10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2016

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                    to                 

Commission file number 0-51813

LIQUIDITY SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	52-2209244
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
1920 L Street, N.W., 6th Floor, Washington, D.C.	20036
(Address of Principal Executive Offices)	(Zip Code)

(202) 467-6868

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 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 x No o

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.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting companyo

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

The number of shares outstanding of the issuer’s common stock, par value $.001 per share, as of May 5, 2016 was 30,726,554.

INDEX

		Page
Part I. FINANCIAL INFORMATION (UNAUDITED)
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statement of Changes in Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to the Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	39
Item 6.	Exhibits	40
SIGNATURES		41

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

Liquidity Services, Inc. and Subsidiaries

Consolidated Balance Sheets
(Dollars in Thousands)

	March 31,			September 30,
	2016			2015
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	117,528		$	95,465
Accounts receivable, net of allowance for doubtful accounts of $557 and $471 at March 31, 2016 and September 30, 2015, respectively	7,193			6,194
Inventory	32,186			25,510
Tax refund receivable	1,358			33,491
Prepaid and deferred taxes	11,642			19,903
Prepaid expenses and other current assets	6,819			7,826
Total current assets	176,726			188,389
Property and equipment, net	13,495			13,356
Intangible assets, net	3,319			4,051
Goodwill	64,421			64,073
Deferred long-term tax assets	13,830			5,871
Other assets	15,264			12,748
Total assets	$	287,055		$	288,488
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	8,782		$	9,500
Accrued expenses and other current liabilities	30,209			27,350
Profit-sharing distributions payable	1,503			2,512
Customer payables	27,762			29,802
Total current liabilities	68,256			69,164
Long-term liabilities	3,221			3,322
Total liabilities	71,477			72,486
Stockholders’ equity:
Common stock, $0.001 par value; 120,000,000 shares authorized; 30,606,566 shares issued and outstanding at March 31, 2016; 30,026,223 shares issued and outstanding at September 30, 2015	29			29
Additional paid-in capital	215,672			210,712
Accumulated other comprehensive loss	(4,963		)	(5,626		)
Retained earnings	4,840			10,887
Total stockholders’ equity	215,578			216,002
Total liabilities and stockholders’ equity	$	287,055		$	288,488

See accompanying notes to the unaudited consolidated financial statements.

3

Liquidity Services, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)

	Three Months Ended March 31,						Six Months Ended March 31,
	2016			2015			2016			2015
Revenue	$	66,423		$	83,286		$	116,608		$	181,449
Fee revenue	20,455			19,657			36,145			46,637
Total revenue	86,878			102,943			152,753			228,086
Costs and expenses:
Cost of goods sold	39,927			42,661			66,810			96,976
Profit-sharing distributions	2,506			7,558			4,863			17,150
Technology and operations	24,678			24,747			47,486			51,625
Sales and marketing	9,148			10,798			18,608			21,183
General and administrative	10,466			11,374			20,534			20,902
Amortization of contract intangibles	—			—			—			1,211
Depreciation and amortization	1,660			1,994			3,332			3,986
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets	—			—			39			96,238
Total costs and expenses	88,385			99,132			161,672			309,271
(Loss) income from operations	(1,507		)	3,811			(8,919		)	(81,185		)
Interest and other income (expense), net	390			(39		)	451			(77		)
(Loss) income before provision for income taxes	(1,117		)	3,772			(8,468		)	(81,262		)
Benefit (provision) for income taxes	267			(2,391		)	2,421			18,527
Net (loss) income	$	(850	)	$	1,381		$	(6,047	)	$	(62,735	)
Basic (loss) earnings per common share	$	(0.03	)	$	0.05		$	(0.20	)	$	(2.09	)
Diluted (loss) earnings per common share	$	(0.03	)	$	0.05		$	(0.20	)	$	(2.09	)
Basic weighted average shares outstanding	30,594,940			29,988,324			30,542,520			29,957,298
Diluted weighted average shares outstanding	30,594,940			29,988,324			30,542,520			29,957,298

See accompanying notes to the unaudited consolidated financial statements

4

Liquidity Services, Inc. and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income (Loss)
(Dollars in Thousands)

	Three Months Ended March 31,						Six Months Ended March 31,
	2016			2015			2016			2015
Net (loss) income	$	(850	)	$	1,381		$	(6,047	)	$	(62,735	)
Other comprehensive income (loss):
Foreign currency translation	1,421			(1,157		)	663			(3,113		)
Other comprehensive income (loss), net of taxes	1,421			(1,157		)	663			(3,113		)
Comprehensive income (loss)	$	571		$	224		$	(5,384	)	$	(65,848	)

See accompanying notes to the unaudited consolidated financial statements.

5

Liquidity Services, Inc. and Subsidiaries

Unaudited Consolidated Statement of Changes in Stockholders’ Equity
(In Thousands Except Share Data)

				Additional		Accumulated Other
	Common Stock			Paid-in		Comprehensive			Retained
	Shares	Amount		Capital		Loss			Earnings			Total
Balance at September 30, 2015	30,026,223	$	29	$	210,712	$	(5,626	)	$	10,887		$	216,002
Vesting of restricted stock	580,343	—		—		—			—			—
Compensation expense and incremental tax benefit from grants of common stock options and restricted stock	—	—		4,960		—			—			4,960
Net loss	—	—		—		—			(6,047		)	(6,047		)
Foreign currency translation	—	—		—		663			—			663
Balance at March 31, 2016	30,606,566	$	29	$	215,672	$	(4,963	)	$	4,840		$	215,578

See accompanying notes to the unaudited consolidated financial statements.

6

Liquidity Services, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows
(In Thousands)

	Six Months Ended March 31,
	2016			2015
Operating activities
Net loss	$	(6,047	)	$	(62,735	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,332			5,197
Stock compensation expense	5,144			5,412
Provision (benefit) for inventory allowance	1,399			(2,463		)
Provision for doubtful accounts	86			1,205
Deferred tax benefit	(2,421		)	(22,145		)
Impairment of goodwill and long-lived assets	—			96,238
Incremental tax benefit from exercise of common stock options	213			(65		)
Changes in operating assets and liabilities:
Accounts receivable	(1,085		)	5,957
Inventory	(8,075		)	29,246
Prepaid and deferred taxes	34,641			1,164
Prepaid expenses and other assets	(1,509		)	182
Accounts payable	(718		)	(308		)
Accrued expenses and other	2,866			(16,390		)
Profit-sharing distributions payable	(1,008		)	285
Customer payables	(2,040		)	(10,849		)
Other liabilities	(79		)	(987		)
Net cash provided by operating activities	24,699			28,944
Investing activities
Increase in intangibles	(35		)	(9		)
Purchases of property and equipment	(2,723		)	(5,095		)
Net cash used in investing activities	(2,758		)	(5,104		)
Financing activities
Proceeds from exercise of common stock options (net of tax)	—			107
Incremental tax benefit from exercise of common stock options	(213		)	65
Net cash (used) provided by financing activities	(213		)	172
Effect of exchange rate differences on cash and cash equivalents	335			(379		)
Net increase in cash and cash equivalents	22,063			23,633
Cash and cash equivalents at beginning of period	95,465			62,598
Cash and cash equivalents at end of period	$	117,528		$	86,231
Supplemental disclosure of cash flow information
Cash (received) paid for income taxes, net	$	(34,652	)	$	2,453

See accompanying notes to the unaudited consolidated financial statements.

7

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Consolidated Financial Statements

1.Organization

Liquidity Services, Inc. and its subsidiaries (the “Company”) operate leading auction marketplaces for surplus and salvage assets.  The Company 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, the Company 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. The Company organizes the products on its marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. The Company’s 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. The Company has one reportable segment consisting of operating auction marketplaces for sellers and buyers of surplus, salvage and scrap assets.

2.Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation have been included. The information disclosed in the notes to the consolidated financial statements for these periods is unaudited. Operating results for the three and six months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending September 30, 2016 or for any future period.  Fee revenue is revenue earned under the consignment model, as well as other fee revenue, and is presented separately as it accounts for more than 10% of total revenue.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which supersedes most existing revenue recognition guidance under GAAP. The new standard will change the way the Company recognizes revenue and significantly expand the disclosure requirements for revenue arrangements.  In July 2015, the FASB delayed the effective date of the new standard such that the new standard will be effective for the Company beginning on October 1, 2018, 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.  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 Company’s consolidated financial statements and related disclosures.

In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides guidance regarding whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the software license element of the arrangement must be accounted for in a manner consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement must be accounted for as a service contract. ASU 2015-05 does not change the accounting for service contracts. ASU 2015-05 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is 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 Company’s consolidated financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases.  ASU 2016-02 will change the way the Company recognizes its leased assets.  ASU 2016-02 will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities representing the rights and obligations created by those leases. ASU 2016-02 will also require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The standard will be effective for the Company beginning on October 1, 2019.  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 Company’s consolidated financial statements and related disclosures.

8

In March, 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718). The new standard will change certain aspects of accounting for share-based payments to employees. Under the new standard, the Company will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, the Company will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when the awards vest or are settled. The APIC pools will be eliminated. For interim reporting purposes, the Company will account for excess tax benefits and tax deficiencies as discrete items in the period in which they occur. The new standard will also allow the Company to repurchase more of an employee’s shares than it can today for income tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The new guidance will require the Company to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. The standard will be effective for the Company beginning on October 1, 2017.

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.

9

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

2.Summary of Significant Accounting Policies (continued)

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, as well as for inventory written down to expected market price, are included in cost of goods sold in the period in which they have been determined to occur.  As of March 31, 2016 and September 30, 2015, the Company’s inventory reserve was approximately $2.2 million and $0.8 million, respectively.

Earnings per Share

The Company calculates net income (loss) per share in accordance with FASB Accounting Standards Codification (“ASC”) Topic 260 Earnings Per Share (“ASC 260”). Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options and unvested restricted stock awards. The dilutive effect of unexercised stock options and unvested restricted stock awards was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded in additional paid-in capital when stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock awards are not included in the computation of diluted net income (loss) per share when they are antidilutive.

For the three and six months ended March 31, 2016, the basic and diluted weighted average common shares were the same because the inclusion of dilutive securities would have been anti-dilutive.  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. See Note 8 for outstanding stock options and unvested restricted stock, all of which are anti-dilutive.

10

The following summarizes the basic and diluted income per share:

	Three Months Ended March 31,					Six Months Ended March 31,
	2016			2015		2016			2015
	(unaudited)
	(dollars in thousands, except per share amounts)
Weighted average shares calculation:
Basic weighted average shares outstanding	30,594,940			29,988,324		30,542,520			29,957,298
Treasury stock effect of options and restricted stock	—			—		—			—
Diluted weighted average common shares outstanding	30,594,940			29,988,324		30,542,520			29,957,298
Net (loss) income	$	(850	)	$	1,381	$	(6,047	)	$	(62,735	)
Basic (loss) income per common share	$	(0.03	)	$	0.05	$	(0.20	)	$	(2.09	)
Diluted (loss) income per common share	$	(0.03	)	$	0.05	$	(0.20	)	$	(2.09	)

11

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

2.Summary of Significant Accounting Policies (continued)

Stock-Based Compensation

The Company estimates the fair value of share-based awards on the date of grant. The fair value of stock options and stock appreciation rights 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 stock appreciation rights 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, 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 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 vesting 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 options and 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 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.

3.Defense Logistics Agency (DLA) Disposition Services Contracts

The Company has a Surplus Contract with the DLA Disposition Services under which the Company is the remarketer of all Department of Defense (DoD) non-rolling stock surplus turned into the DLA available for sale within the United States, Puerto Rico, and Guam.  The Surplus Contract requires the Company to purchase all usable surplus property offered to the Company by the Department of Defense (DoD) at a fixed percentage of the DoD’s original acquisition value (OAV). This fixed percentage is 4.35%; prior to the date the current Surplus Contract became effective, this fixed percentage was 1.8%. 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 is a liability to the DoD of approximately $7,531,000 and $2,026,000 for inventory as of March 31, 2016 and September 30, 2015, respectively. The Surplus Contract contains a provision providing for a mutual termination of the contract for convenience.  The initial two-year base period ends in December 2016.  There are three one-year options to extend, exercisable by DLA Disposition Services.

12

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

3.Defense Logistics Agency (DLA) Disposition Services Contracts (Continued)

The Company has a Scrap Contract with the DLA under which the Company is the remarketer of all DoD scrap turned into the DLA available for sale within the United States, Puerto Rico, and Guam.

DLA Disposition Services initiated an Invitation to Bid for the next Scrap Contract, which will be a three year contract with two one-year options.  DLA Disposition Services solicited bids in February 2016, and awarded the contract to the Company in April 2016. See Note 15, Subsequent Event.

4.Goodwill

The goodwill of acquired companies is primarily related to the acquisition of an experienced and knowledgeable workforce.  The following summarizes goodwill activity for the periods indicated:

	Goodwill (in thousands)
Balance at September 30, 2015	$	64,073
Translation adjustments	348
Balance at March 31, 2016	$	64,421

Impairment of Goodwill

The Company performs its annual goodwill impairment assessment as of the end of the fiscal year.  The last impairment assessment was performed as of September 30, 2015 and the Company identified indicators of impairment, including a decline in the Company’s market capitalization. Goodwill impairment losses as of September 30, 2015, were $136.2 million, including $85.1 million recognized in the six months ended March 31, 2015.  During the six months ended March 31, 2016, the Company did not identify any additional indicators of impairment.

13

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

5.Intangible Assets

As a result of the acquisition of Jacobs Trading Company on October 1, 2011, the Company assumed the rights and obligations of Jacobs Trading Company under the seller’s Master Merchandise Salvage Contract with Wal-Mart Stores, Inc. (the “Wal-Mart Agreement”) dated May 13, 2011.  On December 1, 2014, Wal-Mart provided the Company with written notice terminating the Wal-Mart Agreement effective December 8, 2014.  As a result of the termination of the Wal-Mart Agreement, the Company concluded that the intangible asset related to the Wal-Mart Agreement was impaired and reduced the remaining unamortized contract intangible asset of $10.3 million to zero during the six months ended March 31, 2015.  This impairment charge is recorded in the Acquisition costs and the related fair value adjustments and impairment of goodwill and long-lived assets line item in the statements of operations.  Intangible assets at March 31, 2016 and September 30, 2015 consisted of the following:

		March 31, 2016							September  30, 2015
	Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(dollars in thousands)
Contract intangibles	10	$	1,500	$	(75	)	$	1,425	$	1,500	$	—		$	1,500
Brand and technology	3 - 5	5,749		(4,501		)	1,248		5,749		(3,926		)	1,823
Covenants not to compete	3 - 5	700		(483		)	217		700		(433		)	267
Patent and trademarks	3 - 10	808		(379		)	429		792		(331		)	461
Total intangible assets, net		$	8,757	$	(5,438	)	$	3,319	$	8,741	$	(4,690	)	$	4,051

Future expected amortization of intangible assets at March 31, 2016 is as follows:

	Future Amortization
Years ending September 30,	(in thousands)
2016 (remaining six months)	$	569
2017	1,193
2018	280
2019	206
2020 and after	1,071
Total	$	3,319

Intangible assets amortization expense was approximately $0.4 million and $0.5 million for the three months ended March 31, 2016 and 2015, respectively.  Intangible assets amortization expense was approximately $0.8 million and $2.2 million for the six months ended March 31, 2016 and 2015, respectively.

6.Debt

Senior Credit Facility

Effective March 25, 2016, the Company terminated its $75 million senior credit facility.  Borrowings under the Agreement bore interest at an annual rate equal to the 30 day LIBOR rate plus 1.25% (1.608% at December 31, 2015) due monthly.  The Company’s borrowing availability under the Facility as of September 30, 2015 and December 31, 2015 was $37.5 million.  There were no outstanding borrowings under the Facility at the time of its termination.

14

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

7.Income Taxes

The Company’s interim effective income tax rate is based on management’s best current estimate of the expected annual effective income tax rate. The Company recorded a pre-tax loss in the first six months of fiscal year 2016 and its corresponding effective tax rate is approximately 28.6%.

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 2012 through 2015. The Company anticipates no material tax liability to arise from these examinations. The statute of limitations for U.S. federal income tax returns for years prior to fiscal 2012 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal 2012 may be adjusted upon examination by tax authorities if they are utilized.

