period will start from the time property was delivered during February 2009.

 

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Table of Contents

 

Our revenue.  We generate substantially all of our revenue by retaining a percentage of the proceeds from the sales we manage for our sellers. We offer our sellers three primary transaction models: a profit-sharing model, a consignment model and a purchase model.

 

·                  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 direct 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 43.0% and 49.1% of our total revenue for the three and six months ended March 31, 2009, respectively. The merchandise sold under our profit-sharing model accounted for approximately 28.2% and 32.6% of our gross merchandise volume, or GMV, for the three and six months ended March 31, 2009, respectively.

 

·                  Consignment model.  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 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 accounted for approximately 12.2% and 11.5% of our total revenue for the three and six months ended March 31, 2009, respectively. The merchandise sold under our consignment model accounted for approximately 42.9% and 41.5% of our GMV for the three and six months ended March 31, 2009, respectively.

 

·                  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 42.1% and 36.4% of our total revenue for the three and six months ended March 31, 2009, respectively. The merchandise sold under our purchase model accounted for approximately 27.6% and 24.3% of our GMV for the three and six months ended March 31, 2009, 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.

 

In the three months ended March 31, 2009, we generated less than 1% of our revenue from advertisements on our wholesale industry portals.

 

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) product innovation in the retail supply chain that has increased 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 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; and (6) as a result of the recent economic downturn, an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases.

 

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This excerpt taken from the LQDT 10-Q filed Feb 6, 2009.

Overview

 

About us.  We are a leading online auction marketplace for wholesale surplus and salvage assets. We enable buyers and sellers to transact in an efficient, automated online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of wholesale surplus and salvage assets presented with digital images and other relevant product information. Additionally, we enable our 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. 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, and specialty equipment. Our online auction marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com and www.liquibiz.com. We also operate a wholesale industry portal, www.goWholesale.com that connects advertisers with buyers seeking products for resale and related business services.

 

We believe our ability to create liquid marketplaces for wholesale surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During the last 12 months, the number of registered buyers grew from approximately 724,000 to approximately 1,045,000, or 44.5%.

 

Recent initiatives.  On May 13, 2008, the DoD agreed to extend the original Surplus Contract through November 1, 2008, as well as increase our share of net proceeds under the Surplus Contract to 39.5% on property received after June 18, 2008. On November 6, 2008, the DoD extended the original Surplus Contract through December 17, 2008, thus we will receive 39.5% of the net proceeds on property received up until December 17, 2008 through the Contract wind down period, which we anticipate will extend through fiscal year 2009. We responded to a RFP from the DRMS regarding a renewal of the Surplus Contract, and have been awarded the contract.  Under the new Surplus Contract, under which we commenced operations on December 18, 2008, we are not required to distribute any portion of the profits realized under the Contract, as the new Contract structure requires a fixed 3.26% price, of the DRMS’ acquisition value, to be paid for the property and allows us to retain all of the profits from the sale of property. On February 4, 2009, the DoD agreed to amend the new Surplus Contract, such that the fixed 3.26% price, of the DRMS’ acquisition value, to be paid for the property, will be 1.8%. In addition. the new Surplus Contract performance period will start from the time property is delivered during February 2009.

 

12



Table of Contents

 

Our revenue.  We generate substantially all of our revenue by retaining a percentage of the proceeds from the sales we manage for our sellers. We offer our sellers three primary transaction models: a profit-sharing model, a consignment model and a purchase model.

 

·                  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 direct 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 56.2% of our total revenue for the three months ended December 31, 2008. The merchandise sold under our profit-sharing model accounted for approximately 38.1% of our gross merchandise volume, or GMV, for the three months ended December 31, 2008.

 

·                  Consignment model.  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 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 accounted for approximately 10.7% of our total revenue for the three months ended December 31, 2008. The merchandise sold under our consignment model accounted for approximately 40.1% of our GMV for the three months ended December 31, 2008.