8.Stockholders’ Equity

Share Repurchase Program

Since 2008, 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 the Company’s 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 did not repurchase any shares during the six months ended March 31, 2016 or 2015.  As of March 31, 2016, there was approximately $5.1 million that may yet be expended to repurchase shares under the program. In addition, the Company’s Board of Directors has approved the repurchase of an additional $5.0 million in shares raising the current amount approved for repurchase, that may yet be expended up to $10.1 million.

2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)

Under the 2006 Plan, as amended, 10,000,000 shares of common stock were available for issuance. At September 30, 2014, there were 772,227 shares remaining reserved for issuance in connection with awards under the 2006 Plan.  In February 2015, at the Company’s annual meeting of stockholders, the stockholders approved an amendment to the Plan which increased the shares available for issuance under the 2006 Plan by 3,000,000 shares and established a fungible share pool so that awards other than options or stock appreciation rights granted after January 9, 2015, would be counted as 1.5 shares from the shares reserved for issuance under the 2006 Plan. During the three and six months ended March 31, 2016, the Company canceled 92,499 options and 214,014 restricted shares with performance conditions because the Compensation Committee, which administers the 2006 Plan, determined the performance goals had become unachievable. At March 31, 2016, there were 202,905 shares remaining reserved for issuance in connection with awards under the 2006 Plan.

During fiscal year 2015, the Company issued 737,972 cash-settled stock appreciation rights at the price of $9.35, and 59,156 cash-settled stock appreciation rights were forfeited.  During the six months ended March 31, 2016, the Company issued 1,062,668 cash-settled stock appreciation rights at a price of $4.57 and 57,322 cash-settled stock appreciation rights were forfeited.  Stock appreciation rights are recorded as liability awards. 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 pursuant to an option or stock appreciation right, is 700,000 per year. The Company issues stock appreciation rights where restrictions lapse upon either the passage of time (service vesting), achieving performance targets, or some combination of these restrictions. For those stock appreciation rights 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. The stock appreciation rights that include only service conditions generally vest over a period of one to four years conditioned on continued employment for the incentive period.

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

8.Stockholders’ Equity (Continued)

Stock Option Activity

A summary of the Company’s stock option activity for the year ended September 30, 2015 and the six months ended March 31, 2016 is as follows:

	Options		Weighted- Average Exercise Price
Options outstanding at September 30, 2014	1,465,907		$	19.50
Options granted	310,177		9.92
Options exercised	(14,869	)	7.09
Options canceled	(288,572	)	20.26
Options outstanding at September 30, 2015	1,472,643		17.46
Options granted	583,228		6.68
Options exercised	—		—
Options canceled	(181,631	)	19.29
Options outstanding at March 31, 2016	1,874,240		13.93
Options exercisable at March 31, 2016	1,044,454		17.52

The intrinsic value and weighted average remaining contractual life in years of outstanding and exercisable options at March 31, 2016 is approximately $0 and 6.86 and $0 and 4.78, respectively, based on a stock price of $5.18 on March 31, 2016.  Over the last three years, volatility rates have ranged from 50.90% - 77.92%, the dividend rate has been 0%, risk free interest rates have ranged from 0.12% - 1.51% and expected forfeiture rates have ranged from 19.70% - 23.54%.

Restricted Share Activity

A summary of the Company’s restricted share activity for the year ended September 30, 2015 and the six months ended March 31, 2016 is as follows:

	Restricted Shares		Weighted- Average Fair Value
Unvested restricted shares at September 30, 2014	1,897,827		$	24.96
Restricted shares granted	1,298,604		10.04
Restricted shares vested	(343,204	)	27.50
Restricted shares canceled	(486,040	)	26.54
Unvested restricted shares at September 30, 2015	2,367,187		16.08
Restricted shares granted	1,428,867		5.45
Restricted shares vested	(580,343	)	16.31
Restricted shares canceled	(352,805	)	24.44
Unvested restricted shares at March 31, 2016	2,862,906		9.70

The intrinsic value and weighted average remaining contractual life in years of unvested restricted shares at March 31, 2016 is approximately $14.8 million and 8.99, respectively, based on a stock price of $5.18 on March 31, 2016.

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

9.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 1Quoted market prices in active markets for identical assets or liabilities;

Level 2Inputs other than Level 1 inputs that are either directly or indirectly observable; and

Level 3Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

As of March 31, 2016 and September 30, 2015, the Company had no Level 1, Level 2, or Level 3 assets or liabilities that were recorded at fair value on a recurring basis.

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 of these instruments approximates fair value due to the short term maturities.

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

10.Defined Benefit Pension Plan

Certain employees of GoIndustry, which the Company acquired in July 2012, are covered by the Henry Butcher Pension Fund and Life Assurance Scheme, a qualified defined benefit pension plan.

The net periodic benefit cost recognized for the three and six months ended March 31, 2016 and 2015 included the following components:

	Three Months Ended March 31,						Six Months Ended March 31,
Qualified Defined Benefit Pension Plan	2016			2015			2016			2015
	(dollars in thousands)
Service cost	—			—			—			—
Interest cost	$	207		$	245		$	429		$	493
Expected return on plan assets	(269		)	(299		)	(552		)	(598		)
Amortization of prior service cost	—			—			—			—
Amortization of actuarial (gain)/loss	—			—			—			—
Amortization of transitional obligation/(asset)	—			—			—			—
Total net periodic (benefit) cost	$	(62	)	$	(54	)	$	(123	)	$	(105	)

11.Guarantees

During the second quarter of 2015, the Company issued a guarantee to GoIndustry (UK) Limited (the “Subsidiary”) and the Trustees (the “Trustees”) of the Henry Butcher Pension Fund and Life Assurance Scheme (the “Scheme”). Under the arrangement, the Company irrevocably and unconditionally (a) guarantees to the Trustees punctual performance by the Subsidiary of all its Guaranteed Obligations, defined as all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally in any capacity whatsoever) of the Company to make payments to the Scheme up to a maximum of 10 million British pounds, (b) undertakes with the Trustees that, whenever the Subsidiary does not pay any amount when due in respect of its Guaranteed Obligations, it must immediately on demand by the Trustees pay that amount as if it were the principal obligor; and (c) indemnifies the Trustees as an independent and primary obligation immediately on demand against any cost, charge, expense, loss or liability suffered or incurred by the Trustees if any payment obligation guaranteed by it is or becomes unenforceable, invalid or illegal; the amount of the cost, charge, expense, loss or liability under this indemnity will be equal to the amount the Trustees would otherwise have been entitled to recover on the basis of a guarantee.  The guarantee is a continuing guarantee that will extend to the ultimate balance of all sums payable by the Company in respect of its Guaranteed Obligations.  The funded status of the Scheme as of September 30, 2015, was disclosed in Note 14, Defined Benefit Pension Plan, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015.

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

12.Business Realignment Expenses

On October 1, 2014, the Company announced that it had realigned its workforce in response to the new terms and scope of the current Surplus Contract 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 included employee reductions across the organization. Business realignment expenses during the fiscal year ended September 30, 2014, included costs of $1.8 million in employee severance and benefit costs. In September 2015, the Company evaluated its business realignment effort which resulted in a net increase of $0.3 million in accrued expense primarily due to timing changes in commencement of the current Surplus Contract and the delay in the wind-down of the NESA business.

The table below sets forth the significant components and activity in the business realignment initiatives during the six months ended March 31, 2016.

	Liability Balance at September 30, 2015		Business Realignment Expenses			Cash Payments			Liability Balance at March 31, 2016 (dollars in thousands)
Employee severance and benefit costs for fiscal 2014 accrual	$	356	$	(20	)	$	(271	)	$	65
Employee severance and benefit costs for fiscal 2015 accrual	489		(75		)	(409		)	5
Total	$	845	$	(95	)	$	(680	)	$	70

The business realignment expenses are recorded in costs and expenses from operations in the statement of operations, and in accrued expenses and other current liabilities on the balance sheet as of March 31, 2016 and September 30, 2015.

13.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, former chief financial officer, and former chief accounting officer, on behalf of stockholders 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 Dépôt et Placement du Québec and the Newport News Employees’ Retirement Fund as co-lead plaintiffs.  The Plaintiffs filed an amended complaint on December 15, 2014, which alleges substantially similar claims but which does not name the chief accounting officer as a defendant.  On March 2, 2015, the Company moved to dismiss the amended complaint for failure to state a claim or plead fraud with the requisite particularity.  On March 31, 2016, the Court granted that motion in part and denied it in part.  The Company has until May 16, 2016, to answer the amended complaint.  The Company believes the allegations in the amended complaint are without merit and cannot estimate a range of potential liability, if any, at this time.

14.Termination of the Wal-Mart Agreement

As a result of the acquisition of Jacobs Trading Company on October 1, 2011, the Company assumed the rights and obligations of Jacobs Trading Company under the seller’s Master Merchandise Salvage Contract with Wal-Mart Stores, Inc. (the “Wal-Mart Agreement”) dated May 13, 2011.  On December 1, 2014, Wal-Mart provided the Company written notice (the “Termination Notice”) terminating the Wal-Mart Agreement effective December 8, 2014.  The Termination Notice alleged that the Company failed to comply with certain provisions under the Wal-Mart Agreement with respect to service level requirements and restrictions on the disposition of merchandise. The Company disputed these allegations and contested the termination of the Wal-Mart Agreement with Wal-Mart.  As a result of negotiations with Wal-Mart, on January 22, 2015, a settlement was finalized whereby, in exchange for both parties waiving all respective claims against the other, Wal-Mart agreed to pay $7.5 million in damages. The payment was received from Wal-Mart in February 2015.

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15.Subsequent Event

On April 8, 2016, the DLA awarded the next scrap contract to the Company.  Under the new Scrap Contract, the Company will acquire scrap property from the DLA and pay the DLA a revenue-sharing payment equal to 64.5% of the gross resale proceeds. The Company will bear all of the costs for the sorting, merchandising and sale of the property. The new Scrap Contract has a 36-month base term, commencing in the fourth quarter of fiscal year 2016 or the first quarter of fiscal year 2017, with two 12-month extension options exercisable by the DLA.

As disclosed in the Company’s Current Report on Form 8-K filed on May 5, 2016, the Company’s Board of Directors has approved the repurchase of an additional $5.0 million in shares raising the current amount approved for repurchase, that may yet be expended up to $10.1 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include but are not limited to the factors set forth in our Annual Report on Form 10-K for the year ended September 30, 2015 and subsequent filings with the Securities and Exchange Commission. You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this document and are expressly qualified in their entirety by the cautionary statements included in this document. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this document.

Overview

About us.  We operate leading 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 the products available on our marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. Our online 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 flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During the 12 months ended March 31, 2016, the number of registered buyers grew from approximately 2,688,000 to approximately 2,923,000, or 8.7%.

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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 various transaction models.

·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, or provide enhanced product information for the merchandise. In most cases 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 17.5% and 20.2% of our total revenue for the three and six months ended March 31, 2016. The merchandise sold under our consignment model accounted for approximately 56.2% and 61.5% of our GMV for the three and six months ended March 31, 2016.

·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 67.9% and 65.9% of our total revenue for the three and six months ended March 31, 2016. The merchandise sold under our purchase model accounted for approximately 39.0% and 33.2% of our GMV for the three and six months ended March 31, 2016.

·Other.  This revenue category is intended to include revenue from profit-sharing and non-consignment fee revenue. 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. Other revenue accounted for approximately 14.6% and 13.9% of our total revenue for the three and six months ended March 31, 2016 and approximately 4.8% and 5.2% of our GMV for the three and six months ended March 31, 2016.

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 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 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.

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Our Seller Agreements

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

·Surplus Contract.  The Surplus Contract is a competitive-bid contract under which we acquire, manage and sell all usable DoD surplus personal property turned into the DLA Disposition Services (“DLA”). 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. The Surplus Contract requires us to purchase all usable surplus property offered by the DoD at 4.35% of the DoD’s original acquisition value (OAV). The current, or third, Surplus Contract became effective on November 4, 2015, covers only non-rolling stock and has a base term of two years with four one-year renewal options.  The prior, or second, Surplus Contract requires us to purchase all rolling and non-rolling usable surplus property offered by the DoD at 1.8% of the DoD’s OAV; the wind-down period under the second Surplus Contract will remain in effect until September 2016 to allow for the continued processing of usable Recycling Control Point (RCP) non-rolling stock surplus property.

Revenue from the second and third Surplus Contracts (including buyer premiums) accounted for approximately 31.2% and 31.1% of our total revenue for the three and six months ended March 31, 2016.  The property sold under the second and third Surplus Contracts accounted for approximately 14.3% and 13.9% of our GMV for the three and six months ended March 31, 2016.

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.

·Scrap Contract.  In June 2005 the Company was awarded the original Scrap Contract which was structured as a profit-sharing arrangement with 75.2% of the profits distributed to the DLA, and 1.8% to a third party. The contract was amended in June 2015 to adjust the DLA profit sharing percentage to 65.0%, eliminating the distribution to the third party. The Scrap Contract is a competitive-bid contract under which we acquire, manage and sell substantially all scrap property of the DoD turned into the DLA. 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.

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Under the Scrap Contract, we acquire scrap property at a per pound price and disburse to the DLA a percentage of the profits, currently 65%, realized from the sale of the inventory, after deduction for allowable expenses.  We refer to these disbursement payments to the DoD as profit-sharing distributions. We recognize as revenue the gross proceeds from these sales. The DOD reimburses us for certain direct expenses deemed to be payable by the DOD rather than the contractor. During fiscal 2015, if the Company’s customer base met certain small business criteria as defined in the contract, the member may have received an additional incentive payment which was withheld from payments to the DLADS. The current Scrap Contract will expire on August 31, 2016.  On April 8, 2016, the DLA awarded the next Scrap Contract to the Company. Under the new Scrap Contract, the Company will acquire scrap property from the DLA and pay the DLA a revenue-sharing payment equal to 64.5% of the gross resale proceeds.  The Company will bear all of the costs for the sorting, merchandising and sale of the property. The new Scrap Contract has a 36-month base term, commencing in the fourth quarter of fiscal year 2016 or the first quarter of fiscal year 2017, with two 12-month extension options exercisable by the DLA.  Revenue from the Scrap contract accounted for approximately 8.5% and 10.4% of our total revenue for the three and six months ended March 31, 2016. The Scrap contract accounted for approximately 4.8% and 5.2% of our total GMV for the three and six months ended March 31, 2016.

Our Wal-Mart Contracts.  We have various contracts with Wal-Mart Stores, Inc., under which we purchase certain consumer products from Wal-Mart that have been removed from the sales stream of its retail operations. All of these agreements have customary commercial terms, which generally expire within a year and allow both parties to terminate for convenience with reasonable notice.  We also had a long-term contract with Wal-Mart that did not provide for termination for convenience (the “Wal-Mart Agreement”).  On December 1, 2014, Wal-Mart alleged that we failed to comply with certain provisions under the Wal-Mart Agreement and terminated the agreement effective December 8, 2014. We disputed these allegations and contested the termination of the Wal-Mart Agreement. On January 22, 2015, we finalized a settlement with Wal-Mart whereby, in exchange for both parties waiving all respective claims against the other, Wal-Mart agreed to pay $7.5 million in damages.  The amount of the settlement was recorded within accounts receivable and a reduction of inventory on the consolidated balance sheet as of December 31, 2014, as the settlement compensated us for the overpayment of inventory from Wal-Mart.  We received the payment in February 2015. On September 30, 2015, we sold certain assets related to the Jacobs Trading Company to a buyer, Tanager Acquisitions, LLC.  In connection with the disposition, the buyer assumed certain liabilities related to the Jacobs Trading Company. The buyer issued to us a promissory note in the amount of $12.3 million.  The divestiture of the Jacobs Trading Company resulted in an $8.0 million loss.  The sale generated a tax loss that is expected to result in a $31.5 million cash benefit from prior year income taxes and $2.0 million of additional tax credits available to offset future taxes. In March, 2016, we received $30.1 million of the cash benefit and expect to receive the remaining $1.4 million in fiscal year 2017. We also received $5.0 million for an overpayment of taxes paid in fiscal year 2015 to bring our total tax refund to $35.1 million in March, 2016.

Our commercial agreements.  We have over 600 corporate clients each of which has sold in excess of $10,000 of surplus and salvage assets in our marketplaces during the last twelve months. Our agreements with these clients are generally terminable at will by either party.

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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 marketplaces during the three and six months ended March 31, 2016 and 2015 totaled $153.0 million and $304.4 million, respectively, and $189.4 million and $434.7 million, respectively.

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, represent the aggregate number of persons or entities who have registered on one of our marketplaces. We use this metric to evaluate how well our marketing and promotional efforts are performing. Total registered 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 March 31, 2016 and September 30, 2015, we had approximately 2,923,000 and 2,845,000 registered buyers, respectively.

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 three and six months ended March 31, 2016 and 2015, approximately 636,000 and 1,197,000, and 640,000 and 1,271,000, total auction participants participated in auctions on our marketplaces, respectively.

Completed transactions.  Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the three and six months ended March 31, 2016 and 2015, we completed approximately 153,000 and 286,000, and 146,000 and 291,000 transactions, respectively.

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Non-GAAP Financial Measures

EBITDA and adjusted EBITDA. EBITDA is a supplemental non-GAAP financial measure and is equal to net income plus interest expense and other (income) expense, net; provision for income taxes; amortization of contract intangibles; and depreciation and amortization. Our definition of adjusted EBITDA differs from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, disposition expenses, and goodwill and long-lived asset impairment.

We believe EBITDA and adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons:

·The amortization of contract intangibles related to the amortization and subsequent write-off of the contract related intangible assets associated with the Jacobs Trading acquisition on October 1, 2011 and the 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 fluctuated significantly 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.

·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.

·The authoritative guidance for stock-based compensation requires 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 believe adjusting net income for this non-cash stock based compensation expense is useful to investors when evaluating the operating performance of our business.

·The authoritative guidance related to business combinations requires the recognition of contingent consideration so that it is recognized at the time of acquisition rather than when it is probable and disallows the capitalization of transaction costs. We believe adjusting net income for these acquisition related expenses is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year.

·We believe these measures are important indicators of our operational strength and the performance of our business because they provide a link between profitability and operating cash flow.

·We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as business realignment expenses, disposition expenses, impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance.

·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:

·as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of items not directly resulting from our core operations;

·for planning purposes, including the preparation of our internal annual operating budget;

·to allocate resources to enhance the financial performance of our business;

·to evaluate the effectiveness of our operational strategies; and

·to evaluate our capacity to fund capital expenditures and expand our business.

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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 net income to EBITDA and adjusted EBITDA for the periods presented.

	Three Months Ended March 31,					Six Months Ended March 31,
	2016			2015		2016			2015
	(In thousands)
	(unaudited)
Net (loss) income	$	(850	)	$	1,381	$	(6,047	)	$	(62,735	)
Interest and other (income) expense, net	(390		)	39		(451		)	77
(Benefit) provision for income taxes	(267		)	2,391		(2,421		)	(18,527		)
Amortization of contract intangibles	—			—		—			1,211
Depreciation and amortization	1,660			1,994		3,332			3,986
EBITDA	153			5,805		(5,587		)	(75,988		)
Stock compensation expense	2,724			2,810		5,144			5,412
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets	—			—		39			96,238
Adjusted EBITDA	$	2,877		$	8,615	$	(404	)	$	25,662

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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 online marketplaces, which generate substantially all of our revenue, we recognize revenue when all of the following criteria are met:

·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;

·the buyer has assumed risks and rewards of ownership; and

·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.

Fee revenue is revenue earned under the consignment model, as well as other fee revenue, and is presented separately as it accounts for more than 10% of total revenue.

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. In 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:

·We are the primary obligor in the arrangement.

·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.

·The buyer does not and cannot look to the supplier for fulfillment or for product acceptability concerns.

·We have general inventory risk.

·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 and varies depending on the type of the inventory purchased or a fixed price per pound under our Scrap Contract.

·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).

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The amount of our revenue that was generated outside of the U.S. for the three and six months ended March 31, 2016 and 2015 was 13.1% and 12.5%, and 11.8% and 9.6%, respectively.

Inventory.  Inventory consists of products available for sale and is valued at the lower of cost or market value.  This valuation requires us to make judgments based on currently available information about expected recoverable value.

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. Generally, 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. 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 of our two reporting units. 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 implied 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 perform the annual goodwill impairment assessment as of the end of the fiscal year. During the three months ended December 31, 2014, we identified indicators of impairment, including the termination of the Wal-Mart Agreement on December 1, 2014, the significant decline in market capitalization during the quarter, and continued uncertainty in projections for fiscal year 2015 and beyond.  As a result, we tested the goodwill for impairment as of December 31, 2014.  Based on the goodwill impairment analysis as of the interim testing date, the carrying values of our two reporting units exceeded their fair values.  Accordingly, step two of the goodwill impairment test was performed, where we determined the estimated fair values of the assets and liabilities of the reporting units.  As a result of the step two test, we recorded a goodwill impairment charge of $85.1 million during the first quarter of fiscal 2015.  As part of our annual impairment assessment as of September 30, 2015, we identified indicators of impairment, including a decline in our market capitalization. As a result, we tested the goodwill for impairment as of September 30, 2015.  Based on the results of step one of our goodwill impairment analysis as of the fiscal year ended September 30, 2015, the carrying values of both of our two reporting units exceeded their fair value.  Accordingly, step two of the goodwill impairment test was performed, where we determined the estimated fair value of the assets and liabilities of the impaired reporting units.  As a result of the step two test, we recorded a goodwill impairment charge of $51.2 million during the fourth quarter of fiscal 2015.  During the three and six months ended March 31, 2016, we did not identify any indicators of impairment.

In accordance with FASB Accounting Standards Codification Topic 280 (“ASC 280”), which provides that the characteristics of a component require that it (a) constitutes a business, (b) has discrete financial information, and (c) its performance is reviewed by management, the Company has identified its reporting units as LSI-Retail Supply Chain Group (RSCG) and LSI-Capital Assets Group

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(CAG).  As the RSCG operations and the CAG operations represent two distinct components under the guidance of ASC 280, goodwill should be measured for impairment separately for each of these components.

Determining the fair value of a reporting unit requires the exercise of significant judgment, including judgments about the appropriate discount rates, terminal growth rates, weighted average costs of capital, exit multiples, and the amount and timing of expected future cash flows.  The judgments used in determining the fair value of our reporting units are based on significant unobservable inputs which causes the determination of the implied fair value of goodwill to fall within level three of the GAAP fair value hierarchy.  The cash flows employed in the discounted cash flow analysis are based on the most recent budgets, forecasts, and business plans as well as various growth rate assumptions for years beyond the current business plan period.  Discount rate assumptions are based on an assessment of the risk inherent in the future revenue streams and cash flows of the reporting unit. Various factors, including the failure to successfully implement our business plan for any of our reporting units, as well as other factors beyond our control, could have a negative effect on the fair value of such reporting unit, and increase the risk of further impairments of goodwill in the future.

We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and other intangible assets, which totaled $67.7 million at March 31, 2016. 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 apply the authoritative guidance related to accounting for uncertainty in income taxes. We concluded that there were no uncertain tax positions identified during our analysis.

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.

Stock-based compensation.  We recognize all share-based payments to employees, including grants of employee stock options, in the statements of operations 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.  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 arrangement 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.

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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 certain of our internally developed software is less than one year. As a result, we expense those costs as incurred.  However, where we determine that the useful life of the internally developed software will be greater than one year, we capitalize development costs in accordance with ASC 350.

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 contract intangibles associated with the Jacobs Trading acquisition on October 1, 2011, and the NESA transaction on November 1, 2012. The intangible asset created in conjunction with the acquisition of Jacobs Trading was valued at $33.3 million and was being amortized over 55 months on a straight-line basis. The amortization period was correlated to the base term of the Wal-Mart contract from the acquisition date, exclusive of renewal periods.  Upon the early termination of the Wal-Mart contract in December 2014, we expensed the remaining amount of unamortized expense of approximately $10.3 million during the three months ended December 2014. The vendor contract intangible asset created in conjunction with the NESA acquisition was valued at $3.9 million and was being amortized over 20 months, on a straight-line basis.  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 and related fair value adjustments and impairment of goodwill and long-lived assets.  Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets consist of expenses incurred to complete a business combination, adjustments to the fair value of earn-outs, and impairment of goodwill and long-lived assets.

Interest (income) expense and other expense, net.  Interest (income) expense and other expense, net consists of interest income on the note receivable related to the sale of the Jacobs Trading Company, expenses related to our terminated credit facility, and impacts of foreign currency fluctuations.

Income taxes.  For interim income tax reporting the Company estimates its annual effective tax rate and applies this effective tax rate to its year to date pre-tax (loss) income.  The Company’s effective income tax rate before discrete items was 28.6% and 22.8% for the six months ended March 31, 2016 and March 31, 2015, respectively. The 2016 effective tax rate differed from the statutory federal rate of 35.0% primarily as a result of the impact of foreign, state, and local income taxes and permanent tax adjustments. We expect our future years’ tax rates to be between 30% and 40%.

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Results of Operations

The following table sets forth, for the periods indicated, selected statement of operations data expressed as a percentage of revenue.

	Three Months Ended March 31,				Six Months Ended March 31,
	2016		2015		2016		2015
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Cost of goods sold	46.0		41.4		43.7		42.5
Profit-sharing distributions	2.9		7.4		3.2		7.5
Technology and operations	28.4		24.0		31.1		22.6
Sales and marketing	10.5		10.5		12.2		9.3
General and administrative	12.0		11.1		13.4		9.2
Amortization of contract intangibles	—		—		—		0.5
Depreciation and amortization	1.9		1.9		2.2		1.8
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets	—		—		0.0		42.2
Total costs and expenses	101.7		96.3		105.8		135.6
(Loss) income from operations	(1.7	)	3.7		(5.8	)	(35.6	)
Interest and other expense, net	0.4		(0.0	)	0.3		(0.0	)
(Loss) income from operations before benefit (provision) for income taxes	(1.3	)	3.7		(5.5	)	(35.6	)
Benefit (provision) for income taxes	0.3		(2.4	)	1.6		8.1
Net (loss) income from operations	(1.0	)%	1.3	%	(3.9	)%	(27.5	)%

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

Revenue.  Revenue decreased $16.1 million, or 15.6%, to $86.9 million for the three months ended March 31, 2016 from $102.9 million for the three months ended March 31, 2015, primarily due to (1) a 16.6% decrease, or $9.3 million, in our commercial marketplaces due to the sale of the Jacobs Trading Company in fiscal 2015, and the wind down of the NESA refurbishment business in Canada, reduced product flows within our retail vertical, offset by stronger capital assets deal flow; and (2) a 17.5% decrease, or $7.3 million, in our DoD businesses due to lower commodity prices and a shift in property mix to lower valued property, partly offset by higher service revenue. These revenue decreases were partially offset by a 13.4% increase, or $0.6 million, in our state and local government (GovDeals) marketplace due to an increase in the number of new sellers and additional sales volume from existing clients. The amount of gross merchandise volume decreased 19.2%, or $36.4 million to $153.0 million, for the three months ended March 31, 2016 from $189.4 million for the three months ended March 31, 2015, due to (1) a 27.6% decrease, or $28.3 million, in our commercial marketplaces due to the sale of the Jacobs Trading Company, the wind down of the NESA business, reduced product flows within our retail business, and continued weakness in the energy sector; and (2) a 30.2% decrease, or $12.6 million, in our DoD contracts due to lower commodity prices and a shift in property mix to lower valued property. These GMV decreases were partially offset by a 10.1% increase, or $4.5 million, in our state and local government (GovDeals) marketplace due to an increase in the number of new sellers and additional sales volume from existing clients.

Cost of goods sold.  Cost of goods sold decreased $2.7 million, or 6.4%, to $39.9 million for the three months ended March 31, 2016 from $42.7 million for the three months ended March 31, 2015.  This decrease is primarily attributed to the sale of the Jacobs Trading Company, and the wind down of the NESA refurbishment business in Canada, offset by the increase in the price we pay for inventory under the current Surplus Contract as well as a greater mix of principal deals in the commercial marketplaces. In line with these changes, cost of goods sold increased to 46.0%, from 41.4%.

Profit-sharing distributions.  Profit-sharing distributions decreased $5.1 million, or 66.8%, to $2.5 million for the three months ended March 31, 2016 from $7.6 million for the three months ended March 31, 2015. As a percentage of revenue, profit-sharing distributions decreased to 2.9% from 7.5%. This is due to decreases in property flow from the DoD in our scrap business and lower commodity prices.

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Technology and operations expenses.  Technology and operations expenses remained flat at $24.7 million for the three months ended March 31, 2016 and 2015.  As a percentage of revenue, technology and operations expenses increased to 28.4% from 24.0% as a result of the decrease in revenue described above.

Sales and marketing expenses.  Sales and marketing expenses decreased $1.7 million, or 15.3%, to $9.1 million for the three months ended March 31, 2016 from $10.8 million for the three months ended March 31, 2015, primarily due to bad debt expense related to the Jacobs Trading Company in fiscal 2015, as well as staff reductions.  As a percentage of revenue, sales and marketing expenses remained flat with the prior year at 10.5%.

General and administrative expenses.  General and administrative expenses decreased $0.9 million, or 8.0%, to $10.5 million for the three months ended March 31, 2016 from $11.4 million for the three months ended March 31, 2015, due to the sale of the Jacobs Trading Company, and the wind down of the NESA business. As a percentage of revenue, general and administrative expenses increased to 12.0% from 11.1% as a result of the decrease in revenue described above.

Depreciation and amortization expenses.  Depreciation and amortization expenses decreased $0.3 million, or 16.7%, to $1.7 million for the three months ended March 31, 2016 from $2.0 million for the three months ended March 31, 2015, as a result of certain software purchases having reached the end of their amortization period, as well as the sale of the Jacobs Trading Company in fiscal 2015 and its related depreciable assets.

Interest income (expense) and other expense, net.  Interest income (expense) and other expense, net, increased $0.4 million, to $0.4 million of income for the three months ended March 31, 2016 from zero for the three months ended March 31, 2015. Interest income (expense) included impacts of foreign currency fluctuations.

Benefit for income tax expense.  Income tax expense decreased $2.7 million, or 111.1%, to a benefit of $0.3 million for the three months ended March 31, 2016 from an expense of $2.4 million for the three months ended March 31, 2015, due to losses in the three months ended March 2016.

Net (loss) income.  Net loss increased $2.3 million, to $(0.9) million for the three months ended March 31, 2016 from income of $1.4 million for the three months ended March 31, 2015.

Six Months Ended March 31, 2016 Compared to Six Months Ended March 31, 2015

Revenue.  Revenue decreased $75.3 million, or 33.0%, to $152.8 million for the six months ended March 31, 2016 from $228.1 million for the six months ended December 31, 2015, due to (1) a 37.8% decrease, or $47.7 million, in our commercial marketplaces due to the sale of the Jacobs Trading Company in fiscal 2015, the wind down of the NESA refurbishment business in Canada, continued weakness in the energy sector, reduced product flows within our retail vertical, offset by stronger capital assets deal flow; and (2) a 31.2% decrease, or $28.8 million, in our DoD contracts due to lower commodity prices and a shift in property mix to lower valued property, partly offset by higher service revenue. These decreases were partially offset by a 13.1% increase, or $1.2 million, in our state and local government (GovDeals) marketplace due to an increase in the number of new sellers and additional sales volume from existing clients. The amount of gross merchandise volume decreased 30.0%, or $130.2 million to $304.4 million, for the six months ended March 31, 2016 from $434.7 million for the six months ended March 31, 2015, due to (1) a 42.6% decrease, or $107.3 million, in our commercial marketplaces due to the sale of the Jacobs Trading Company, the wind down of the NESA business, reduced product flows within our retail vertical, and continued weakness in the energy sector; and (2) a 36.9% decrease, or $34.1 million, in our DoD contracts due to lower commodity prices and a shift in property mix to lower valued property. These GMV decreases were partially offset by a 12.3% increase, or $11.2 million, in our state and local government (GovDeals) marketplace due to an increase in the number of new sellers and additional sales volume from existing clients.

Cost of goods sold.  Cost of goods sold decreased $30.2 million, or 31.1%, to $66.8 million for the six months ended March 31, 2016 from $97.0 million for the six months ended March 31, 2015.  This decrease is primarily attributed to the sale of the Jacobs Trading Company and reduced product flows within our retail vertical, as well as the wind down of the NESA refurbishment business in Canada. This is slightly offset by the increase in the price we pay for inventory under the current Surplus Contract as well as a greater mix of principal deals in the commercial marketplaces. In line with these changes, cost of goods sold increased to 43.7%, from 42.5%.