 

·                  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 22.5% of our total revenue for the three months ended December 31, 2008. The merchandise sold under our purchase model accounted for approximately 15.3% of our GMV for the three months ended December 31, 2008.

 

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.

 

In the three months ended December 31, 2008, we generated less than 1% of our revenue from advertisements on our wholesale industry portals.

 

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) product innovation in the retail supply chain that has increased 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 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; and (6) as a result of the recent economic downturn, an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases.

 

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These excerpts taken from the LQDT 10-K filed Dec 8, 2008.

Overview

About us.    We are a leading online auction marketplace for wholesale, surplus and salvage assets. We enable buyers and sellers to transact in an efficient, automated online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of wholesale surplus and salvage assets presented with digital images and other relevant product information. Additionally, we enable our 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. 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, and specialty equipment. Our online auction marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com and www.liquibiz.com. We also operate a wholesale industry portal, www.goWholesale.com that connects advertisers with buyers seeking products for resale and related business services.

        We believe our ability to create liquid marketplaces for wholesale, surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During fiscal year 2008, the number of registered buyers grew from approximately 685,000 to approximately 999,000, or 46.0%. During the past three fiscal years, we have conducted over 777,000 online transactions generating approximately $766 million in gross merchandise volume. Approximately 81% of our initial listings have resulted in a completed cash sale during the past three fiscal years.

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 DRMS, for the sale of usable DoD surplus assets in the United States. In June 2005, we were awarded an additional exclusive contract with the DRMS to manage and sell substantially all DoD scrap property. During 2004, we launched our wholesale industry portal, www.goWholesale.com.

GovDeals acquisition.    On January 1, 2008, we completed the acquisition of the stock of Information Management Specialists, Inc. and its GovDeals, Inc. subsidiary for approximately $9,404,000 in cash net of acquired cash of $742,000. GovDeals is an online auction marketplace for the sale of surplus and confiscated items for local and state government entities including city, county and state agencies as well as school boards and public utilities. The acquisition strengthens our business by adding approximately 1,400 new government agency clients, approximately 80,000 new registered buyers and a critical mass of relationships to support new public sector business initiatives. In addition to a specialized sales force focused on building long term relationships with state and local agencies, GovDeals' business model allows sellers to list their own goods for sale on a consignment fee basis. The acquisition will also allow GovDeals' sellers to utilize our menu of optional value added services to save costs, improve cycle times and increase revenues.

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Geneva Group acquisition.    On May 1, 2008, we acquired the stock of the companies in the Geneva Group, including Geneva Industries Ltd., Willen Trading Ltd., and Geneva Auctions Ltd., for approximately $16,229,000 in cash, net of acquired cash of $934,000 and contingent earn-out payments of up to an aggregate of approximately $2,900,000 payable over the next three years. The Geneva Group is a United Kingdom (UK) based remarketer of reverse supply chain merchandise, including customer returns and overstock merchandise. Geneva serves leading UK retailers and manufactures with a product focus on consumer electronics, technology equipment and hard goods general merchandise. We expect that the acquisition will strengthen our business by adding Geneva's longstanding seller relationships in the European Union (EU) with significant organic growth opportunities, as well as a complementary buyer network of UK based wholesalers and EU exporters developed over the last 18 years. We believe Geneva's buyer base will augment our marketplace by adding international demand for consumer electronics and general merchandise across all condition categories.

Recent initiatives.    On May 13, 2008, the DoD agreed to extend the current Surplus Contract through November 1, 2008, as well as increase our share of net proceeds under the Surplus Contract to 39.5% on property received after June 18, 2008. On November 6, 2008, the DoD extended the current Surplus Contract through December 17, 2008, thus we will receive 39.5% of the net proceeds on property received up until December 17, 2008 through the Contract wind down period. We responded to a RFP from the DRMS regarding a renewal of the Surplus Contract, and have been awarded the contract. Under the new Surplus Contract, under which we will commence operations on December 18, 2008, we will not be required to distribute any portion of the profits realized under the Contract, as the new Contract structure requires a fixed 3.26% price, of the DRMS' acquisition value, to be paid for the property and allows us to retain all of the profits from the sale of property.