Profit-sharing distributions.  Profit-sharing distributions decreased $12.3 million, or 71.6%, to $4.9 million for the six months ended March 31, 2016 from $17.1 million for the six months ended March 31, 2015. As a percentage of revenue, profit-sharing distributions decreased to 3.2% from 7.5%. This is due to decreases in property flow from the DoD in our scrap business and lower commodity prices.

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Technology and operations expenses.  Technology and operations expenses decreased $4.1 million, or 8.0%, to $47.5 million for the six months ended March 31, 2016 from $51.6 million for the six months ended March 31, 2015, due to the sale of the Jacobs Trading Company, and the wind down of the NESA business.  As a percentage of revenue, technology and operations expenses increased to 31.1% from 24% primarily as a result of the decrease in revenue described above.

Sales and marketing expenses.  Sales and marketing expenses decreased $2.6 million, or 12.2%, to $18.6 million for the six months ended March 31, 2016 from $21.2 million for the six months ended March 31, 2015, primarily due to bad debt expense related to the Jacobs Trading Company in fiscal 2015, as well as staff reductions.  As a percentage of revenue, sales and marketing expenses increased to 12.2% from 9.3% primarily as a result of the decrease in revenue described above.

General and administrative expenses.  General and administrative expenses decreased $0.4 million, or 1.8%, to $20.5 million for the six months ended March 31, 2016 from $20.9 million for the six months ended March 31, 2015, which is not significant. As a percentage of revenue, general and administrative expenses increased to 13.4% from 9.2% primarily as a result of the decrease in revenue described above.

Amortization of contract intangibles.  Amortization of contract intangibles was related to the contract intangible asset created in conjunction with the Jacobs Trading Company acquisition which was valued at $33.3 million and was being amortized over 55 months on a straight-line basis. Amortization of contract intangibles for the six months ended March 31, 2016 and March 31, 2015 was zero and $1.2 million, respectively. This decrease was due to the write-off of the remaining unamortized expense related to the Jacobs Trading acquisition contract intangible asset as a result of the early termination of the Wal-Mart contract in December 2014.

Depreciation and amortization expenses.  Depreciation and amortization expenses decreased $0.7 million, or 16.6%, to $3.3 million for the six months ended March 31, 2016 from $4.0 million for the six months ended March 31, 2015, as a result of certain software purchases having reached the end of their amortization period, and the sale of the Jacobs Trading Company in September 2015 and its related depreciable assets.

Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets.  Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets decreased $96.2 million, or 100.0% to zero for the six months ended March 31, 2016 from $96.2 million for the six months ended March 31, 2015, due to the write-down of impaired goodwill and the remaining unamortized expense related to the Jacobs Trading Company acquisition contract intangible asset due to the early termination of the Wal-Mart contract in December 2014.

Interest income (expense) and other expense, net.  Interest income (expense) and other expense, net, increased $0.5 million, to $0.4 million of income for the six months ended March 31, 2016 from ($0.1) for the six months ended March 31, 2015. Interest income (expense) included impacts of foreign currency fluctuations.

Benefit for income tax expense.  Income tax benefit decreased $16.1 million, or 86.9%, to $2.4 million for six months ended March 31, 2016 from $18.5 million for the six months ended March 31, 2015, primarily due to the write-down of impaired goodwill and long-lived assets in the six months ended March 2015.

Net loss.  Net loss decreased $56.7 million, or 90.4%, to $6.0 million for the six months ended March 31, 2016 from $62.7 million for the six months ended March 31, 2015, primarily as a result of the write-down of impaired goodwill and long-lived assets in the six months ended March 2015.

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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 March 31, 2016, we had approximately $117.5 million in cash and cash equivalents. The Company does not expect the termination of the Senior Credit Facility to have a material effect on its liquidity or financial position. We have continued to advance the design and development of our LiquidityOne platform, services and analytical tools to empower our clients to maximize bottom-line return, and elevate their supply chain into a high performing business function throughout the globe. As part of this process we have allocated time and investment to new business ventures such as our IronDirect marketplace in the construction vertical. We expect that this marketplace may generate future synergies with our other marketplaces when those customers dispose of construction equipment purchased from IronDirect.

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 $12.3 million as of March 31, 2016.  As of March 31, 2016 and September 30, 2015, approximately $20.0 million and $23.6 million, respectively, of cash and cash equivalents was held overseas and not available to fund domestic operations without incurring taxes upon repatriation.

The Company did not repurchase shares during the six months ended March 31, 2016 or 2015 with the approximately $5.1 million remaining under a shares repurchase program approved by our Board of Directors. Under the program, we are 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 our available cash.  In addition, the Company’s Board of Directors has approved the repurchase of an additional $5.0 million in shares raising the current amount approved for repurchase, that may yet be expended up to $10.1 million.

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

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Changes in Cash Flows: Six Months Ended March 31, 2016 Compared to Six Months Ended March 31, 2015

Net cash provided by operating activities was $24.7 million for the six months ended March 31, 2016 and $28.9 million for the six months ended March 31, 2015. The $4.2 million decrease in cash provided by operations between periods was primarily attributable to an overall increase in cash flows from changes in working capital of approximately $14.7 million offset by a decrease of approximately $18.9 million in net income including non-cash adjustments. For the six months ended March 31, 2016, net cash provided by operating activities primarily consisted of $34.7 million related to the recovery of prior year income taxes, netted with estimated taxes for fiscal 2016. This cash benefit resulted from the tax loss on the recent sale of the Jacobs Trading Company. Another significant change over prior year relates to the $29.3 million decrease in inventory during fiscal 2015 resulting from the loss of the Wal-Mart Agreement and the sale of isolated principal deals.

Net cash used in investing activities was $2.8 million for the six months ended March 31, 2016 and $5.1 million for the six months ended March 31, 2015.  Net cash used in investing activities for the six months ended March 31, 2016 consisted primarily of expenditures of $2.7 million for purchases of equipment and leasehold improvements.  Net cash used in investing activities for the six months ended March 31, 2015 consisted primarily of capital expenditures of $5.1 million for purchases of equipment and leasehold improvements.

Net cash used by financing activities was $0.2 million for the six months ended March 31, 2016 and net cash provided by financing activities was $0.2 million for the six months ended March 31, 2015.  Net cash provided by financing activities for the six months ended March 31, 2015 consisted primarily of proceeds from the exercise of common stock options including the tax benefit of $0.2 million.

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 $8.0 million to $9.5 million in the fiscal year ending September 30, 2016. We intend to fund those expenditures primarily from operating cash flows. Our capital expenditures for the six months ended March 31, 2016 were $2.7 million. As of March 31, 2016, we had no outstanding commitments for capital expenditures.

Effective March 25, 2016, the Company terminated its $75 million a senior credit facility.  Borrowings under the Agreement bore interest at an annual rate equal to the 30 day LIBOR rate plus 1.25% (1.608% at December 31, 2015) due monthly.  The Company’s borrowing availability under the Facility as of December 31, 2015 was $37.5 million.  There were no outstanding borrowings under the Facility at the time of its termination.

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

Off-Balance Sheet Arrangements

We do not have any transactions, obligations or relationships that could be considered material off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Interest rate sensitivity. We had no debt as of March 31, 2016, 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.

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Exchange rate sensitivity. We consider our exposure to foreign currency exchange rate fluctuations to be minimal, as approximately 12.5% percent of our sales are denominated in foreign currencies. We have not engaged in any hedging or other derivative transactions to date.

Item 4. Controls and Procedures.

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

During the most recent fiscal quarter, there has not occurred any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As of March 31, 2016, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, our Chief Financial Officer, and our Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that our disclosure controls and procedures were effective and were operating to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure.

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PART II—OTHER INFORMATION

Item 1. 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 stockholders 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 Dépôt et Placement du Québec and the Newport News Employees’ Retirement Fund as co-lead plaintiffs.  The Plaintiffs filed an amended complaint on December 15, 2014, which alleges substantially similar claims but which does not name the chief accounting officer as a defendant.  On March 2, 2015, the Company moved to dismiss the amended complaint for failure to state a claim or plead fraud with the requisite particularity.  On March 31, 2016, the Court granted that motion in part and denied it in part.  The Company has until May 16, 2016, to answer the amended complaint.  The Company believes the allegations in the amended complaint are without merit and cannot estimate a range of potential liability, if any, at this time.

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Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2015, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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Item 6. Exhibits.

Exhibit No.	Description
3.1	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.
3.2	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.
10.1	Severance Agreement and General Release, dated as of March 1, 2016, by and between James Williams and the Company#
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.3	Certification of Chief Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3	Certification of Chief Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2015, 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.

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SIGNATURES

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 May 6, 2016.

LIQUIDITY SERVICES, INC.
	(Registrant)
By:	/s/ William P. Angrick, III
	William P. Angrick, III
	Chairman of the Board of Directors
	and Chief Executive Officer
By:	/s/ Jorge A. Celaya
	Jorge A. Celaya
	Executive Vice President and Chief Financial Officer
By:	/s/ Michael Sweeney
	Michael Sweeney
	Vice President and Chief Accounting Officer

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EX-10.1

Exhibit 10.1

SEVERANCE AGREEMENT AND GENERAL RELEASE

BY AND AMONG

LIQUIDITY SERVICES, INC. AND

JAMES E. WILLIAMS

This Severance Agreement and General Release (the “Agreement”) dated as of March 1, 2016 (the “Effective Date”), is entered into by and between Liquidity Services, Inc., a Delaware corporation with offices at 1920 L Street, NW, 6th Floor, and its subsidiary companies (collectively, the “Company”), and James E. Williams (the “Executive”).

WHEREAS, the Executive served as the General Counsel and Corporate Secretary of Liquidity Services, Inc.; and,

WHEREAS, the Company and the Executive desire to set forth in writing the terms and conditions governing the Executive’s separation from employment, as set forth below:

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned parties agree as follows:

1.Termination of Employment.

(a)The Executive’s employment with the Company shall cease effective April 2, 2016 (the “Termination Date”). Effective as of the Effective Date, (i) the Executive shall no longer serve as General Counsel and Corporate Secretary of Liquidity Services, Inc. or in any other position the Executive may hold with or on behalf of the Company or any of its Affiliates (as defined below), and (ii)    Executive shall take no official action in the name or on behalf of the Company or any of its Affiliates nor have any authority to bind the Company or any of its Affiliates.  The Executive further agrees to execute and deliver to the Company such documents concerning such separation from employment (and any related service) as may be reasonably requested by the Company or its Affiliates.  For purposes of this Agreement, “Affiliate” means any entity that directly or indirectly controls, is controlled by, or is under common control with the Company, including its current and former parents, subsidiaries and affiliated entities, from time to time.

(b)Accrued Obligations.  On the Termination Date, the Executive shall receive payment for unpaid base salary through the Effective Date.  The Executive will receive no payment for unused paid time off (“PTO”) accrued through the Effective Date and will accrue no further PTO after the Effective Date.

(c)Other Benefits.  The Executive’s benefits under any benefit plan, agreement or arrangement of the Company or its Affiliates shall be determined under the applicable terms of any such plan, agreement or arrangement, and shall be paid or provided at the time or times and in the manner provided therein (and consistent with the Executive’s employment being terminated by the Company other than for “cause”).

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(d)Business Expenses.  The Executive will be reimbursed for business expenses reasonably incurred prior to the Termination Date in accordance with the Company’s policies and procedures for reimbursement including with respect to reporting and documentation of such expenses.  The Company will also reimburse the Executive for his professional advisory expenses incurred in connection with a pending IRS audit of his individual tax returns; provided that: (1) any such reimbursement is capped at $25,000 in the aggregate with respect to such IRS audit (unless the Board of Directors increases the cap on the aggregate amount authorized for the group of senior executives with similar pending IRS audits, in which case, Executive will be entitled to a proportional increase in his reimbursement cap);  and (2) only professional advisory expenses arising out of or related to Employee’s employment with the Company will be reimbursable.

2.Consideration.  In exchange for the Executive’s execution of this Agreement, which includes the waiver and release of claims set forth in Section 10 below, the parties agree to the following:

(a)Severance Payments.  The Company will pay to the Executive a cash lump sum of $395,660, which represents his full Base Salary plus an amount equal to the average of the actual annual incentive bonuses paid during the previous two fiscal years, less applicable taxes and withholdings (the “Severance Payment”) following the Termination Date on the first regularly scheduled payroll date following the seventh (7th) calendar day after the Executive’s execution of this Agreement, unless the Executive revokes this Agreement as provided in Section 12 below.

(b)Benefits Continuation.  For the 12-month period ending April 30, 2017, or until the Executive obtains coverage from a new employer offering coverage (if sooner), the Company will cover the Executive’s cost of coverage with respect to health care benefits as provided by the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).  The Company shall pay such costs directly after the Executive confirms he has elected COBRA coverage, provided Executive provides monthly, written affirmation that he has not obtained coverage from another employer.

(c)Outplacement.  The Company will provide the Executive comprehensive executive outplacement assistance through the firm of Right Management.

(d)No Consideration Absent Execution of this Agreement.  The Executive understands and agrees that his entitlement to the payment specified in Section 2(a) is contingent on the execution of this Agreement and his compliance with his obligations under this Agreement and the Confidentiality and Competitive Activities Agreement (as defined below).  The Executive understands that if he does not sign the Agreement, the Company has no obligation to provide the Executive with any of the consideration provided in Section 2 of this Agreement, including but not limited the consideration provided for in Section 2(a) and Section 2(b) of this Agreement.

(e)Withholding.  Any payments provided to the Executive pursuant to this Agreement shall be subject to withholding and reporting requirements under applicable law.

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(f)Compliance with Section 409A.  To the extent (i) any payments or benefits to which the Executive becomes entitled under this Agreement, or under any other agreement or Company plan, in connection with the Executive’s termination of employment with the Company constitute deferred compensation subject to Section 409A of the Internal Revenue Code and the regulations promulgated thereunder (“Section 409A”) and (ii) the Executive is deemed at the time of such termination of employment to be a “specified employee” under Section 409A, then such payments shall not be made or commence until the earliest of (A) the expiration of the six (6) month period measured from the date of the Executive’s “separation from service” (as such term is defined in Section 409A) from the Company; or (B) the date of the Executive’s death following such separation from service.  Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this paragraph shall be paid to the Executive or the Executive’s beneficiary in one lump sum (without interest).  Any termination of the Executive’s employment is intended to constitute a “separation from service” and will be determined consistent with the rules relating to a “separation from service”.  It is intended that payments hereunder satisfy, to the greatest extent possible, the exemptions from the application of Section 409A.  To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A, the provision will be read in such a manner so that payments hereunder are exempt from, or otherwise comply with, Section 409A.  To the extent any expense reimbursement or the provision of any in-kind benefit under this Agreement is determined to be subject to Section 409A, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses), in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which such expenses were incurred, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit.

3.Outstanding Equity Awards. The Company agrees that under the terms of the Company’s 2006 Omnibus Long-Term Incentive Plan, as amended,  the Executive has the right to exercise the remaining unexercised and vested options (the “Vested Options”) previously granted to him for twelve(12) months after the Termination Date, after which all such options shall be cancelled and all such options shall terminate and no longer be exercisable.

The vesting of any options or restricted stock, the vesting of which is wholly or partially tied to criteria other than the Executive’s continued employment with the Company, shall cease as of the Termination Date and all unvested equity grants shall terminate and no longer be exercisable as of the Termination Date.  The vesting of the Executive’s options and restricted stock awards shall otherwise continue through the Termination Date.

4.No Amounts Owing.  By signing below, Executive acknowledges and agrees that he has received all wages, bonuses and any other compensation already due to him from the Company, except any future payments as set forth in Section 2.

5.Non-Disclosure.  Executive agrees that he has not disclosed and will keep the provisions of this Agreement confidential; provided, however, the Executive may disclose the contents of the Agreement to members of Executive’s immediate family (including a significant

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other) and to Executive’s personal financial and legal advisers and to enforce Executive’s rights hereunder, and except as may be required by law and is necessary for legitimate enforcement or compliance purposes, on the condition that he instructed such persons that the terms and existence of this Agreement are confidential and must not be further disclosed.

6.Publicity; Non-disparagement.

(a)In the event that any person requests information regarding the Executive’s employment with the Company and its Affiliates, the Company shall respond simply by confirming Executive’s dates of employment, job titles and rates of pay, and the Company’s Chief Executive Officer and Vice President of Human Resources shall respond to all such requests by potential employers consistent with the information provided in a separately agreed reference summary.

(b)The Executive hereby agrees that he will not disparage or criticize the Company, its Affiliates, officers, directors or employees, or issue any communication, written or otherwise, that reflects adversely on or encourages any adverse action against the Company, its Affiliates, officers, directors or employees, except if testifying truthfully under oath pursuant to any lawful court order or subpoena or otherwise responding to or providing disclosures required by law.  This includes any statement to or response to an inquiry by any member of the press or media, whether written, verbal, electronic or otherwise.

7.Continuing Obligations Regarding Non-Competition, Non-Solicitation and Confidential Information.

(a)Executive’s Employee Agreement Regarding Confidentiality and Competitive Activities, made by and between the Company and Executive, dated as of November 11, 2005 (the “Confidentiality and Competitive Activities Agreement”), is attached hereto as Exhibit A and the terms of such agreement are incorporated herein by reference, except as specifically modified by the provisions of Section 7(b) and 7(d) below.  The Executive acknowledges that the Executive remains subject to the provisions of the Confidentiality and Competitive Activities Agreement following the Termination Date, as set forth therein.  The Executive acknowledges that the provisions of the Confidentiality and Competitive Activities Agreement and this Agreement are reasonable and necessary for the furtherance of the Company’s business and for the protection of the business of the Company and its Affiliates, and that part of the compensation paid under this Agreement is in consideration for the Executive’s compliance and continued compliance with the provisions of the Confidentiality and Competitive Activities Agreement and this Agreement.  For purposes of this Agreement, the decision of the Company as to what constitutes Confidential Information, as defined in the Confidentiality and Competitive Activities Agreement, shall be final and binding on the Executive.

(b)Section 2.1 of the Confidentiality and Competitive Activities Agreement is hereby deleted in its entirety as replaced by the following:  Executive acknowledges that his services have been of special, unique and extraordinary value to the Company and that the Company’s ability to accomplish its purposes, pursue its business plans and compete in the marketplace depended substantially on the Executive’s skills and services. Therefore, Executive

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hereby covenants and agrees that at no time for twenty-four (24) months (and if twenty-four (24) months is determined by a court to be overly broad, then eighteen (18) months; and if eighteen (18) months is determined by a court to be overly broad, then twelve (12) months) following the Termination Date (the “Non-Compete Period”), will he directly or indirectly, without the prior written consent of the Company, become interested or engaged, directly or indirectly, as a shareholder, bondholder, creditor, officer, director, partner, agent, contractor with, employer or representative of, or in any manner associated with, or give financial, technical or other assistance to, any person, firm, corporation or any other entity in competition with the Company within (i) the United States; (ii) the other geographic areas in which the Company conducted business during the Executive’s employment with the Company and/or (iii) in any market in which the Company conducts business, including without limitation, the Internet, or any other global information network.  For the purposes of this provision, the Executive acknowledges and agrees that the Company regularly conducts business, solicits customers and otherwise competes in the foregoing electronic markets.

(c)Following the Termination Date, or at any time as the Company may request, the Executive will promptly deliver to the Company all documents (whether prepared by the Company, an Affiliate, the Executive or a third party) relating to the Company or any of its Affiliates or any of their businesses or property which the Executive may possess or which is or was under the Executive’s direction or control, except as described in Section 7(d) below.

(d)Nothing in this Agreement or elsewhere shall prohibit or restrict the Executive from (i) retaining and utilizing all documentation relating to his personal entitlements and obligations, and a copy of his rolodex and its electronic equivalents; (ii) making truthful statements, and disclosing documents and information, (A) when required by law, court order, subpoena or the like, (B) when requested by a governmental or self-governing organization or body, or (C) in any proceeding to enforce this Agreement; (iii) making disclosures to any prospective employer solely to the extent necessary to inform such employer concerning any restrictions on the Executive’s freedom to perform services for such employer; or (iv) making disclosures to his spouse, attorneys, tax advisors or accountants, provided such individuals agree to be bound by the provisions of this Agreement.

(e)In the event of a breach or threatened breach of this Section 7 or the Confidentiality and Competitive Activities Agreement, the Executive acknowledges that the Company and its Affiliates will be caused irreparable harm which is not capable of being calculated and which cannot be fully or adequately compensated by the recovery of damages alone.  Accordingly, the Executive agrees that the Company and its Affiliates shall be entitled to interim and permanent injunctive relief, specific performance and other equitable remedies in addition to their other remedies at law to have the provisions of this Agreement or the Confidentiality and Competitive Activities Agreement enforced.

8.Return of Property.  On or before the Termination Date, the Executive shall return to the Company any and all Company property in his possession or control, including but not limited to all keys, corporate credit cards and other equipment provided by the Company for use during employment, together with all materials, documents, files or papers, notes or records, and any copies thereof, relating to the Company or any of the Company’s customers.

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9.Cooperation with Company.  The Executive understands that the Company has agreed to the terms of this Agreement (including the Severance Payment) in exchange for, among other things, his agreement to cooperate with the Company on all matters for which the Company may reasonably request assistance following the Termination Date.  In addition, the Executive agrees that he will, upon reasonable request, assist and cooperate with the Company and its Affiliates in connection with the defense or prosecution of any claim that may be made against or by the Company and its Affiliates or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company and its Affiliates including meeting with the Company and its Affiliates’ counsel, any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding to the extent such claims, investigations or proceedings relate to services performed or required to be performed by the Executive, pertinent knowledge possessed by the Executive, or any act or omission by the Executive. The Executive further agrees to perform all acts and execute and deliver any documents that may be reasonably necessary to carry out the provisions of this paragraph.

10.General Release.

(a)The Executive expressly acknowledges that this Agreement is worded in an understandable way.

(b)By executing this Agreement and accepting the consideration specified in Section 2 hereof, the Executive agrees to release and forever discharge the Company, its past and present shareholders, its past and present subsidiaries, affiliates and related companies (including any predecessors), its successors and assigns and all past and present directors, officers, employees, attorneys and agents of these entities, personally, and as directors, officers, employees, attorneys and agents and any person or entity acting for or on behalf of the Company (hereinafter the “Company Releasees”) from liability for any and all claims, damages, causes of action, both in law and in equity, which Executive or his estate, agents, attorneys, heirs, executors, successors and assigns now has or may have, whether known or unknown, suspected or unsuspected, and whether asserted or not, against the Company Releasees, or any of them, arising out of or related to Executive’s employment by the Company and Executive’s separation from the Company (hereinafter “Claims”), including, but not limited to, (i) any Claims under Title VII of the Civil Rights Act of 1964, as amended (42 U.S.C. § 2000 et seq.) (“Title VII”), the Equal Pay Act of 1963, the Age Discrimination in Employment Act of 1967, as amended (29 U.S.C. § 621 et seq.) (the “ADEA”), the Older Workers Benefit Protection Act of 1990, the Americans with Disabilities Act of 1990 (42 U.S.C. § 12101 et seq.) (the “ADA”), the Executive Retirement Income Security Act of 1974, as amended (29 U.S.C. § 1001 et seq.), the Civil Rights Act of 1866 (42 U.S.C. § 1981), the Genetic Information Nondiscrimination Act of 2008, the Family and Medical Leave Act of 1993, the District of Columbia Human Rights Act (D.C. Code §§ 2-1401 to 2-1411 (2011)), the District of Columbia Family and Medical Leave Act (D.C. Code §§ 32-501 to 32-517 (2011)), the District of Columbia Accrued Sick and Safe Leave Act (D.C. Code §§ 32-131.01 to 32-131.16 (2011)), (ii) any Claims under any other Federal, state or local law (statutory, regulatory or otherwise) that may be legally waived and released; provided, however, that the Executive and his estate, agents, attorneys, heirs, executors, successors and assigns do not release any Claims arising from or relating to (A) the terms of this Agreement or any obligations preserved by this Agreement, (B) continued insurance, indemnification and

6

advances by the Company for actions taken while serving as an officer thereof (including coverage by any D&O or similar insurance policy generally applicable to current officers of the Company, and that certain Indemnification Agreement dated January 23, 2006) until the expiration of the applicable statute of limitations period; (C) the Executive’s rights to COBRA coverage, (D) the Executive’s accrued and unpaid wages as of the Termination Date or rights to vested benefits under Company benefit plans, or (E) any legal claims which the Executive may not waive or release by law.

(c)The Executive understands that the Company is agreeing to pay the consideration described in Section 2 of this Agreement in part because of, and in exchange for, this specific release of Claims (including Claims of discrimination under Title VII, the ADEA, the ADA and other applicable laws) and that a portion of these payments is in addition to any other payments or things of value to which the Executive may already be entitled, has received, or is receiving from the Company.

(d)The Executive understands that excluded from this Agreement and Release are any claims that cannot be waived by law, including but not limited to the right to file a charge with or participate in an investigation conducted by the EEOC or state agency, but that he is waiving his right to any monetary recovery should the EEOC or any other agency pursue any claims on his behalf.

11.Voluntary Signature and Advice of Counsel; Review Period.  Without detracting in any respect from any other provision of this Agreement:

(a)The Executive, in consideration of the payment provided to him in Section 2(a), agrees and acknowledges that this Agreement constitutes a knowing and voluntary waiver of all rights or claims he has or may have against the Company Releasees as set forth herein, including, but not limited to, all rights or claims arising under ADEA, including, but not limited to, all claims of age discrimination in employment and all claims of retaliation in violation of the ADEA; and he has no physical or mental impairment of any kind that has interfered with his ability to read and understand the meaning of this Agreement or its terms, and that he is not acting under the influence of any medication or mind-altering chemical of any type in entering into this Agreement.

(b)The Executive understands that, by entering into this Agreement, he does not waive rights or claims that may arise after the date of his execution of this Agreement, including without limitation any rights or claims that he may have to secure enforcement of the terms and conditions of this Agreement.

(c)The Executive agrees and acknowledges that the consideration provided to him under Section 2 of this Agreement is in addition to anything of value to which he is already entitled.

(d)The Company hereby advises the Executive to consult with an attorney prior to executing this Agreement.

7

(e)The Executive acknowledges that he was informed that he has at least twenty-one (21) days in which to review and consider this Agreement and to consult with an attorney regarding the terms and effect of this Agreement.

(f)Nothing in this Agreement shall prevent the Executive (or his attorneys) from (a) commencing an action or proceeding to enforce this Agreement or (b) exercising his right under the Older Workers Benefit Protection Act of 1990 to challenge the validity of his waiver of ADEA claims set forth in Section 10.

12.Revocation Period.  The Executive is advised that he may revoke this Agreement within seven (7) calendar days after the date he signs this Agreement (the “Revocation Period”).  The Executive agrees that if he wants to revoke this Agreement, he must notify the Company in writing as set forth in Section 13, and following revocation this Agreement shall be deemed void ab initio.

13.Notice.  Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, or sent by registered mail, postage prepaid or by overnight courier.  Any such notice shall be deemed given when so delivered personally, or, if mailed, five (5) days after the date of deposit in the United States mail, or, if delivered by overnight courier, the day after such sending, as follows:

If to the Company, to:

Liquidity Services, Inc.
1920 L Street, NW 6th Floor

Washington, DC 20036
Attention: Mark Shaffer

If to the Executive, to:

James Williams

At the most recent address on file with the Company

With a copy to:

Morrison Cohen LLP

909 3rd, 27th Floor

New York, NY 10022

Attention: Robert M. Sedgwick

Any party may, by notice given in accordance with this Section 13 to the other party, designate another address or person for receipt of notices hereunder.

14.Successors; Binding Agreement.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, estate, trustees, administrators, successors, heirs, distributees, devisees and legatees.  This Agreement is personal to the Executive and neither this Agreement nor any rights hereunder may be assigned by the Executive; provided, however, that the Executive shall be entitled, to the extent permitted

8

under applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit hereunder following the Executive’s death by giving written notice thereof.  In the event of the Executive’s death or a judicial determination of his incompetence, references in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative.

15.No Mitigation.  The Executive shall be under no obligation to mitigate damages by seeking other employment, and there shall be no offset against amounts or benefits due to the Executive under this Agreement or otherwise on account of any remuneration or benefits provided by any subsequent employer (except as provided in Section 2(b)).

16.Miscellaneous.  No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and a duly authorized officer of the Company.  No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions of this Agreement at the same or any prior or subsequent time.

17.Counterparts.  This Agreement may be executed in several counterparts (including via facsimile), each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.  Signature copies delivered by facsimilie or “PDF” shall also be sufficient.

18.Severability.  The Company and the Executive agree that the agreements and provisions contained in this Agreement are severable and divisible, that each such agreement and provision does not depend upon any other provision or agreement for its enforceability, and that each such agreement and provision set forth herein constitutes an enforceable obligation between the parties hereto.  Consequently, the parties hereto agree that neither the invalidity nor the unenforceability of any provision of this Agreement shall affect the other provisions, and this Agreement shall remain in full force and effect and be construed in all respects as if such invalid or unenforceable provision were omitted.

19.Headings.  The inclusion of headings in this Agreement is for convenience of reference only and shall not affect the construction or interpretation hereof.

20.Governing Law/Venue.  This Agreement shall be construed as a document under seal, and shall be governed by the laws of the District of Columbia, without giving effect to any principles of conflict of law or choice of law rules (whether of the District of Columbia or any other jurisdiction) that would result in the application of the substantive or procedural laws or rules of any other jurisdiction.  Venue for all disputes arising under or related to this Agreement of Executive’s employment with the Company will be the District of Columbia.

21.No Admission.  The making of this Agreement is not intended, and shall not be construed or deemed to be, an admission that the Company violated any Federal, state or local law (statutory or decisional), ordinance or regulation, breached any contract, or committed any wrong whatsoever against you or anyone else, and the Company expressly denies any such violation, breach or wrong.

9

22.Entire Agreement.  Except as provided or preserved herein, this Agreement constitutes the entire agreement between Executive and the Company with respect to the subject matter hereof and supersedes all prior agreements with respect to the subject matter hereof.  No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by any party which are not expressly set forth in this Agreement.  No reliance is placed on any representation, opinion, advice or assertion of fact made by the Company or its directors, officers and agents to the Executive, except to the extent that the same has been reduced to writing and included as a term of this Agreement.  Accordingly, there shall be no liability, either in tort or contract, assessed in relation to any such representation, opinion, advice or assertion of fact.  All references to any law shall be deemed also to refer to any successor provisions to such law.  The Company acknowledges there are no contractual restrictions on the Executive’s post-employment activities, other than as expressly set forth or preserved in this Agreement.  In the event of any inconsistency between any provision of this Agreement and any provision of any other plan, program, policy, agreement or arrangement of the Company or its Affiliates, the provisions of this Agreement shall control to the extent more favorable to the Executive.

10

IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the Effective Date.

LIQUIDITY SERVICES INC.			EXECUTIVE
By:	/s/ Michael Lutz		By:	/s/ James E. Williams
	Title:	VP, Human Resources	James E. Williams
	Date:	4/8/2016	Date 4/8/2016

11

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

I, William P. Angrick, III, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Liquidity Services, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2016
	/s/ William P. Angrick, III
	By:	William P. Angrick, III
	Title:	Chairman of the Board of Directors and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

I, Jorge A. Celaya, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Liquidity Services, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2016
	/s/ Jorge A. Celaya
	By:	Jorge A. Celaya
	Title:	Executive Vice President and Chief Financial Officer

EX-31.3

EXHIBIT 31.3

CERTIFICATION PURSUANT TO RULE 13a-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

I, Michael Sweeney, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Liquidity Services, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2016
	/s/ Michael Sweeney
	By:	Michael Sweeney
	Title:	Vice President and Chief Accounting Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Liquidity Services, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, William P. Angrick, III, Chief Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 6, 2016	/s/ William P. Angrick, III
	William P. Angrick, III
	Chairman of the Board of Directors and Chief Executive Officer

THE FOREGOING CERTIFICATION IS BEING FURNISHED SOLELY PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 AND IS NOT BEING FILED AS PART OF THE FORM 10-Q OR AS A SEPARATE DISCLOSURE DOCUMENT.

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO LIQUIDITY SERVICES, INC. AND WILL BE RETAINED BY LIQUIDITY SERVICES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Liquidity Services, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, Jorge A. Celaya, Chief Financial Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 6, 2016	/s/ Jorge A. Celaya
	Jorge A. Celaya
	Executive Vice President and Chief Financial Officer

THE FOREGOING CERTIFICATION IS BEING FURNISHED SOLELY PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 AND IS NOT BEING FILED AS PART OF THE FORM 10-Q OR AS A SEPARATE DISCLOSURE DOCUMENT.