Our revenue.    We generate substantially all of our revenue by retaining a percentage of the proceeds from the sales we manage for our sellers. We offer our sellers three primary transaction models: a profit-sharing model, a consignment model and a purchase model.

    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 direct 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 83.1%, 61.5% and 62.4% of our total revenue for the fiscal years ended September 30, 2006, 2007 and 2008, respectively. The merchandise sold under our profit-sharing model accounted for approximately 70.9%, 52.3% and 45.8% of our gross merchandise volume, or GMV, for the fiscal years ended September 30, 2006, 2007 and 2008, respectively.

    Consignment model.  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 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 accounted for approximately 7.2%, 7.3% and 7.6% of our total revenue for the fiscal years ended September 30, 2006, 2007 and 2008, respectively. The merchandise sold under our

38


      consignment model accounted for approximately 22.4%, 22.4% and 33.1% of our GMV for the fiscal years ended September 30, 2006, 2007 and 2008, respectively.

    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 3.0%, 25.4% and 23.5% of our total revenue for the fiscal years ended September 30, 2006, 2007 and 2008, respectively. The merchandise sold under our purchase model accounted for approximately 2.6%, 21.6% and 17.3% of our GMV, for the fiscal years ended September 30, 2006, 2007 and 2008, 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.

        In fiscal years 2006, 2007 and 2008, we generated less than 2% of our revenue from advertisements on our wholesale industry portals.

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) product innovation in the retail supply chain that has increased 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 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; and (6) the increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases.

Overview



About us.    We are a leading online auction marketplace for wholesale, surplus and salvage assets. We enable buyers and sellers to transact
in an efficient, automated online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of wholesale surplus and
salvage assets presented with digital images and other relevant product information. Additionally, we enable our 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. 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, and specialty
equipment. Our online auction marketplaces are
www.liquidation.com, www.govliquidation.com,
www.govdeals.com
and www.liquibiz.com. We also operate a wholesale industry portal, www.goWholesale.com that connects advertisers
with buyers seeking products for resale and related business services.



        We
believe our ability to create liquid marketplaces for wholesale, surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow
of goods in turn attracts an increasing number of professional buyers to our marketplaces. During fiscal year 2008, the number of registered buyers grew from approximately 685,000 to approximately
999,000, or 46.0%. During the past three fiscal years, we have conducted over 777,000 online transactions generating approximately $766 million in gross merchandise volume. Approximately 81% of
our initial listings have resulted in a completed cash sale during the past three fiscal years.



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 DRMS, for the sale
of usable DoD surplus assets in the United States. In June 2005, we were awarded an additional exclusive contract with the DRMS to manage and sell substantially all DoD scrap property. During 2004, we
launched our wholesale industry portal,
www.goWholesale.com.



GovDeals acquisition.    On January 1, 2008, we completed the acquisition of the stock of Information Management Specialists, Inc. and its
GovDeals, Inc. subsidiary for approximately $9,404,000 in cash net of acquired cash of $742,000. GovDeals is an online auction marketplace for the sale of surplus and confiscated items for
local and state government entities including city, county and state agencies as well as school boards and public utilities. The acquisition strengthens our business by adding approximately 1,400 new
government agency clients, approximately 80,000 new registered buyers and a critical mass of relationships to support new public sector business initiatives. In addition to a specialized sales force
focused on building long term relationships with state and local agencies, GovDeals' business model allows sellers to list their own goods for sale on a consignment fee basis. The acquisition will
also allow GovDeals' sellers to utilize our menu of optional value added services to save costs, improve cycle times and increase revenues.