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO LIQUIDITY SERVICES, INC. AND WILL BE RETAINED BY LIQUIDITY SERVICES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

EX-32.3

EXHIBIT 32.3

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Liquidity Services, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission (the “Report”), I, Michael Sweeney, Chief Accounting Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 6, 2016	/s/ Michael Sweeney
	Michael Sweeney
	Vice President and Chief Accounting Officer

THE FOREGOING CERTIFICATION IS BEING FURNISHED SOLELY PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 AND IS NOT BEING FILED AS PART OF THE FORM 10-Q OR AS A SEPARATE DISCLOSURE DOCUMENT.

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO LIQUIDITY SERVICES, INC. AND WILL BE RETAINED BY LIQUIDITY SERVICES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

XML

Document and Entity Information - shares	6 Months Ended
	Mar. 31, 2016	May. 05, 2016
Document and Entity Information
Entity Registrant Name	LIQUIDITY SERVICES INC
Entity Central Index Key	0001235468
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		30,726,554
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2

XML

Unaudited Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2016	Sep. 30, 2015
Current assets:
Cash and cash equivalents	$ 117,528	$ 95,465
Accounts receivable, net of allowance for doubtful accounts of $557 and $471 at March 31, 2016 and September 30, 2015, respectively	7,193	6,194
Inventory	32,186	25,510
Tax refund receivable	1,358	33,491
Prepaid and deferred taxes	11,642	19,903
Prepaid expenses and other current assets	6,819	7,826
Total current assets	176,726	188,389
Property and equipment, net	13,495	13,356
Intangible assets, net	3,319	4,051
Goodwill	64,421	64,073
Deferred long-term tax assets	13,830	5,871
Other assets	15,264	12,748
Total assets	287,055	288,488
Current liabilities:
Accounts payable	8,782	9,500
Accrued expenses and other current liabilities	30,209	27,350
Profit-sharing distributions payable	1,503	2,512
Customer payables	27,762	29,802
Total current liabilities	68,256	69,164
Long-term liabilities	3,221	3,322
Total liabilities	71,477	72,486
Stockholders' equity:
Common stock, $0.001 par value; 120,000,000 shares authorized; 30,606,566 shares issued and outstanding at March 31, 2016; 30,026,223 shares issued and outstanding at September 30, 2015	29	29
Additional paid-in capital	215,672	210,712
Accumulated other comprehensive loss	(4,963)	(5,626)
Retained earnings	4,840	10,887
Total stockholders' equity	215,578	216,002
Total liabilities and stockholders' equity	$ 287,055	$ 288,488

XML

Unaudited Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2016	Sep. 30, 2015
Unaudited Consolidated Balance Sheets
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 557	$ 471
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	120,000,000	120,000,000
Common stock, shares issued	30,606,566	30,026,223
Common stock, shares outstanding	30,606,566	30,026,223

XML

Unaudited Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Unaudited Consolidated Statements of Operations
Revenue	$ 66,423	$ 83,286	$ 116,608	$ 181,449
Fee revenue	20,455	19,657	36,145	46,637
Total revenue	86,878	102,943	152,753	228,086
Costs and expenses:
Cost of goods sold	39,927	42,661	66,810	96,976
Profit-sharing distributions	2,506	7,558	4,863	17,150
Technology and operations	24,678	24,747	47,486	51,625
Sales and marketing	9,148	10,798	18,608	21,183
General and administrative	10,466	11,374	20,534	20,902
Amortization of contract intangibles				1,211
Depreciation and amortization	1,660	1,994	3,332	3,986
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets			39	96,238
Total costs and expenses	88,385	99,132	161,672	309,271
(Loss) income from operations	(1,507)	3,811	(8,919)	(81,185)
Interest and other income (expense), net	390	(39)	451	(77)
(Loss) income before provision for income taxes	(1,117)	3,772	(8,468)	(81,262)
Benefit (provision) for income taxes	267	(2,391)	2,421	18,527
Net (loss) income	$ (850)	$ 1,381	$ (6,047)	$ (62,735)
Basic (loss) earnings per common share	$ (0.03)	$ 0.05	$ (0.20)	$ (2.09)
Diluted (loss) earnings per common share	$ (0.03)	$ 0.05	$ (0.20)	$ (2.09)
Basic weighted average shares outstanding (in shares)	30,594,940	29,988,324	30,542,520	29,957,298
Diluted weighted average shares outstanding (in shares)	30,594,940	29,988,324	30,542,520	29,957,298

XML

Unaudited Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Unaudited Consolidated Statements of Comprehensive Income
Net (loss) income	$ (850)	$ 1,381	$ (6,047)	$ (62,735)
Other comprehensive income (loss):
Foreign currency translation	1,421	(1,157)	663	(3,113)
Other comprehensive income (loss), net of taxes	1,421	(1,157)	663	(3,113)
Comprehensive income (loss)	$ 571	$ 224	$ (5,384)	$ (65,848)

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Unaudited Consolidated Statements of Changes in Stockholders' Equity - 6 months ended Mar. 31, 2016 - USD ($) $ in Thousands	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Loss	Retained Earnings	Total
Balance at Sep. 30, 2015	$ 29	$ 210,712	$ (5,626)	$ 10,887	$ 216,002
Balance (in shares) at Sep. 30, 2015	30,026,223
Increase (Decrease) in Stockholders' Equity
Vesting of restricted stock (in shares)	580,343
Compensation expense and incremental tax benefit from grants of common stock options and restricted stock		4,960			4,960
Net loss				(6,047)	(6,047)
Foreign currency translation			663		663
Balance at Mar. 31, 2016	$ 29	$ 215,672	$ (4,963)	$ 4,840	$ 215,578
Balance (in shares) at Mar. 31, 2016	30,606,566

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Unaudited Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Operating activities
Net loss	$ (6,047)	$ (62,735)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,332	5,197
Stock compensation expense	5,144	5,412
Provision (benefit) for inventory allowance	1,399	(2,463)
Provision for doubtful accounts	86	1,205
Deferred tax benefit	(2,421)	(22,145)
Impairment of goodwill and long-lived assets		96,238
Incremental tax benefit from exercise of common stock options	213	(65)
Changes in operating assets and liabilities:
Accounts receivable	(1,085)	5,957
Inventory	(8,075)	29,246
Prepaid and deferred taxes	34,641	1,164
Prepaid expenses and other assets	(1,509)	182
Accounts payable	(718)	(308)
Accrued expenses and other	2,866	(16,390)
Profit-sharing distributions payable	(1,008)	285
Customer payables	(2,040)	(10,849)
Other liabilities	(79)	(987)
Net cash provided by operating activities	24,699	28,944
Investing activities
Increase in intangibles	(35)	(9)
Purchases of property and equipment	(2,723)	(5,095)
Net cash used in investing activities	(2,758)	(5,104)
Financing activities
Proceeds from exercise of common stock options (net of tax)		107
Incremental tax benefit from exercise of common stock options	(213)	65
Net cash (used) provided by financing activities	(213)	172
Effect of exchange rate differences on cash and cash equivalents	335	(379)
Net increase in cash and cash equivalents	22,063	23,633
Cash and cash equivalents at beginning of period	95,465	62,598
Cash and cash equivalents at end of period	117,528	86,231
Supplemental disclosure of cash flow information
Cash (received) paid for income taxes, net	$ (34,652)	$ 2,453

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Organization

6 Months Ended

Mar. 31, 2016

Organization

Organization

1.Organization

Liquidity Services, Inc. and its subsidiaries (the “Company”) operate leading auction marketplaces for surplus and salvage assets.  The Company 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, the Company 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. The Company organizes the products on its marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. The Company’s 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. The Company has one reportable segment consisting of operating auction marketplaces for sellers and buyers of surplus, salvage and scrap assets.

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Summary of Significant Accounting Policies

6 Months Ended

Mar. 31, 2016

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2.Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation have been included. The information disclosed in the notes to the consolidated financial statements for these periods is unaudited. Operating results for the three and six months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending September 30, 2016 or for any future period.  Fee revenue is revenue earned under the consignment model, as well as other fee revenue, and is presented separately as it accounts for more than 10% of total revenue.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which supersedes most existing revenue recognition guidance under GAAP. The new standard will change the way the Company recognizes revenue and significantly expand the disclosure requirements for revenue arrangements.  In July 2015, the FASB delayed the effective date of the new standard such that the new standard will be effective for the Company beginning on October 1, 2018, 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.  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 Company’s consolidated financial statements and related disclosures.

In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides guidance regarding whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the software license element of the arrangement must be accounted for in a manner consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement must be accounted for as a service contract. ASU 2015-05 does not change the accounting for service contracts. ASU 2015-05 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is 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 Company’s consolidated financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases.  ASU 2016-02 will change the way the Company recognizes its leased assets.  ASU 2016-02 will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities representing the rights and obligations created by those leases. ASU 2016-02 will also require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The standard will be effective for the Company beginning on October 1, 2019.  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 Company’s consolidated financial statements and related disclosures.

In March, 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718). The new standard will change certain aspects of accounting for share-based payments to employees. Under the new standard, the Company will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, the Company will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when the awards vest or are settled. The APIC pools will be eliminated. For interim reporting purposes, the Company will account for excess tax benefits and tax deficiencies as discrete items in the period in which they occur. The new standard will also allow the Company to repurchase more of an employee’s shares than it can today for income tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The new guidance will require the Company to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. The standard will be effective for the Company beginning on October 1, 2017.

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.

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, as well as for inventory written down to expected market price, are included in cost of goods sold in the period in which they have been determined to occur.  As of March 31, 2016 and September 30, 2015, the Company’s inventory reserve was approximately $2.2 million and $0.8 million, respectively.

Earnings per Share

The Company calculates net income (loss) per share in accordance with FASB Accounting Standards Codification (“ASC”) Topic 260 Earnings Per Share (“ASC 260”). Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options and unvested restricted stock awards. The dilutive effect of unexercised stock options and unvested restricted stock awards was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded in additional paid-in capital when stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock awards are not included in the computation of diluted net income (loss) per share when they are antidilutive.

For the three and six months ended March 31, 2016, the basic and diluted weighted average common shares were the same because the inclusion of dilutive securities would have been anti-dilutive.  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. See Note 8 for outstanding stock options and unvested restricted stock, all of which are anti-dilutive.

The following summarizes the basic and diluted income per share:

	Three Months Ended March 31,					Six Months Ended March 31,
	2016			2015		2016			2015
	(unaudited)
	(dollars in thousands, except per share amounts)
Weighted average shares calculation:
Basic weighted average shares outstanding	30,594,940			29,988,324		30,542,520			29,957,298
Treasury stock effect of options and restricted stock	—			—		—			—
Diluted weighted average common shares outstanding	30,594,940			29,988,324		30,542,520			29,957,298
Net (loss) income	$	(850	)	$	1,381	$	(6,047	)	$	(62,735	)
Basic (loss) income per common share	$	(0.03	)	$	0.05	$	(0.20	)	$	(2.09	)
Diluted (loss) income per common share	$	(0.03	)	$	0.05	$	(0.20	)	$	(2.09	)

Stock-Based Compensation

The Company estimates the fair value of share-based awards on the date of grant. The fair value of stock options and stock appreciation rights 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 stock appreciation rights 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, 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 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 vesting 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 options and 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 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.

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Defense Logistics Agency (DLA) Disposition Services Contracts

6 Months Ended

Mar. 31, 2016

Significant Contracts

Defense Logistics Agency (DLA) Disposition Services Contracts

3.Defense Logistics Agency (DLA) Disposition Services Contracts

The Company has a Surplus Contract with the DLA Disposition Services under which the Company is the remarketer of all Department of Defense (DoD) non-rolling stock surplus turned into the DLA available for sale within the United States, Puerto Rico, and Guam.  The Surplus Contract requires the Company to purchase all usable surplus property offered to the Company by the Department of Defense (DoD) at a fixed percentage of the DoD’s original acquisition value (OAV). This fixed percentage is 4.35%; prior to the date the current Surplus Contract became effective, this fixed percentage was 1.8%. 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 is a liability to the DoD of approximately $7,531,000 and $2,026,000 for inventory as of March 31, 2016 and September 30, 2015, respectively. The Surplus Contract contains a provision providing for a mutual termination of the contract for convenience.  The initial two-year base period ends in December 2016.  There are three one-year options to extend, exercisable by DLA Disposition Services.

The Company has a Scrap Contract with the DLA under which the Company is the remarketer of all DoD scrap turned into the DLA available for sale within the United States, Puerto Rico, and Guam.

DLA Disposition Services initiated an Invitation to Bid for the next Scrap Contract, which will be a three year contract with two one-year options.  DLA Disposition Services solicited bids in February 2016, and awarded the contract to the Company in April 2016. See Note 15, Subsequent Event.

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Goodwill

6 Months Ended

Mar. 31, 2016

Goodwill.

Goodwill

4.Goodwill

The goodwill of acquired companies is primarily related to the acquisition of an experienced and knowledgeable workforce.  The following summarizes goodwill activity for the periods indicated:

	Goodwill (in thousands)
Balance at September 30, 2015	$	64,073
Translation adjustments	348
Balance at March 31, 2016	$	64,421

Impairment of Goodwill

The Company performs its annual goodwill impairment assessment as of the end of the fiscal year.  The last impairment assessment was performed as of September 30, 2015 and the Company identified indicators of impairment, including a decline in the Company’s market capitalization. Goodwill impairment losses as of September 30, 2015, were $136.2 million, including $85.1 million recognized in the six months ended March 31, 2015.  During the six months ended March 31, 2016, the Company did not identify any additional indicators of impairment.

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Intangible Assets

6 Months Ended

Mar. 31, 2016

Intangible Assets

Intangible Assets

5.Intangible Assets

As a result of the acquisition of Jacobs Trading Company on October 1, 2011, the Company assumed the rights and obligations of Jacobs Trading Company under the seller’s Master Merchandise Salvage Contract with Wal-Mart Stores, Inc. (the “Wal-Mart Agreement”) dated May 13, 2011.  On December 1, 2014, Wal-Mart provided the Company with written notice terminating the Wal-Mart Agreement effective December 8, 2014.  As a result of the termination of the Wal-Mart Agreement, the Company concluded that the intangible asset related to the Wal-Mart Agreement was impaired and reduced the remaining unamortized contract intangible asset of $10.3 million to zero during the six months ended March 31, 2015.  This impairment charge is recorded in the Acquisition costs and the related fair value adjustments and impairment of goodwill and long-lived assets line item in the statements of operations.  Intangible assets at March 31, 2016 and September 30, 2015 consisted of the following:

		March 31, 2016							September  30, 2015
	Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(dollars in thousands)
Contract intangibles	10	$	1,500	$	(75	)	$	1,425	$	1,500	$	—		$	1,500
Brand and technology	3 - 5	5,749		(4,501		)	1,248		5,749		(3,926		)	1,823
Covenants not to compete	3 - 5	700		(483		)	217		700		(433		)	267
Patent and trademarks	3 - 10	808		(379		)	429		792		(331		)	461
Total intangible assets, net		$	8,757	$	(5,438	)	$	3,319	$	8,741	$	(4,690	)	$	4,051

Future expected amortization of intangible assets at March 31, 2016 is as follows:

	Future Amortization
Years ending September 30,	(in thousands)
2016 (remaining six months)	$	569
2017	1,193
2018	280
2019	206
2020 and after	1,071
Total	$	3,319

Intangible assets amortization expense was approximately $0.4 million and $0.5 million for the three months ended March 31, 2016 and 2015, respectively.  Intangible assets amortization expense was approximately $0.8 million and $2.2 million for the six months ended March 31, 2016 and 2015, respectively.

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Debt

6 Months Ended

Mar. 31, 2016

Debt

Debt

6.Debt

Senior Credit Facility

Effective March 25, 2016, the Company terminated its $75 million senior credit facility.  Borrowings under the Agreement bore interest at an annual rate equal to the 30 day LIBOR rate plus 1.25% (1.608% at December 31, 2015) due monthly.  The Company’s borrowing availability under the Facility as of September 30, 2015 and December 31, 2015 was $37.5 million.  There were no outstanding borrowings under the Facility at the time of its termination.

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Income Taxes

6 Months Ended

Mar. 31, 2016

Income Taxes

Income Taxes

7.Income Taxes

The Company’s interim effective income tax rate is based on management’s best current estimate of the expected annual effective income tax rate. The Company recorded a pre-tax loss in the first six months of fiscal year 2016 and its corresponding effective tax rate is approximately 28.6%.