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Geneva Group acquisition.    On May 1, 2008, we acquired the stock of the companies in the Geneva Group, including Geneva
Industries Ltd., Willen Trading Ltd., and Geneva Auctions Ltd., for approximately $16,229,000 in cash, net of acquired cash of $934,000 and contingent
earn-out payments of up to an aggregate of approximately $2,900,000 payable over the next three years. The Geneva Group is a United Kingdom (UK) based remarketer of reverse supply chain
merchandise, including customer returns and overstock merchandise. Geneva serves leading UK retailers and manufactures with a product focus on consumer electronics, technology equipment and hard goods
general merchandise. We expect that the acquisition will strengthen our business by adding Geneva's longstanding seller relationships in the European Union (EU) with significant organic growth
opportunities, as well as a complementary buyer network of UK based wholesalers and EU exporters developed over the last 18 years. We believe Geneva's buyer base will augment our marketplace by
adding international demand for consumer electronics and general merchandise across all condition categories.



Recent initiatives.    On May 13, 2008, the DoD agreed to extend the current Surplus Contract through November 1, 2008, as well
as increase our share of net proceeds under the Surplus Contract to 39.5% on property received after June 18, 2008. On November 6, 2008, the DoD extended the current Surplus Contract
through December 17, 2008, thus we will receive 39.5% of the net proceeds on property received up until December 17, 2008 through the Contract wind down period. We responded to a RFP
from the DRMS regarding a renewal of the Surplus Contract, and have been awarded the contract. Under the new Surplus Contract, under which we will commence operations on December 18, 2008, we
will not be required to distribute any portion of the profits realized under the Contract, as the new Contract structure requires a fixed 3.26% price, of the DRMS' acquisition value, to be paid for
the property and allows us to retain all of the profits from the sale of property.



Our revenue.    We generate substantially all of our revenue by retaining a percentage of the proceeds from the sales we manage for our
sellers. We offer our sellers three primary transaction models: a profit-sharing model, a consignment model and a purchase model.





    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 direct 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 83.1%, 61.5% and 62.4% of our total revenue for the fiscal years ended September 30, 2006, 2007 and 2008, respectively. The merchandise sold
    under our profit-sharing model accounted for approximately 70.9%, 52.3% and 45.8% of our gross merchandise volume, or GMV, for the fiscal years ended September 30, 2006, 2007 and 2008,
    respectively.



    Consignment model.  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 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
    accounted for approximately 7.2%, 7.3% and 7.6% of our total revenue for the fiscal years ended September 30, 2006, 2007 and 2008, respectively. The merchandise sold under our


38











      consignment
      model accounted for approximately 22.4%, 22.4% and 33.1% of our GMV for the fiscal years ended September 30, 2006, 2007 and 2008, respectively.





    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 3.0%, 25.4% and 23.5% of our
    total revenue for the fiscal years ended September 30, 2006, 2007 and 2008, respectively. The merchandise sold under our purchase model accounted for approximately 2.6%, 21.6% and 17.3% of our
    GMV, for the fiscal years ended September 30, 2006, 2007 and 2008, 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.



        In
fiscal years 2006, 2007 and 2008, we generated less than 2% of our revenue from advertisements on our wholesale industry portals.



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) product innovation in the retail supply chain that has increased 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 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; and (6) the increase in buyer demand for surplus merchandise as consumers trade down by
purchasing less expensive goods and seek greater value from their purchases.



This excerpt taken from the LQDT 10-Q filed Aug 8, 2008.

Overview

 

About us.  We are a leading online auction marketplace for wholesale, surplus and salvage assets. We enable buyers and sellers to transact in an efficient, automated online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of wholesale, surplus and salvage assets presented with digital images and other relevant product information. Additionally, we enable our 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. 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, and specialty equipment. Our online auction marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com and www.liquibiz.com. We also operate a wholesale industry portal, www.goWholesale.com, that connects advertisers with buyers seeking products for resale and related business services.

 

We believe our ability to create liquid marketplaces for wholesale, surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During the last 12 months, the number of registered buyers grew from approximately 649,000 to approximately 948,000, or 46.1%, including GovDeals and Geneva.

 

Recent initiatives.  On May 1, 2008, we acquired the stock of the companies in the Geneva Group, including Geneva Industries Ltd., Willen Trading Ltd., and Geneva Auctions Ltd., for approximately $16,238,000 million in cash, net of acquired cash of $925,000 and contingent earn-out payments of up to an aggregate of approximately $2.9 million payable over the next three years.  The Geneva Group is a United Kingdom (UK) based remarketer of reverse supply chain merchandise, including customer returns and overstock merchandise. Geneva serves leading UK retailers and manufactures with a product focus on consumer electronics, technology equipment and hard goods general merchandise. We expect that the acquisition will strengthen our business by adding Geneva’s longstanding seller relationships in the European Union (EU) with significant organic growth opportunities, as well as a complementary buyer network of UK based wholesalers and EU exporters developed over the last 18 years.  We believe Geneva’s buyer base will augment our marketplace by adding international demand for consumer electronics and general merchandise across all condition categories

 

On May 13, 2008, the DoD agreed to extend the current Surplus Contract through December 19, 2008, as well as increase our share of net proceeds under the Surplus Contract to 39.5% on property received after June 18, 2008. We responded to a RFP from the DRMS regarding a renewal of the Surplus Contract, and have been awarded the contract.  Under the new Surplus Contract, which is expected to begin during the first half of Fiscal Year 2009, we will not be required to distribute any portion of the profits realized under the Contract, as the new Contract structure requires a fixed percentage price of approximately 3.26% of the DRMS’ acquisition value to be paid for the property.

 

13



Table of Contents

 

Our revenue.  We generate substantially all of our revenue by retaining a percentage of the proceeds from the sales we manage for our sellers. We offer our sellers three primary transaction models: a profit-sharing model, a consignment model and a purchase model.

 

·

 

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 direct 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 62.2% and 62.5% of our total revenue for the three- and nine-months ended June 30, 2008, respectively. The merchandise sold under our profit-sharing model accounted for approximately 42.6% and 46.5% of our gross merchandise volume, or GMV, for the three- and nine-months ended June 30, 2008, respectively.

 

 

 

·

 

Consignment model.  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 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 accounted for approximately 8.0% and 7.5% of our total revenue for the three- and nine-months ended June 30, 2008, respectively. The merchandise sold under our consignment model accounted for approximately 37.7% and 32.0% of our GMV for the three- and nine-months ended June 30, 2008, respectively.

 

 

 

·

 

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 22.3% and 24.7% of our total revenue for the three- and nine-months ended June 30, 2008, respectively. The merchandise sold under our purchase model accounted for approximately 15.3% and 18.4% of our GMV for the three- and nine-months ended June 30, 2008, 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.

 

In the three months ended June 30, 2008, we generated less than 2% of our revenue from advertisements on our wholesale industry portals.

 

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) product innovation in the retail supply chain that has increased 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 necessitating verifiable recycling and remarketing of surplus assets; and (5) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets.

 

14



This excerpt taken from the LQDT 10-Q filed May 9, 2008.

Overview

 

About us. We are a leading online auction marketplace for wholesale, surplus and salvage assets. We enable buyers and sellers to transact in an efficient, automated online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of wholesale, surplus and salvage assets presented with digital images and other relevant product information. Additionally, we enable our 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. 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, and specialty equipment. Our online auction marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com and www.liquibiz.com. We also operate a wholesale industry portal, www.goWholesale.com, that connects advertisers with buyers seeking products for resale and related business services.

 

We believe our ability to create liquid marketplaces for wholesale, surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During the last 12 months, the number of registered buyers grew from approximately 613,000 to approximately 892,000, or 45.6%, including GovDeals.