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 2012 through 2015. The Company anticipates no material tax liability to arise from these examinations. The statute of limitations for U.S. federal income tax returns for years prior to fiscal 2012 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal 2012 may be adjusted upon examination by tax authorities if they are utilized.

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Stockholders' Equity

6 Months Ended

Mar. 31, 2016

Stockholders' Equity

Stockholders' Equity

8.Stockholders’ Equity

Share Repurchase Program

Since 2008, 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 the Company’s 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 did not repurchase any shares during the six months ended March 31, 2016 or 2015.  As of March 31, 2016, there was approximately $5.1 million that may yet be expended to repurchase shares under the program. In addition, the Company’s Board of Directors has approved the repurchase of an additional $5.0 million in shares raising the current amount approved for repurchase, that may yet be expended up to $10.1 million.

2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)

Under the 2006 Plan, as amended, 10,000,000 shares of common stock were available for issuance. At September 30, 2014, there were 772,227 shares remaining reserved for issuance in connection with awards under the 2006 Plan.  In February 2015, at the Company’s annual meeting of stockholders, the stockholders approved an amendment to the Plan which increased the shares available for issuance under the 2006 Plan by 3,000,000 shares and established a fungible share pool so that awards other than options or stock appreciation rights granted after January 9, 2015, would be counted as 1.5 shares from the shares reserved for issuance under the 2006 Plan. During the three and six months ended March 31, 2016, the Company canceled 92,499 options and 214,014 restricted shares with performance conditions because the Compensation Committee, which administers the 2006 Plan, determined the performance goals had become unachievable. At March 31, 2016, there were 202,905 shares remaining reserved for issuance in connection with awards under the 2006 Plan.

During fiscal year 2015, the Company issued 737,972 cash-settled stock appreciation rights at the price of $9.35, and 59,156 cash-settled stock appreciation rights were forfeited.  During the six months ended March 31, 2016, the Company issued 1,062,668 cash-settled stock appreciation rights at a price of $4.57 and 57,322 cash-settled stock appreciation rights were forfeited.  Stock appreciation rights are recorded as liability awards. 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 pursuant to an option or stock appreciation right, is 700,000 per year. The Company issues stock appreciation rights where restrictions lapse upon either the passage of time (service vesting), achieving performance targets, or some combination of these restrictions. For those stock appreciation rights 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. The stock appreciation rights that include only service conditions generally vest over a period of one to four years conditioned on continued employment for the incentive period.

Stock Option Activity

A summary of the Company’s stock option activity for the year ended September 30, 2015 and the six months ended March 31, 2016 is as follows:

	Options		Weighted- Average Exercise Price
Options outstanding at September 30, 2014	1,465,907		$	19.50
Options granted	310,177		9.92
Options exercised	(14,869	)	7.09
Options canceled	(288,572	)	20.26
Options outstanding at September 30, 2015	1,472,643		17.46
Options granted	583,228		6.68
Options exercised	—		—
Options canceled	(181,631	)	19.29
Options outstanding at March 31, 2016	1,874,240		13.93
Options exercisable at March 31, 2016	1,044,454		17.52

The intrinsic value and weighted average remaining contractual life in years of outstanding and exercisable options at March 31, 2016 is approximately $0 and 6.86 and $0 and 4.78, respectively, based on a stock price of $5.18 on March 31, 2016.  Over the last three years, volatility rates have ranged from 50.90% - 77.92%, the dividend rate has been 0%, risk free interest rates have ranged from 0.12% - 1.51% and expected forfeiture rates have ranged from 19.70% - 23.54%.

Restricted Share Activity

A summary of the Company’s restricted share activity for the year ended September 30, 2015 and the six months ended March 31, 2016 is as follows:

	Restricted Shares		Weighted- Average Fair Value
Unvested restricted shares at September 30, 2014	1,897,827		$	24.96
Restricted shares granted	1,298,604		10.04
Restricted shares vested	(343,204	)	27.50
Restricted shares canceled	(486,040	)	26.54
Unvested restricted shares at September 30, 2015	2,367,187		16.08
Restricted shares granted	1,428,867		5.45
Restricted shares vested	(580,343	)	16.31
Restricted shares canceled	(352,805	)	24.44
Unvested restricted shares at March 31, 2016	2,862,906		9.70

The intrinsic value and weighted average remaining contractual life in years of unvested restricted shares at March 31, 2016 is approximately $14.8 million and 8.99, respectively, based on a stock price of $5.18 on March 31, 2016.

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Fair Value Measurement

6 Months Ended

Mar. 31, 2016

Fair Value Measurement

Fair Value Measurement

9.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 1Quoted market prices in active markets for identical assets or liabilities;

Level 2Inputs other than Level 1 inputs that are either directly or indirectly observable; and

Level 3Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

As of March 31, 2016 and September 30, 2015, the Company had no Level 1, Level 2, or Level 3 assets or liabilities that were recorded at fair value on a recurring basis.

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 of these instruments approximates fair value due to the short term maturities.

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Defined Benefit Pension Plan

6 Months Ended

Mar. 31, 2016

Defined Benefit Pension Plan

Defined Benefit Pension Plan

10.Defined Benefit Pension Plan

Certain employees of GoIndustry, which the Company acquired in July 2012, are covered by the Henry Butcher Pension Fund and Life Assurance Scheme, a qualified defined benefit pension plan.

The net periodic benefit cost recognized for the three and six months ended March 31, 2016 and 2015 included the following components:

	Three Months Ended March 31,						Six Months Ended March 31,
Qualified Defined Benefit Pension Plan	2016			2015			2016			2015
	(dollars in thousands)
Service cost	—			—			—			—
Interest cost	$	207		$	245		$	429		$	493
Expected return on plan assets	(269		)	(299		)	(552		)	(598		)
Amortization of prior service cost	—			—			—			—
Amortization of actuarial (gain)/loss	—			—			—			—
Amortization of transitional obligation/(asset)	—			—			—			—
Total net periodic (benefit) cost	$	(62	)	$	(54	)	$	(123	)	$	(105	)

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Guarantees

6 Months Ended

Mar. 31, 2016

Guarantees

Guarantees

11.Guarantees

During the second quarter of 2015, the Company issued a guarantee to GoIndustry (UK) Limited (the “Subsidiary”) and the Trustees (the “Trustees”) of the Henry Butcher Pension Fund and Life Assurance Scheme (the “Scheme”). Under the arrangement, the Company irrevocably and unconditionally (a) guarantees to the Trustees punctual performance by the Subsidiary of all its Guaranteed Obligations, defined as all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally in any capacity whatsoever) of the Company to make payments to the Scheme up to a maximum of 10 million British pounds, (b) undertakes with the Trustees that, whenever the Subsidiary does not pay any amount when due in respect of its Guaranteed Obligations, it must immediately on demand by the Trustees pay that amount as if it were the principal obligor; and (c) indemnifies the Trustees as an independent and primary obligation immediately on demand against any cost, charge, expense, loss or liability suffered or incurred by the Trustees if any payment obligation guaranteed by it is or becomes unenforceable, invalid or illegal; the amount of the cost, charge, expense, loss or liability under this indemnity will be equal to the amount the Trustees would otherwise have been entitled to recover on the basis of a guarantee.  The guarantee is a continuing guarantee that will extend to the ultimate balance of all sums payable by the Company in respect of its Guaranteed Obligations.  The funded status of the Scheme as of September 30, 2015, was disclosed in Note 14, Defined Benefit Pension Plan, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015.

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Business Realignment Expenses

6 Months Ended

Mar. 31, 2016

Business Realignment Expenses

Business Realignment Expenses

12.Business Realignment Expenses

On October 1, 2014, the Company announced that it had realigned its workforce in response to the new terms and scope of the current Surplus Contract 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 included employee reductions across the organization. Business realignment expenses during the fiscal year ended September 30, 2014, included costs of $1.8 million in employee severance and benefit costs. In September 2015, the Company evaluated its business realignment effort which resulted in a net increase of $0.3 million in accrued expense primarily due to timing changes in commencement of the current Surplus Contract and the delay in the wind-down of the NESA business.

The table below sets forth the significant components and activity in the business realignment initiatives during the six months ended March 31, 2016.

	Liability Balance at September 30, 2015		Business Realignment Expenses			Cash Payments			Liability Balance at March 31, 2016 (dollars in thousands)
Employee severance and benefit costs for fiscal 2014 accrual	$	356	$	(20	)	$	(271	)	$	65
Employee severance and benefit costs for fiscal 2015 accrual	489		(75		)	(409		)	5
Total	$	845	$	(95	)	$	(680	)	$	70

The business realignment expenses are recorded in costs and expenses from operations in the statement of operations, and in accrued expenses and other current liabilities on the balance sheet as of March 31, 2016 and September 30, 2015.

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Legal Proceedings

6 Months Ended

Mar. 31, 2016

Legal Proceedings

Legal Proceedings

13.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, former chief financial officer, and former chief accounting officer, on behalf of stockholders 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 Dépôt et Placement du Québec and the Newport News Employees’ Retirement Fund as co-lead plaintiffs.  The Plaintiffs filed an amended complaint on December 15, 2014, which alleges substantially similar claims but which does not name the chief accounting officer as a defendant.  On March 2, 2015, the Company moved to dismiss the amended complaint for failure to state a claim or plead fraud with the requisite particularity.  On March 31, 2016, the Court granted that motion in part and denied it in part.  The Company has until May 16, 2016, to answer the amended complaint.  The Company believes the allegations in the amended complaint are without merit and cannot estimate a range of potential liability, if any, at this time.

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Termination of the Wal-Mart Agreement

6 Months Ended

Mar. 31, 2016

Termination of the Wal-Mart Agreement

Termination of the Wal-Mart Agreement

14.Termination of the Wal-Mart Agreement

As a result of the acquisition of Jacobs Trading Company on October 1, 2011, the Company assumed the rights and obligations of Jacobs Trading Company under the seller’s Master Merchandise Salvage Contract with Wal-Mart Stores, Inc. (the “Wal-Mart Agreement”) dated May 13, 2011.  On December 1, 2014, Wal-Mart provided the Company written notice (the “Termination Notice”) terminating the Wal-Mart Agreement effective December 8, 2014.  The Termination Notice alleged that the Company failed to comply with certain provisions under the Wal-Mart Agreement with respect to service level requirements and restrictions on the disposition of merchandise. The Company disputed these allegations and contested the termination of the Wal-Mart Agreement with Wal-Mart.  As a result of negotiations with Wal-Mart, on January 22, 2015, a settlement was finalized whereby, in exchange for both parties waiving all respective claims against the other, Wal-Mart agreed to pay $7.5 million in damages. The payment was received from Wal-Mart in February 2015.

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Subsequent Event

6 Months Ended

Mar. 31, 2016

Subsequent Event

Subsequent Event

15.Subsequent Event

On April 8, 2016, the DLA awarded the next scrap contract to the Company.  Under the new Scrap Contract, the Company will acquire scrap property from the DLA and pay the DLA a revenue-sharing payment equal to 64.5% of the gross resale proceeds. The Company will bear all of the costs for the sorting, merchandising and sale of the property. The new Scrap Contract has a 36-month base term, commencing in the fourth quarter of fiscal year 2016 or the first quarter of fiscal year 2017, with two 12-month extension options exercisable by the DLA.

As disclosed in the Company’s Current Report on Form 8-K filed on May 5, 2016, the Company’s Board of Directors has approved the repurchase of an additional $5.0 million in shares raising the current amount approved for repurchase, that may yet be expended up to $10.1 million.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2016

Summary of Significant Accounting Policies

Unaudited Interim Financial Information

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation have been included. The information disclosed in the notes to the consolidated financial statements for these periods is unaudited. Operating results for the three and six months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending September 30, 2016 or for any future period.  Fee revenue is revenue earned under the consignment model, as well as other fee revenue, and is presented separately as it accounts for more than 10% of total revenue.

New Accounting Pronouncements

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which supersedes most existing revenue recognition guidance under GAAP. The new standard will change the way the Company recognizes revenue and significantly expand the disclosure requirements for revenue arrangements.  In July 2015, the FASB delayed the effective date of the new standard such that the new standard will be effective for the Company beginning on October 1, 2018, 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.  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 Company’s consolidated financial statements and related disclosures.

In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides guidance regarding whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the software license element of the arrangement must be accounted for in a manner consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement must be accounted for as a service contract. ASU 2015-05 does not change the accounting for service contracts. ASU 2015-05 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is 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 Company’s consolidated financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases.  ASU 2016-02 will change the way the Company recognizes its leased assets.  ASU 2016-02 will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities representing the rights and obligations created by those leases. ASU 2016-02 will also require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The standard will be effective for the Company beginning on October 1, 2019.  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 Company’s consolidated financial statements and related disclosures.

In March, 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718). The new standard will change certain aspects of accounting for share-based payments to employees. Under the new standard, the Company will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, the Company will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when the awards vest or are settled. The APIC pools will be eliminated. For interim reporting purposes, the Company will account for excess tax benefits and tax deficiencies as discrete items in the period in which they occur. The new standard will also allow the Company to repurchase more of an employee’s shares than it can today for income tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The new guidance will require the Company to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. The standard will be effective for the Company beginning on October 1, 2017.

Business Combinations

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.

Accounts Receivable

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

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, as well as for inventory written down to expected market price, are included in cost of goods sold in the period in which they have been determined to occur.  As of March 31, 2016 and September 30, 2015, the Company’s inventory reserve was approximately $2.2 million and $0.8 million, respectively.

Earnings per Share

Earnings per Share

The Company calculates net income (loss) per share in accordance with FASB Accounting Standards Codification (“ASC”) Topic 260 Earnings Per Share (“ASC 260”). Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options and unvested restricted stock awards. The dilutive effect of unexercised stock options and unvested restricted stock awards was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded in additional paid-in capital when stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock awards are not included in the computation of diluted net income (loss) per share when they are antidilutive.

For the three and six months ended March 31, 2016, the basic and diluted weighted average common shares were the same because the inclusion of dilutive securities would have been anti-dilutive.  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. See Note 8 for outstanding stock options and unvested restricted stock, all of which are anti-dilutive.

The following summarizes the basic and diluted income per share:

	Three Months Ended March 31,					Six Months Ended March 31,
	2016			2015		2016			2015
	(unaudited)
	(dollars in thousands, except per share amounts)
Weighted average shares calculation:
Basic weighted average shares outstanding	30,594,940			29,988,324		30,542,520			29,957,298
Treasury stock effect of options and restricted stock	—			—		—			—
Diluted weighted average common shares outstanding	30,594,940			29,988,324		30,542,520			29,957,298
Net (loss) income	$	(850	)	$	1,381	$	(6,047	)	$	(62,735	)
Basic (loss) income per common share	$	(0.03	)	$	0.05	$	(0.20	)	$	(2.09	)
Diluted (loss) income per common share	$	(0.03	)	$	0.05	$	(0.20	)	$	(2.09	)

Stock-Based Compensation

Stock-Based Compensation

The Company estimates the fair value of share-based awards on the date of grant. The fair value of stock options and stock appreciation rights 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 stock appreciation rights 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, 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 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 vesting 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 options and 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 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.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Mar. 31, 2016

Summary of Significant Accounting Policies

Summary of the basic and diluted income per share

	Three Months Ended March 31,					Six Months Ended March 31,
	2016			2015		2016			2015
	(unaudited)
	(dollars in thousands, except per share amounts)
Weighted average shares calculation:
Basic weighted average shares outstanding	30,594,940			29,988,324		30,542,520			29,957,298
Treasury stock effect of options and restricted stock	—			—		—			—
Diluted weighted average common shares outstanding	30,594,940			29,988,324		30,542,520			29,957,298
Net (loss) income	$	(850	)	$	1,381	$	(6,047	)	$	(62,735	)
Basic (loss) income per common share	$	(0.03	)	$	0.05	$	(0.20	)	$	(2.09	)
Diluted (loss) income per common share	$	(0.03	)	$	0.05	$	(0.20	)	$	(2.09	)

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Goodwill (Tables)

6 Months Ended

Mar. 31, 2016

Goodwill.