 

Recent initiatives. On January 1, 2008, we completed the acquisition of the stock of Information Management Specialists, Inc. and its GovDeals, Inc. subsidiary for approximately $9,389,000 in cash net of acquired cash of $742,000. GovDeals is an online auction marketplace for the sale of surplus and confiscated items for local and state government entities including city, county and state agencies as well as school boards and public utilities. The acquisition strengthens our business by adding approximately 1,400 new government agency clients, approximately 80,000 new registered buyers and a critical mass of relationships to support new public sector business initiatives. In addition to a specialized sales force focused on building long term relationships with state and local agencies, GovDeals’ business model allows sellers to list their own goods for sale on a consignment fee basis. The acquisition will also allow GovDeals’ sellers to utilize our menu of optional value added services to save costs, improve cycle times and increase revenues.

 

12



 

On May 1, 2008, we acquired the companies in the Geneva Group, including Geneva Industries Ltd., Willen Trading Ltd., and Geneva Auctions Ltd., for approximately $17.2 million in cash and contingent earn-out payments of up to an aggregate of approximately $2.9 million payable over the next three years. The Geneva Group is a United Kingdom (UK) based remarketer of reverse supply chain merchandise, including customer returns and overstock merchandise. Geneva serves leading UK retailers and manufactures with a product focus on consumer electronics, technology equipment and hard goods general merchandise. We expect that the acquisition will strengthen our business by adding Geneva’s longstanding seller relationships in the European Union (EU) with significant organic growth opportunities, as well as a complementary buyer network of UK based wholesalers and EU exporters developed over the last 18 years. We believe Geneva’s buyer base will augment our marketplace by adding international demand for consumer electronics and general merchandise across all condition categories.

 

Our revenue. We generate substantially all of our revenue by retaining a percentage of the proceeds from the sales we manage for our sellers. We offer our sellers three primary transaction models: a profit-sharing model, a consignment model and a purchase model.

 

      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 direct 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 62.6% and 62.7% of our total revenue for the three- and six-months ended March 31, 2008, respectively. The merchandise sold under our profit-sharing model accounted for approximately 44.6% and 49.2% of our gross merchandise volume, or GMV, for the three- and six-months ended March 31, 2008, respectively.

 

      Consignment model. 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 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 accounted for approximately 8.2% and 7.0% of our total revenue for the three- and six-months ended March 31, 2008, respectively. The merchandise sold under our consignment model accounted for approximately 35.6% and 28.3% of our GMV for the three- and six-months ended March 31, 2008, respectively.

 

      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 25.7% and 26.2% of our total revenue for the three- and six-months ended March 31, 2008, respectively. The merchandise sold under our purchase model accounted for approximately 18.3% and 20.5% of our GMV for the three- and six-months ended March 31, 2008, 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.

 

In the three months ended March 31, 2008, we generated less than 2% of our revenue from advertisements on our wholesale industry portals.

 

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) product innovation in the retail supply chain that has increased 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 necessitating verifiable recycling and remarketing of surplus assets; and (5) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets.

 

13



 

This excerpt taken from the LQDT 10-Q filed Feb 8, 2008.

Overview

 

About us.  We are a leading online auction marketplace for wholesale, surplus and salvage assets. We enable buyers and sellers to transact in an efficient, automated online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of wholesale, surplus and salvage assets presented with digital images and other relevant product information. Additionally, we enable our 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. 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, and specialty equipment. Our online auction marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com and www.liquibiz.com. We also operate a wholesale industry portal, www.goWholesale.com, that connects advertisers with buyers seeking products for resale and related business services.

 

We believe our ability to create liquid marketplaces for wholesale, surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During the last 12 months, the number of registered buyers grew from approximately 565,000 to approximately 724,000, or 28.1%.

 

Recent initiatives.  During January 2008, we completed the acquisition of the stock of Information Management Specialists, Inc. and its GovDeals, Inc. subsidiary for approximately $10 million in cash. GovDeals is an online auction marketplace for the sale of surplus and confiscated items for local and state government entities including city, county and state agencies as well as school boards and public utilities. The acquisition strengthens our business by adding approximately 1,400 new government agency clients, approximately 80,000 new registered buyers and a critical mass of relationships to support new public sector business initiatives. In addition to a specialized sales force focused on building long term relationships with state and local agencies, GovDeals’ business model allows sellers to list their own goods for sale on a consignment fee basis. The acquisition will also allow GovDeals’ sellers to utilize our menu of optional value added services to save costs, improve cycle times and increase revenues.

 

11



 

Our revenue.  We generate substantially all of our revenue by retaining a percentage of the proceeds from the sales we manage for our sellers. We offer our sellers three primary transaction models: a profit-sharing model, a consignment model and a purchase model.

 

·      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 direct 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 62.8% of our total revenue for the three months ended December 31, 2007. The merchandise sold under our profit-sharing model accounted for approximately 55.1% of our gross merchandise volume, or GMV, for the three months ended December 31, 2007.

 

·      Consignment model.  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 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 accounted for approximately 5.8% of our total revenue for the three months ended December 31, 2007. The merchandise sold under our consignment model accounted for approximately 18.7% of our GMV for the three months ended December 31, 2007.

 

·      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 26.6% of our total revenue for the three months ended December 31, 2007. The merchandise sold under our purchase model accounted for approximately 23.4% of our GMV for the three months ended December 31, 2007.

 

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.

 

In the three months ended December 31, 2007, we generated approximately 2% of our revenue from advertisements on our wholesale industry portals.

 

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) product innovation in the retail supply chain that has increased 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 necessitating verifiable recycling and remarketing of surplus assets; and (5) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets.

 

12



 

This excerpt taken from the LQDT 10-K filed Dec 7, 2007.

Overview

About us.    We are a leading online auction marketplace for wholesale, surplus and salvage assets. We enable buyers and sellers to transact in an efficient, automated online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of wholesale, surplus and salvage assets presented with digital images and other relevant product information. Additionally, we enable our 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. 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, and specialty equipment. Our online auction marketplaces are www.liquidation.com, www.govliquidation.com and www.liquibiz.com. We also operate a wholesale industry portal, www.goWholesale.com, that connects advertisers with buyers seeking products for resale and related business services.

        We believe our ability to create liquid marketplaces for wholesale, surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During fiscal year 2007, the number of registered buyers grew from approximately 524,000 to approximately 685,000, or 30.7%. During the past three fiscal years, we have conducted over 578,000 online transactions generating approximately $509 million in gross merchandise volume. Approximately 85% of our initial listings have resulted in a completed cash sale during the past three fiscal years.

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 Commercial Venture Two or CV2 contract. Under this agreement, we became the exclusive contractor with the Defense Reutilization and Marketing Service, or DRMS, for the sale of usable DoD surplus assets in the United States. In June 2005, we were awarded an additional exclusive contract with the DRMS to manage and sell substantially all DoD scrap property. During 2004, we launched our wholesale industry portal, www.goWholesale.com.

STR acquisition.    We completed the acquisition of the wholesale business of STR for approximately $9.9 million in cash on October 16, 2006. STR is a California-based remarketer of reverse supply chain merchandise, including retail customer returns, overstocks, shelf pulls, and seasonal merchandise, to wholesale buyers. The acquisition of STR strengthens our core business by adding long-standing relationships with traditional discount store chain buyers as well as Fortune 500 commercial sellers. The acquisition also expanded our distribution center network, with the addition of STR's approximately 117,000 square foot leased distribution center in Fullerton, California, a suburb of Los Angeles, as well as 21,000 square feet facility in Sacramento, California, which we believe will provide efficiencies for both domestic and international buyers and sellers.