Summary of goodwill activity

	Goodwill (in thousands)
Balance at September 30, 2015	$	64,073
Translation adjustments	348
Balance at March 31, 2016	$	64,421

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Intangible Assets (Tables)

6 Months Ended

Mar. 31, 2016

Intangible Assets

Schedule of intangible assets

		March 31, 2016							September  30, 2015
	Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(dollars in thousands)
Contract intangibles	10	$	1,500	$	(75	)	$	1,425	$	1,500	$	—		$	1,500
Brand and technology	3 - 5	5,749		(4,501		)	1,248		5,749		(3,926		)	1,823
Covenants not to compete	3 - 5	700		(483		)	217		700		(433		)	267
Patent and trademarks	3 - 10	808		(379		)	429		792		(331		)	461
Total intangible assets, net		$	8,757	$	(5,438	)	$	3,319	$	8,741	$	(4,690	)	$	4,051

Schedule of future expected amortization of intangible assets

	Future Amortization
Years ending September 30,	(in thousands)
2016 (remaining six months)	$	569
2017	1,193
2018	280
2019	206
2020 and after	1,071
Total	$	3,319

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Stockholders' Equity (Tables)

6 Months Ended

Mar. 31, 2016

Stockholders' Equity

Summary of stock option activity

	Options		Weighted- Average Exercise Price
Options outstanding at September 30, 2014	1,465,907		$	19.50
Options granted	310,177		9.92
Options exercised	(14,869	)	7.09
Options canceled	(288,572	)	20.26
Options outstanding at September 30, 2015	1,472,643		17.46
Options granted	583,228		6.68
Options exercised	—		—
Options canceled	(181,631	)	19.29
Options outstanding at March 31, 2016	1,874,240		13.93
Options exercisable at March 31, 2016	1,044,454		17.52

Summary of restricted share activity

	Restricted Shares		Weighted- Average Fair Value
Unvested restricted shares at September 30, 2014	1,897,827		$	24.96
Restricted shares granted	1,298,604		10.04
Restricted shares vested	(343,204	)	27.50
Restricted shares canceled	(486,040	)	26.54
Unvested restricted shares at September 30, 2015	2,367,187		16.08
Restricted shares granted	1,428,867		5.45
Restricted shares vested	(580,343	)	16.31
Restricted shares canceled	(352,805	)	24.44
Unvested restricted shares at March 31, 2016	2,862,906		9.70

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Defined Benefit Pension Plan (Tables)

6 Months Ended

Mar. 31, 2016

Defined Benefit Pension Plan

Schedule of net periodic benefit cost recognized

	Three Months Ended March 31,						Six Months Ended March 31,
Qualified Defined Benefit Pension Plan	2016			2015			2016			2015
	(dollars in thousands)
Service cost	—			—			—			—
Interest cost	$	207		$	245		$	429		$	493
Expected return on plan assets	(269		)	(299		)	(552		)	(598		)
Amortization of prior service cost	—			—			—			—
Amortization of actuarial (gain)/loss	—			—			—			—
Amortization of transitional obligation/(asset)	—			—			—			—
Total net periodic (benefit) cost	$	(62	)	$	(54	)	$	(123	)	$	(105	)

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Business Realignment Expenses (Tables)

6 Months Ended

Mar. 31, 2016

Business Realignment Expenses

Schedule of significant components and activity in business realignment initiatives

	Liability Balance at September 30, 2015		Business Realignment Expenses			Cash Payments			Liability Balance at March 31, 2016 (dollars in thousands)
Employee severance and benefit costs for fiscal 2014 accrual	$	356	$	(20	)	$	(271	)	$	65
Employee severance and benefit costs for fiscal 2015 accrual	489		(75		)	(409		)	5
Total	$	845	$	(95	)	$	(680	)	$	70

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Organization (Details)	6 Months Ended
	Mar. 31, 2016 segment category
Organization
Minimum number of product categories offered (in categories) | category	500
Reportable segments (in segments) | segment	1

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Summary of Significant Accounting Policies - Inventory and Earnings Per Share (Details) - USD ($) $ in Millions	Mar. 31, 2016	Sep. 30, 2015
Inventory
Inventory reserve	$ 2.2	$ 0.8

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Summary of Significant Accounting Policies - Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Weighted average shares calculation:
Basic weighted average shares outstanding	30,594,940	29,988,324	30,542,520	29,957,298
Diluted weighted average common shares outstanding	30,594,940	29,988,324	30,542,520	29,957,298
Net (loss) income	$ (850)	$ 1,381	$ (6,047)	$ (62,735)
Basic (loss) income per common share (in dollars per share)	$ (0.03)	$ 0.05	$ (0.20)	$ (2.09)
Diluted (loss) income per common share (in dollars per share)	$ (0.03)	$ 0.05	$ (0.20)	$ (2.09)

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Defense Logistics Agency (DLA) Disposition Services Contracts (Details)	3 Months Ended	6 Months Ended
	Mar. 31, 2016 USD ($) Option	Mar. 31, 2016 USD ($) Option	Sep. 30, 2015 USD ($)
Significant Contracts
Liability for inventory included in accrued expenses and other current liabilities | $	$ 30,209,000	$ 30,209,000	$ 27,350,000
Non-rolling stock
Significant Contracts
Usable surplus property to be purchased as a fixed percentage of DoD's original acquisition value	1.80%
Surplus Contract
Significant Contracts
Base Period	2 years
Number of extended renewal options | Option	3
Term of each renewal options extended	1 year
Surplus Contract | U.S. Department of Defense
Significant Contracts
Liability for inventory included in accrued expenses and other current liabilities | $	$ 7,531,000	$ 7,531,000	$ 2,026,000
Surplus Contract | Non-rolling stock
Significant Contracts
Usable surplus property to be purchased as a fixed percentage of DoD's original acquisition value	4.35%
Profits from resale of the property retained (as a percent)	100.00%
Invitation to Bid
Significant Contracts
Term of contract		3 years
Number of renewal options | Option		2
Term of renewal options		1 year

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Goodwill (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Sep. 30, 2015
Goodwill
Balance at the beginning of the period	$ 64,073
Translation adjustments	348
Balance at the end of the period	$ 64,421		$ 64,073
Impairment of goodwill		$ 85,100	$ 136,200

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Intangible Assets - Carrying Amount (Details) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Sep. 30, 2015
Intangible Assets
Gross Carrying Amount	$ 8,757		$ 8,741
Accumulated Amortization	(5,438)		(4,690)
Total	$ 3,319		4,051
Contract intangibles
Intangible Assets
Estimated useful life	10 years
Gross Carrying Amount	$ 1,500		1,500
Accumulated Amortization	(75)
Total	1,425	$ 0	1,500
Contract intangibles | Contract Termination
Intangible Assets
Write off of intangible asset		$ 10,300
Brand and technology
Intangible Assets
Gross Carrying Amount	5,749		5,749
Accumulated Amortization	(4,501)		(3,926)
Total	$ 1,248		1,823
Brand and technology | Minimum
Intangible Assets
Estimated useful life	3 years
Brand and technology | Maximum
Intangible Assets
Estimated useful life	5 years
Covenants not to compete
Intangible Assets
Gross Carrying Amount	$ 700		700
Accumulated Amortization	(483)		(433)
Total	$ 217		267
Covenants not to compete | Minimum
Intangible Assets
Estimated useful life	3 years
Covenants not to compete | Maximum
Intangible Assets
Estimated useful life	5 years
Patent and trademarks
Intangible Assets
Gross Carrying Amount	$ 808		792
Accumulated Amortization	(379)		(331)
Total	$ 429		$ 461
Patent and trademarks | Minimum
Intangible Assets
Estimated useful life	3 years
Patent and trademarks | Maximum
Intangible Assets
Estimated useful life	10 years

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Intangible Assets - Amortization (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015	Sep. 30, 2015
Future expected amortization of intangible assets
2016 (remaining six months)	$ 569		$ 569
2017	1,193		1,193
2018	280		280
2019	206		206
2020 and after	1,071		1,071
Total	3,319		3,319		$ 4,051
Amortization expense	$ 400	$ 500	$ 800	$ 2,200

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Debt (Details) - Senior Credit Facility - USD ($) $ in Millions	6 Months Ended
	Mar. 31, 2016	Mar. 25, 2016	Dec. 31, 2015	Sep. 30, 2015
Debt
Credit facility terminated		$ 75.0
Available borrowing capacity			$ 37.5	$ 37.5
Amount outstanding		$ 0.0
LIBOR
Debt
Percentage added to reference rate	1.25%
Interest rate at period end (as a percent)			1.608%

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Income Taxes (Details) $ in Millions	Mar. 31, 2016 USD ($)
Income Taxes
Expected effective tax rate (as a percent)	28.60%
Uncertain tax positions	$ 0.0

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Stockholders' Equity - Repurchase Program (Details) - USD ($) $ in Millions	May. 05, 2016	Mar. 31, 2016
Share repurchase program approved amount		$ 101.9
Amount yet to be expended under the program		$ 5.1
Subsequent Event
Share repurchase program approved amount	$ 5.0
Amount yet to be expended under the program	$ 10.1

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Stockholders' Equity - 2006 Plan (Details) - $ / shares	1 Months Ended	3 Months Ended	6 Months Ended	12 Months Ended
	Feb. 28, 2015	Mar. 31, 2016	Mar. 31, 2016	Sep. 30, 2015	Jan. 09, 2015	Sep. 30, 2014
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Shares available for issuance		10,000,000	10,000,000
Remaining shares reserved for issuance		202,905	202,905			772,227
Increase in shares available for issuance	3,000,000
Reserve shares counted per share granted from fungible share pool (in shares)					1.5
Options canceled (in shares)		92,499	92,499
Forfeited (in shares)		214,014	214,014
Employee and director options
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Options granted (in shares)			583,228	310,177
Options granted, exercise prices (in dollars per share)			$ 6.68	$ 9.92
Options forfeited (in shares)			181,631	288,572
Employee and director options | Minimum
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Shares and options vesting period			1 year
Employee and director options | Maximum
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Shares and options vesting period			4 years
Restricted shares
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Granted (in shares)			1,428,867	1,298,604
Granted (in dollars per share)			$ 5.45	$ 10.04
Forfeited (in shares)			352,805	486,040
Restricted shares | Minimum
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Shares and options vesting period			1 year
Restricted shares | Maximum
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Shares and options vesting period			4 years
Options or stock appreciation rights | Maximum
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Number of shares awarded per person per year			1,000,000
Other than options or stock appreciation rights | Maximum
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Number of shares awarded per person per year			700,000
Cash-settled stock appreciation rights
2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)
Granted (in shares)			1,062,668	737,972
Granted (in dollars per share)			$ 4.57	$ 9.35
Forfeited (in shares)		57,322	57,322	59,156

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Stockholders' Equity - 2006 Plan Activity (Details) - Employee and director options - $ / shares	6 Months Ended	12 Months Ended
	Mar. 31, 2016	Sep. 30, 2015
Stock option activity
Options outstanding at the beginning of the period (in shares)	1,472,643	1,465,907
Options granted (in shares)	583,228	310,177
Options exercised (in shares)		(14,869)
Options cancelled (in shares)	(181,631)	(288,572)
Options outstanding at the end of the period (in shares)	1,874,240	1,472,643
Options exercisable at the end of the period (in shares)	1,044,454
Weighted-Average Exercise Price
Options outstanding at the beginning of the period (in dollars per share)	$ 17.46	$ 19.50
Options granted (in dollars per share)	6.68	9.92
Options exercised (in dollars per share)		7.09
Options cancelled (in dollars per share)	19.29	20.26
Options outstanding at the end of the period (in dollars per share)	13.93	$ 17.46
Options exercisable at the end of the period (in dollars per share)	$ 17.52

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Stockholders' Equity - Intrinsic Value and Valuation Assumptions (Details) - Employee and director options	6 Months Ended	36 Months Ended
	Mar. 31, 2016 USD ($) $ / shares	Mar. 31, 2016 USD ($) $ / shares
Intrinsic value and weighted average remaining contractual life in years of outstanding and exercisable options
Intrinsic value of outstanding shares	$ 0	$ 0
Weighted average remaining contractual life of outstanding options	6 years 10 months 10 days
Intrinsic value of exercisable options	$ 0	$ 0
Weighted average remaining contractual life of exercisable options	4 years 9 months 11 days
Stock price (in dollars per share) | $ / shares	$ 5.18	$ 5.18
Fair value assumptions
Expected volatility, minimum (as a percent)		50.90%
Expected volatility, maximum (as a percent)		77.92%
Dividend yield (as a percent)		0.00%
Risk free interest rate, minimum (as a percent)		0.12%
Risk free interest rate, maximum (as a percent)		1.51%
Minimum
Fair value assumptions
Expected forfeiture rate (as a percent)		19.70%
Maximum
Fair value assumptions
Expected forfeiture rate (as a percent)		23.54%

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Stockholders' Equity - Restricted Share Activity (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended	6 Months Ended	12 Months Ended
	Mar. 31, 2016	Mar. 31, 2016	Sep. 30, 2015
Restricted share activity
Restricted shares cancelled	(214,014)	(214,014)
Restricted shares
Restricted share activity
Unvested restricted shares at the beginning of the period		2,367,187	1,897,827
Restricted shares granted		1,428,867	1,298,604
Restricted shares vested		(580,343)	(343,204)
Restricted shares cancelled		(352,805)	(486,040)
Unvested restricted shares at the end of the period	2,862,906	2,862,906	2,367,187
Weighted-Average Fair Value
Unvested restricted shares at the beginning of the period (in dollars per share)		$ 16.08	$ 24.96
Granted (in dollars per share)		5.45	10.04
Restricted shares vested (in dollars per share)		16.31	27.50
Restricted shares cancelled (in dollars per share)		24.44	26.54
Unvested restricted shares at the end of the period (in dollars per share)	$ 9.70	$ 9.70	$ 16.08
Unvested awards
Intrinsic value of unvested restricted shares	$ 14.8	$ 14.8
Weighted average remaining contractual life of unvested restricted shares		8 years 11 months 27 days
Stock price (in dollars per share)	$ 5.18	$ 5.18

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Fair Value Measurement (Details) - Recurring basis - USD ($) $ in Thousands	Mar. 31, 2016	Sep. 30, 2015
Level 1
Fair value measurement
Assets, fair value	$ 0	$ 0
Liabilities, fair value	0	0
Level 2
Fair value measurement
Assets, fair value	0	0
Liabilities, fair value	0	0
Level 3
Fair value measurement
Assets, fair value	0	0
Liabilities, fair value	$ 0	$ 0

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Defined Benefit Pension Plan (Details) - Defined benefit pension plan. - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Net periodic benefit cost recognized
Interest cost	$ 207	$ 245	$ 429	$ 493
Expected return on plan assets	(269)	(299)	(552)	(598)
Total net periodic (benefit) cost	$ (62)	$ (54)	$ (123)	$ (105)

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Guarantees (Details) £ in Millions	Mar. 31, 2016 GBP (£)
Guarantees
Guarantee Obligation Value, maximum	£ 10

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Business Realignment Expense (Details) - USD ($) $ in Thousands	1 Months Ended	6 Months Ended	12 Months Ended
	Sep. 30, 2015	Mar. 31, 2016	Sep. 30, 2014
Business realignment expenses rollforward
Employee severance and benefit costs			$ 1,800
Net increase	$ 300
Liability Balance, beginning		$ 845
Business Realignment Expenses		95
Cash Payments		(680)
Liability Balance, ending	845	70
Employee severance for fiscal year 2014
Business realignment expenses rollforward
Liability Balance, beginning		356
Business Realignment Expenses		20
Cash Payments		(271)
Liability Balance, ending	356	65
Employee severance for fiscal year 2015
Business realignment expenses rollforward
Liability Balance, beginning		489
Business Realignment Expenses		75
Cash Payments		(409)
Liability Balance, ending	$ 489	$ 5

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Termination of Wal Mart Agreement (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Sep. 30, 2015	Feb. 28, 2015
Accounts Receivable	$ 7,193	$ 6,194
Wal-Mart
Accounts Receivable			$ 7,500

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Subsequent Event (Details) $ in Millions	Apr. 08, 2016 Option	May. 05, 2016 USD ($)	Mar. 31, 2016 USD ($)
Subsequent Event
Share repurchase program approved amount			$ 101.9
Amount yet to be expended under the program			$ 5.1
Subsequent Event
Subsequent Event
Share repurchase program approved amount		$ 5.0
Amount yet to be expended under the program		$ 10.1
Subsequent Event | Scrap Contract
Subsequent Event
Percentage of revenue sharing distribution	64.50%
Contract Term	36 months
Number of Renewal Options | Option	2
Renewal Options Term	12 months