Recent initiatives.    On March 13, 2007, we sold 100,000 shares of our common stock in a follow-on offering at $18.00 per share. Aggregate net proceeds from the follow-on offering, after deducting

37



underwriting discounts and commissions and issuance costs, were approximately $1.1 million. In the follow-on offering, including the partial exercise of the over-allotment option granted to the underwriters, the selling stockholders sold an aggregate of 3,662,400 shares of common stock held by them. We did not receive any proceeds from the sale of shares by the selling stockholders.

        On May 21, 2007, through a modification to our existing Scrap Contract with the DoD, we agreed to provide additional value-added services to the sales process designed to ensure compliance with requirements relating to the mutilation of scrap material. As part of these value-added services, we manage centralized processing centers that provide a secure area to complete the mutilation of scrap metal prior to removal of the material from the DoD sales location. In addition, we provide oversight and verification procedures to enhance the audit trail related to sales of scrap material. In exchange for our agreement to provide these services, the DoD agreed to increase our share of net proceeds under the Scrap Contract to 23% from 20%. The contract modification also provides that we manage the receipt, marketing and sale of virtually all surplus scrap property generated by the DoD in Hawaii and Guam. All terms and conditions set forth in the modified Scrap Contract apply to material processed and sold in these locations. The contract modification became effective June 1, 2007. All other principal terms of the original contract remain in effect.

        The Scrap Contract includes a performance incentive that allows us 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. We received a performance incentive payment for the 12 months ended June 30, 2007 of approximately $1,000,000, in the quarter ended June 30, 2007.

        On June 1, 2007, we agreed, as provided in the modification to the Surplus Contract that became effective as of September 12, 2006, to provide additional value-added services with respect to demilitarized property that is returned to DRMS for reutilization. In exchange for our agreement to provide these services, the DoD exercised its existing option to increase our share of net proceeds under the Surplus Contract by 1%. The Surplus Contract, in accordance with the contract modification on September 12, 2006, includes a performance incentive that allows us to receive up to 30.5% of the profit-sharing distribution. This incentive will be measured quarterly beginning in fiscal year 2008. This performance incentive was recognized for the period earned during fiscal year 2007, which began December 1, 2006. For the fiscal year 2007 measurement period, we received a performance payment of approximately $1,500,000, in the quarter ended September 30, 2007.

Our revenue.    We generate substantially all of our revenue by retaining a percentage of the proceeds from the sales we manage for our sellers. We offer our sellers three primary transaction models: a profit-sharing model, a consignment model and a purchase model.

    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 direct 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 87.9%, 83.1% and 61.5% of our total revenue for the fiscal years ended September 30, 2005, 2006 and 2007, respectively. The merchandise sold under our profit-sharing model accounted for approximately 76.8%, 70.9% and 52.3% of our gross merchandise volume, or GMV, for the fiscal years ended September 30, 2005, 2006 and 2007, respectively.

    Consignment model.  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

38


      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 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 accounted for approximately 5.2%, 7.2% and 7.3% of our total revenue for the fiscal years ended September 30, 2005, 2006 and 2007, respectively. The merchandise sold under our consignment model accounted for approximately 18.5%, 22.4% and 22.4% of our GMV for the fiscal years ended September 30, 2005, 2006 and 2007, respectively.

    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 1.4%, 3.0% and 25.4% of our total revenue for the fiscal years ended September 30, 2005, 2006 and 2007, respectively. The merchandise sold under our purchase model accounted for approximately 1.3%, 2.6% and 21.6% of our gross merchandise volume, or GMV, for the fiscal years ended September 30, 2005, 2006 and 2007, 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.

        In fiscal years 2005, 2006 and 2007, we generated approximately 2% of our revenue from advertisements on our wholesale industry portals.

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) product innovation in the retail supply chain that has increased 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 necessitating verifiable recycling and remarketing of surplus assets; and (5) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets.

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